<PAGE>
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 Section240.14a-11(c) or
Section240.14a-12
FAROUDJA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/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:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
FAROUDJA, INC.
750 Palomar Avenue
Sunnyvale, California
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
The 1999 Annual Meeting of Stockholders of FAROUDJA, INC. (the "Company")
will be held at the offices of the Company, 750 Palomar Avenue, Sunnyvale,
California, on Thursday, June 10, 1999, beginning at 9:00 A.M. local time, for
the following purposes:
1. To elect one nominee to serve as director of the Company for a
three-year term and until his successor shall be elected and qualified;
2. To approve an amendment to the Company's 1997 Performance Stock Option
Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 16, 1999, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the meeting.
By Order of the Board of Directors.
/s/ Kenneth S. Boschwitz
Kenneth S. Boschwitz
VICE PRESIDENT--BUSINESS DEVELOPMENT,
GENERAL COUNSEL & SECRETARY
Sunnyvale, California
May 7, 1999
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING FORM OF
PROXY, SO THAT IF YOU ARE UNABLE TO ATTEND THE MEETING YOUR SHARES MAY
NEVERTHELESS BE VOTED. IF YOU DO ATTEND AND WISH TO VOTE IN PERSON, THE PROXY IS
REVOCABLE.
<PAGE>
FAROUDJA, INC.
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
---------------------
This Proxy Statement is furnished to the stockholders of FAROUDJA, INC. (the
"Company") in connection with the solicitation of proxies for use at the Annual
Meeting of Stockholders to be held at the offices of the Company, located at 750
Palomar Avenue, Sunnyvale, California, on June 10, 1999, beginning at 9:00 A.M.
local time, and at any adjournment thereof.
Proxies delivered pursuant to this solicitation are revocable at the option
of the persons executing the same, prior to their exercise, by attendance and
voting at the Annual Meeting or by written notice delivered to the Secretary of
the Company prior to the meeting, and are solicited by and on behalf of the
Board of Directors of the Company. Unless previously revoked, all proxies
representing shares entitled to vote which are delivered pursuant to this
solicitation will be voted at the meeting by the named attorneys-in-fact and
agents, to the extent authorized, in accordance with the directions contained
therein. If no such directions are given, the shares represented by such proxies
will be voted in favor of the election of one director and the proposed
amendment to the Company's 1997 Performance Stock Option Plan. The named proxies
may vote in their discretion upon such other matters as may properly come before
the meeting. Assuming a quorum is present in person or by proxy at the meeting,
with respect to the election of directors, the nominee receiving the greatest
number of votes cast will be elected to the Board. The affirmative vote of the
holders of a majority of the shares of common stock, $.001 par value per share
(the "Common Stock"), represented at the Annual Meeting is necessary for
approving the proposed amendment to the Company's 1997 Performance Stock Option
Plan.
For purposes of determining whether a matter has received a majority vote,
abstentions will be included in the vote totals. Abstention, therefore, has the
same effect as a negative vote. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned a
proxy, those shares will not be included in the vote totals and therefore will
have no effect on the vote.
The cost of this solicitation will be borne by the Company. Proxies may be
solicited by personal interview, telephone, telegraph, and by use of the mails.
Banks, brokerage houses and other custodians, nominees or fiduciaries will be
asked to forward soliciting material to their principals and to obtain
authorization for the execution of proxies, and will be reimbursed for their
reasonable out-of-pocket expenses incurred in that regard. Employees of the
Company participating in the solicitation of proxies will not receive any
additional remuneration.
On April 16, 1999, the Company had 12,242,597 shares of Common Stock
outstanding, and there were no outstanding shares of any other class of stock.
Each holder of the Common Stock is entitled to one vote for each share of such
stock held. Only stockholders of record at the close of business on April 16,
1999 will be entitled to vote at the Annual Meeting. A majority of the
outstanding shares, whether present in person or by proxy, is required for a
quorum to transact business at the meeting.
The Company intends to cause this Proxy Statement to be mailed to
stockholders on or about May 7, 1999.
<PAGE>
BENEFICIAL OWNERSHIP
OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of March 31,
1999 for (i) each person known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) the Chief Executive Officer and those persons who were, at December 31,
1998, the Company's four most highly compensated executive officers other than
the Chief Executive Officer (collectively, the "Named Executive Officers") and
(iv) all executive officers and directors as a group. As of March 31, 1999, a
total of 12,242,597 shares of the Company's Common Stock were issued and
outstanding. Except as indicated in the footnotes to the table, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable. Except as otherwise indicated, the address of
each of the persons in this table is as follows: c/o Faroudja, Inc., 750 Palomar
Avenue, Sunnyvale, California 94086.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
BENEFICIAL OWNER SHARES PERCENT
- -------------------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Yves C. Faroudja(2)......................................................................... 1,969,028 15.2%
Kevin B. Kimberlin(3)....................................................................... 1,146,655 8.9
Merv L. Adelson(4)(5)....................................................................... 945,029 7.3
Adelson Investors, LLC(4)(6)................................................................ 884,680 6.8
10900 Wilshire Boulevard
Los Angeles, California 90024
S3 Incorporated............................................................................. 833,334 6.4
2801 Mission College Boulevard
Santa Clara, California 95052
Oshkim Limited Partners, L.P.(3)............................................................ 789,205 6.1
Michael J. Moone(7)......................................................................... 288,463 2.2
Glenn W. Marschel(8)........................................................................ 235,116 1.8
William J. Turner(9)........................................................................ 199,779 1.5
William N. Sick, Jr.(10).................................................................... 146,147 1.1
Donald S. Butler(11)........................................................................ 95,168 *
Matthew D. Miller(12)....................................................................... 72,909 *
Thomas A. Harvey(13)........................................................................ 51,270 *
Kenneth S. Boschwitz(14).................................................................... 44,604 *
Stuart D. Buchalter(4)(15).................................................................. 15,993 *
All directors and executive officers as a group (14 persons)(16)............................ 5,110,665 39.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of March
31, 1999 are deemed outstanding.
(2) Mr. Faroudja holds 1,882,500 shares jointly with his spouse. Includes 77,778
shares issuable upon exercise of warrants and 8,750 shares issuable upon the
exercise of stock options exercisable within 60 days of March 31, 1999.
2
<PAGE>
(3) Mr. Kimberlin is the general partner of Oshkim Limited Partners, L.P. and
exercises voting and investment power over the shares held by this entity.
(4) Mr. Adelson is the Managing Member of Adelson Investors, LLC and exercises
sole voting and investment power over the shares held by that entity. Mr.
Buchalter is an officer of Adelson Investors, LLC and has an interest in the
profits of such firm, but does not exercise voting or investment power over
the shares held by the entity.
(5) Includes 5,249 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999, 21,718 shares issuable upon exercise of a
warrant granted to Adelson Investors, LLC under a consulting agreement (the
"Adelson Warrant") and 53,618 shares that Mr. Adelson holds jointly with his
spouse. Does not include 1,266 shares subject to options granted to Mr.
Adelson or 43,434 shares subject to the Adelson Warrant that are not
currently exercisable.
(6) Includes 21,718 shares issuable upon exercise of the Adelson Warrant.
(7) Includes 288,463 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999.
(8) Includes 158,333 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 241,667 shares subject to
options granted to Mr. Marschel that are not currently exercisable.
(9) Includes 11,109 shares held jointly with Mr. Turner's spouse.
(10) Includes 20,451 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 5,609 shares subject to
options granted to Mr. Sick that are not currently exercisable. Includes
11,342 shares held by Business Resources International where Mr. Sick is the
Chairman and Chief Executive Officer. Mr. Sick's term as a director ends at
the 1999 Annual Meeting of Stockholders and he has chosen not to stand for
re-election.
(11) Includes 93,619 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 142,345 shares subject to
options granted to Mr. Butler that are not currently exercisable.
(12) Includes 15,666 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 1,266 shares subject to
options granted to Mr. Miller that are not currently exercisable. Mr.
Miller's term as a director ends at the 1999 Annual Meeting of Stockholders
and he has chosen not to stand for re-election.
(13) Includes 47,917 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 92,083 shares subject to
options granted to Mr. Harvey that are not currently exercisable.
(14) Includes 38,333 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999. Does not include 81,667 shares subject to
options granted to Mr. Boschwitz that are not currently exercisable.
Includes 1,000 shares held by Mr. Boschwitz in trust for his nieces, as to
which shares Mr. Boschwitz disclaims beneficial ownership.
(15) Includes 5,249 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1999 granted to Mr. Buchalter. Does not include
1,266 shares subject to options granted to Mr. Buchalter that are not
currently exercisable.
(16) All directors and executive officers as a group hold options and warrants
to purchase 682,030 shares of Common Stock, which options and warrants will
vest within 60 days of March 31, 1999 and options and warrants to purchase
871,919 shares of the Company, which options and warrants will not have
vested within 60 days of March 31, 1999.
3
<PAGE>
ELECTION OF DIRECTORS
The Company's Bylaws, as amended, provide for a classified Board of
Directors with no fewer than six and no more than nine directors, consisting of
three classes of directors with each director serving a three-year term. The
Board of Directors has determined that the Board will consist of six directors
following the 1999 Annual Meeting of Stockholders. The Board can increase its
size and elect additional directors if candidates are identified whose service
would be valuable to the Company. Yves Faroudja and Stuart Buchalter are serving
as directors for terms expiring at the 2000 Annual Meeting of Stockholders. Merv
Adelson, Kevin Kimberlin and William Turner are serving as directors for terms
expiring at the 2001 Annual Meeting of Stockholders. Glenn Marschel is serving
as a director with a term expiring at the 1999 Annual Meeting of Stockholders.
At each annual meeting of stockholders, directors are elected for a full term of
three years to succeed directors whose terms are expiring. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board of
Directors.
The Board of Directors has nominated Glenn Marschel for election to the
Board of Directors for a three-year term that will expire at the 2002 Annual
Meeting of Stockholders. The nominee has indicated his willingness to serve and
Proxies will be voted for the election of the nominee unless instructions are
given on the Proxy to withhold authority to vote for him.
Nominations for the election of directors for the 1999 Annual Meeting, other
than nominations by the Board of Directors, must have been made by a stockholder
entitled to vote for the election of directors by giving timely written notice
to the Secretary of the Company at the Company's principal offices. Such notice
must have been received no later than the close of business on April 11, 1999,
sixty days before the anniversary of last year's Annual Meeting of Stockholders,
as required by the Company's Bylaws. For subsequent annual meetings, a
stockholder must give notice to the Secretary of the Company not less than 60
days or more than 90 days prior to the annual meeting. Such stockholder's notice
must be in writing, and set forth as to each proposed nominee, all information
relating to such person that is required to be disclosed in solicitations of
proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934
("Exchange Act"). This information includes, but is not limited to, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected. Such stockholder notice must also set
forth the name and address of the nominating stockholder, as they appear on the
Company's books, and the class and number of shares of common stock beneficially
owned by such stockholder.
The following table sets forth certain information with respect to the
nominees for director and the other directors of the Company.
THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- --------------------------------- ------------------------------------------------------------------------------
<S> <C>
Glenn W. Marschel, Jr............ Glenn W. Marschel, Jr. (age 52) has served as President, Chief Executive
Officer and Co-Chairman of the Board of Directors since joining the Company in
October 1998. He has served as Executive Chairman of the Board of Directors of
Additech, Inc., a petrochemicals company, since October 1997. From December
1995 to August 1997 Mr. Marschel was President and Chief Executive Officer of
Paging Network, Inc., a telecommunications company, and from April 1995 to
November 1995 he served as Vice Chairman of First Financial Management
Company, a company in the credit report and collections business. Prior
thereto, from January 1972 to January 1995, Mr. Marschel held positions of
increasing responsibility at Automatic Data Processing, Inc., a computer and
information systems company, last serving as President of ADP's Employer
Services Group. Mr. Marschel is also a director of Sabre Group Holdings, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- --------------------------------- ------------------------------------------------------------------------------
<S> <C>
Yves C. Faroudja................. Yves C. Faroudja (age 65) is co-founder of the Company and has served as a
director of the Company since its inception in 1971. Mr. Faroudja served as
the Company's President from 1971 to July 1996 and has been the Company's
Chief Technical Officer (CTO) since July 1996. Mr. Faroudja has served as
Co-Chairman of the Board of Directors since October 1998, and is currently
Chairman of the Board's Executive Committee.
Merv L. Adelson.................. Merv L. Adelson (age 69) has served as a director of the Company since
September 1996. Mr. Adelson has been Chairman of East-West Capital Associates,
Inc., a private investment banking company, since 1989. Mr. Adelson has been a
director of Time Warner, Inc., a media and communication corporation, since
1989. Mr. Adelson served as Vice Chairman of Warner Communications, Inc. from
January 1989 through August 1991. Previously, he was Chairman and Chief
Executive Officer of Lorimar Telepictures Corporation, an entertainment firm.
Mr. Adelson is a director of 7th Street.com, an Internet learning company. Mr.
Adelson has served as a Managing Member of Adelson Investors, LLC, a private
venture capital fund, since February 1996.
Stuart D. Buchalter.............. Stuart D. Buchalter (age 61) has served as a director of the Company since
April 1996. Mr. Buchalter has been Of Counsel with the California law firm of
Buchalter, Nemer, Fields & Younger, a Professional Corporation, since August
1980. He has been an officer of East-West Capital Associates, Inc. since
February 1996. From August 1980 to June 1993, he served as Chairman of the
Board of Directors and Chief Executive Officer of Standard Brands Paint
Company, a paint retailer and manufacturer. Mr. Buchalter is a director of
Authentic Fitness Corp., an athletic apparel manufacturer, City National
Corp., the holding company for City National Bank, Earl Scheib, Inc., an
automotive painting company, and e4L, Inc. (formerly National Media
Corporation), a direct response marketing company. He is also Vice-Chairman of
the Board of Trustees of Otis College of Art and Design.
Kevin B. Kimberlin............... Kevin B. Kimberlin (age 46) has served as a director of the Company since
December 1995. Since 1991, Mr. Kimberlin has been Chairman of Spencer Trask
Holdings, Inc., an investment banking firm. Mr. Kimberlin is a co-founder of
Ciena Corporation, Myriad Genetics and The Immune Response Corporation. He has
been a director of The Immune Response Corporation since 1986.
William J. Turner................ William J. Turner (age 55) served as Chairman of the Board of Directors of the
Company from December 1995 to October 1998 and continues to serve as a
director of the Company. From November 1989 to the present, Mr. Turner has
been chairman of Turner & Partners, a management and financial consulting
company. In February 1997, Mr. Turner also became a co-founder and co-manager
of Signature Capital, LLC, a venture capital company (Signature Capital). From
1983 to 1989, Mr. Turner was the President, Chief Operating Officer and a
director of Automatic Data Processing, Inc., a computer and information
services firm. Mr. Turner is currently a director of Federal Home Loan
Mortgage Corporation.
</TABLE>
5
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three standing committees; the Executive
Committee, the Audit Committee and the Compensation Committee.
EXECUTIVE COMMITTEE. The Executive Committee of the Board of Directors
reviews and monitors the Company's annual operating and capital expense budgets,
and acts as the Board of Directors' nominating committee with respect to the
selection of independent directors. Merv Adelson and Yves Faroudja are the
members of the Executive Committee and Yves Faroudja is its chairman. During the
Company's fiscal year ended December 31, 1998 ("Fiscal 1998"), the Executive
Committee held one meeting.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors (i) reviews
the results and scope of the annual audit and other services provided by the
Company's independent auditors; (ii) reviews and evaluates the Company's
internal audit and control functions; and (iii) monitors transactions between
the Company and its employees, officers and directors. Kevin B. Kimberlin and
Stuart D. Buchalter are the members of the Audit Committee. During Fiscal 1998,
the Audit Committee held four meetings.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors administers the Company's stock option and stock purchase plans and
designates compensation levels for the Company's executive officers and
directors. William J. Turner and William N. Sick are the members of the
Compensation Committee. During Fiscal 1998, the Compensation Committee held two
meetings.
MEETINGS, ATTENDANCE AND FEES
During Fiscal 1998, the Board of Directors held five meetings. No director
attended fewer than 75% of the aggregate number of meetings of the Board and the
Committees on which he served.
Prior to August 1997, directors received no fees for serving on the Board of
Directors but were reimbursed for reasonable expenses incurred by them in
attending Board of Directors and Committee meetings. Commencing in August 1997,
each non-employee director receives an annual retainer of $7,500, payable in
Common Stock on the day after the Annual Meeting of Stockholders. The Company
determines the number of shares to be issued as the annual retainer based on the
closing price of the Common Stock on the day of the Annual Meeting of
Stockholders. The Company believes that the actual value of the retainer stock
is approximately one-third less than the closing price of the Common Stock,
because the shares issued to directors are not registered and therefore subject
to significant resale restrictions. In addition, each non-employee director
receives $650 for each Board of Directors meeting attended, $375 for each
Committee meeting attended and reimbursement for reasonable expenses incurred in
attending Board of Directors and Committee meetings. Non-employee directors are
also eligible to participate in the 1997 Non-Employee Directors Stock Option
Plan. On July 30, 1998 the Company issued 732 shares of its Common Stock to each
of Stuart D. Buchalter, Merv Adelson, Kevin B. Kimberlin, Matthew D. Miller,
William N. Sick and William J. Turner as their annual retainer for serving as
directors of the Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of a director of the
Company for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of loyalty
to the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law; or (iv) any transaction
from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted under Delaware Law, including in
6
<PAGE>
those circumstances where indemnification would otherwise be discretionary. The
Company believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties. The Bylaws
authorize the use of indemnification agreements, and the Company has entered
into indemnification agreements with each of its officers and directors that are
in some respects broader than the specific indemnification provisions contained
in Delaware Law. The indemnification agreements may require the Company, among
other things, to indemnify such directors against certain liabilities that may
arise by reason of their status or service as directors (other than liabilities
arising from willful misconduct of a culpable nature) and to advance expenses
reasonably expected to be incurred in defending any proceeding against them for
which they would receive indemnification. The Company has obtained directors and
officers liability insurance with respect to certain matters, including matters
arising under the Securities Act.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16 OF THE EXCHANGE ACT
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any persons holding ten percent or more of the Company's Common
Stock are required to report their ownership of Common Stock and any changes in
that ownership to the Securities and Exchange Commission (the "SEC") and to
furnish the Company with copies of such reports. Specific due dates for these
reports have been established and the Company is required to report in this
Proxy Statement any failure to file on a timely basis by such persons. Based
solely upon a review of copies of reports filed with the SEC during Fiscal 1998,
all persons subject to the reporting requirements of Section 16(a) filed all
required reports on a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No directors, other than those identified above, served as members of the
Compensation Committee during Fiscal 1998. No member of that Committee was an
officer or employee of the Company or any of its subsidiaries during the year.
None of the executive officers of the Company has served on the board of
directors or on the compensation committee of any other entity, any of whose
officers served either on the Board of Directors or on the Compensation
Committee of the Company.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company during
Fiscal 1998 to the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION OPTIONS(#) COMPENSATION(2)
- ---------------------------- --------- ---------- -------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Glenn W. Marschel, Jr. . 1998 $ 51,846 -- $ 8,649(4) 400,000 $ 5,000
President, Chief Executive
Officer and Director(3)
Yves C. Faroudja ........... 1998 137,444 -- -- 22,500(6) 481
Chief Technical Officer 1997 196,787 -- -- -- 4,620
and Director(5) 1996 198,500 -- -- -- 2,464
Michael J. Moone ........... 1998 255,387 -- -- -- 5,000
President, Chief Executive 1997 247,913 $ 200,000 -- -- 4,740
Officer and Director(7) 1996 73,904 150,000 -- 528,932(8) 4,750
Donald S. Butler ........... 1998 228,626 69,000(10) -- -- 5,000
Senior Vice President-- 1997 212,196 55,000 -- -- 2,750
Engineering(9) 1996 125,564 30,000 -- 195,964(8) --
Thomas A. Harvey ........... 1998 200,000 5,000 -- -- --
Vice President--Sales and 1997 77,177 68,000 -- 100,000(6) --
Marketing(11)
Kenneth S. Boschwitz ....... 1998 155,570 5,000 -- -- 5,000
Vice President-- Business 1997 84,099 25,000 -- 80,000(6) 5,000
Development, General
Counsel & Secretary(12)
</TABLE>
- ------------------------
(1) Excludes perquisites and other personal benefits which for each Named
Executive Officer did not exceed the lesser of (i) $50,000 or (ii) 10% of
the total annual salary and bonus for such officer. The bonus for each
executive varies annually based on a variety of factors.
(2) Represents matching contributions by the Company under the 401(k) plan.
(3) Mr. Marschel joined the Company in October 1998 and the amount reported
represents his salary on a pro-rated basis based on an annual salary of
$240,000. Includes a grant of options in 1998 to purchase 281,250 shares
under the 1997 Performance Stock Option Plan ("1997 Option Plan") at an
exercise price of $3.75, which vest over three years. In addition, Mr.
Marschel was granted options to purchase 118,750 shares at an exercise
price of $3.75, of which options to purchase 100,000 shares vested
immediately and the balance vest over three years.
(4) Comprised of $1,954 for use of a Company leased automobile and $6,695 for
temporary housing expenses.
8
<PAGE>
(5) Mr. Faroudja served as the Company's President prior to June 1996, and
currently serves as the Company's Chief Technical Officer, Chairman of the
Executive Committee of the Board of Directors and Director. He has
performed these roles under an advisory agreement since March 1998. See--
Employment Agreements.
(6) These shares are issuable upon exercise of stock options granted under the
1997 Option Plan.
(7) Mr. Moone joined the Company in June 1996, and the amount reported for that
period represents his salary in 1996 on a pro-rated basis. Mr. Moone
resigned his positions with the Company in October 1998, but will continue
to receive base salary until October 1999. See--Employment Agreements.
(8) These shares are issuable upon exercise of stock options granted under the
1995 Employee Stock Option Plan (the "1995 Option Plan").
(9) Mr. Butler joined the Company in May 1996 and the amount reported
represents his salary on a pro-rated basis based on an annual salary of
$200,000. Includes a grant of options in 1996 to purchase 172,964 shares
under the 1995 Option Plan at an exercise price of $3.83 and a grant of
options to purchase 23,000 shares under the 1995 Option Plan at an exercise
price of $3.91. The options vest over four years.
(10) Includes $54,000 received under an agreement with the Company dated March
6, 1996, pursuant to which Mr. Butler will receive a bonus of $1.08 per
option upon exercise of his first 138,370 options granted under the 1995
Option Plan.
(11) Mr. Harvey joined the Company in June 1997, and the amount reported
represents his salary in 1997 on a pro-rated basis based on an annual
salary of $200,000. Includes a grant of options in 1997 to purchase 100,000
shares under the 1997 Option Plan at an exercise price of $7.50. The
options vest over four years.
(12) Mr. Boschwitz joined the Company in June 1997, and the amount reported for
that year represents his salary in 1997 on a pro-rated basis based on an
annual salary of $150,000. Includes a grant of options in 1997 to purchase
80,000 shares under the 1997 Option Plan at an exercise price of $7.50. The
options vest over four years.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted
to each Named Executive Officer during Fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
---------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE PRICE OPTION TERM(1)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL 1998 ($/SHARE) DATE 5%($) 10%($)
- ------------------------------- ------------ --------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Glenn W. Marschel, Jr. ........ 400,000(2) 59.6% $ 3.75(3) 10/6/08 $ 943,342 $ 2,390,614
Yves C. Faroudja .............. 22,500 3.4 8.12(4) 3/10/03 29,083 84,544
Michael J. Moone .............. -- -- -- -- -- --
Donald S. Butler .............. -- -- -- -- -- --
Thomas A. Harvey .............. -- -- -- -- -- --
Kenneth S. Boschwitz .......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) As suggested by the rules of the Securities and Exchange Commission, the
Company used assumed rates of the Company's stock price appreciation in
calculating the potential realizable value of executive stock options
(calculated based upon a 10-year option term, with compounded appreciation
at 5% and 10% rates). The actual value, if any, an executive may realize
will depend on the excess of the stock price on the date the option is
exercised over the option's exercise price so that there is no assurance the
value realized by an executive will be at or near the values estimated
above. The Company does not advocate or necessarily agree that the stated
assumed annual rates of appreciation properly determine the value of the
options. Actual gains, if any, on stock option exercises are dependent on
the future financial performance of the Company, overall market conditions
and the option holder's continued employment through the vesting period.
(2) Consists of 281,250 options granted pursuant to the Company's 1997 Option
Plan that vest monthly over three years and 118,750 options, the first
100,000 of which vest immediately and the balance of which vest monthly over
three years.
(3) These 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 of the Company.
(4) These options vest monthly over three years and, in accordance with the
provisions of the 1997 Option Plan applicable to an optionee that holds more
than 10% of the voting stock of the Company, were granted at an exercise
price equal to 110% of the fair market value of the Company's Common Stock
on the date of grant, as determined by the Board of Directors of the
Company.
10
<PAGE>
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information regarding the exercise of
stock options during Fiscal 1998 and stock options held as of December 31, 1998
by the Named Executive Officers.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTION EXERCISES OPTIONS HELD IN-THE-MONEY OPTIONS
--------------------------- AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn W. Marschel, Jr.(2)....... -- -- 116,667 283,333 -- --
Michael J. Moone(3)............. -- -- 288,463 -- -- --
Yves C. Faroudja(2)............. -- -- 5,625 16,875 -- --
Donald S. Butler(3)............. 50,000 $ 379,750 73,206 72,758 -- --
Thomas A. Harvey(2)............. -- -- 37,500 62,500 -- --
Kenneth S. Boschwitz(2)......... -- -- 30,000 50,000 -- --
</TABLE>
- ------------------------
(1) Based upon the closing price of Company's Common Stock as reported on the
Nasdaq Stock Market on December 31, 1998, $3.125, none of the options held
by the Named Executive Officers were "in-the-money."
(2) These options were granted pursuant to the 1997 Option Plan, except for
118,750 of the options granted to Mr. Marschel. All 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. Options
granted under the 1997 Option Plan generally vest over a four year period at
the rate of 1/4 on the first anniversary of the date of grant and 1/48th of
the shares each month thereafter. Options granted under the 1997 Option Plan
to Messrs. Marschel and Faroudja vest over a three year period at the rate
of 1/36th of the shares monthly. Additional options granted to Mr. Marschel
vest immediately with respect to 100,000 shares and over a three-year period
at the rate of 1/36th of the shares monthly for the balance.
(3) Each of these options was granted pursuant to the 1995 Option Plan. These
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, and vest over a four year period at the rate of 1/4 on the
first anniversary of the date of grant and 1/48th of the shares each month
thereafter.
EMPLOYMENT AGREEMENTS
In March 1996, the Company entered into an employment agreement with Yves C.
Faroudja for a term of two years, pursuant to which Mr. Faroudja was to serve as
Chief Technical Officer ("CTO") of the Company at an annual base salary of
$100,000 for the first year and $66,600 for the second year (the "Faroudja
Employment Agreement"). Mr. Faroudja was required to devote at least one-half of
his time to the Company during the first year of the Faroudja Employment
Agreement and at least one-third of his time to the Company during the second
year of the Faroudja Employment Agreement. Mr. Faroudja could not engage in any
other business activities that interfered with the performance of his duties
under the Faroudja Employment Agreement with the Company, and the Faroudja
Employment Agreement contained a covenant not to compete. Mr. Faroudja's annual
base salary was to increase proportionately if Mr. Faroudja contributed more
than one-half of his time to the Company during the first year and/or more than
one-third of his time to the Company during the second year of his employment
with the Company, with a maximum annual base salary during the first and second
years of $200,000 for each year. Mr. Faroudja was entitled under the Faroudja
Employment Agreement to participate in all insurance and benefit plans generally
available to the employees of the Company.
11
<PAGE>
The Faroudja Employment Agreement was superceded on March 8, 1998 by an
agreement entered into between the Company and Mr. Faroudja for a term of three
years pursuant to which Mr. Faroudja will serve as the Company's CTO until a new
CTO is identified and hired (the "Advisory Agreement"). Thereafter, Mr. Faroudja
will serve as a Senior Fellow to the Company, advising the Company in a variety
of areas, with time to be devoted at Mr. Faroudja's discretion. Under the
Advisory Agreement, Mr. Faroudja is paid a fee of $150,000 per year and was
granted a five-year option to purchase an aggregate of 22,500 shares of Common
Stock. Mr. Faroudja is entitled to the use of a Company automobile and medical
insurance to be paid for by the Company in an amount not to exceed $13,680 per
year. The Advisory Agreement may only be terminated by the Company for cause (as
defined in the Advisory Agreement). If the Advisory Agreement is terminated due
to Mr. Faroudja's disability, he will be entitled to his annual base salary for
an additional six months. Mr. Faroudja has elected to terminate the agreement on
June 30, 1999.
On July 8, 1996, the Company entered into an employment agreement with
Michael J. Moone for a term of four years, pursuant to which Mr. Moone served as
President, Chief Executive Officer and a director of the Company at an annual
base salary of $175,000. Effective January 1, 1997, Mr. Moone's annual base
salary was increased to $250,000. The agreement provided for an annual bonus of
up to 100% of his annual base salary at the discretion of the Board of Directors
and participation in all insurance and benefit plans generally available to the
employees of the Company. Mr. Moone was granted options under the 1995 Option
Plan to purchase 456,432 shares at an exercise price of $3.83 per share and
72,500 shares at an exercise price of $3.91 per share. Mr. Moone's employment
with the Company ended with his resignation on October 6, 1998. In accordance
with an agreement between Mr. Moone and the Company dated November 30, 1998, Mr.
Moone will continue to receive base salary at the rate of $250,000 for one year
from his resignation and may exercise the 288,463 options which were vested at
that time until July 8, 1999.
Glenn W. Marschel, Jr. joined the Company on October 6, 1998 assuming the
positions of President, Chief Executive Officer and Co-Chairman of the Board of
Directors. His annual base salary is $240,000. On his hire date Mr. Marschel was
granted options under the 1997 Option Plan to purchase 281,250 shares at an
exercise price of $3.75, which vest monthly over a three year period. In
addition, Mr. Marschel was granted options to purchase 118,750 shares at an
exercise price of $3.75, of which options to purchase 100,000 shares vested
immediately and the balance vest monthly over three years.
Dr. Nikhil Balram joined the Company on January 28, 1999 as it Vice
President--Advanced Technology, and will receive a pro-rated annual salary of
$150,000 in 1999. He is also eligible for a discretionary bonus at the end of
the year. He was granted options to purchase 125,000 shares under the 1997
Option Plan at an exercise price of $3.125, which options are subject to
stockholder approval of the proposed amendment to the 1997 Performance Stock
Option Plan. Dr. Balram's options vest over four years. If Dr. Balram's
employment is terminated without cause during his first year of employment with
the Company, he will continue to receive salary for twelve months from his start
date and, during that period, his options will continue to vest.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The report of the Compensation Committee shall not be deemed incorporated by
reference to any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of outside directors and is responsible for developing and
making recommendations to the Board with respect
12
<PAGE>
to the Company's executive compensation policies. In addition, the Committee,
pursuant to authority delegated by the Board, determines the compensation to be
paid to the Company's executive officers and directors. The Committee is
responsible for setting and administering the policies which govern annual
compensation, the Company's 1997 Non-Employee Directors Stock Plan, the 1997
Performance Stock Option Plan, the 1997 Employee Stock Purchase Plan, and the
1995 Stock Option Plan.
There are three elements in the Company's executive compensation program,
all determined by individual and corporate performance:
- Annual base salary compensation.
- Annual incentive compensation.
- Long-term incentive compensation.
In designing its compensation programs, the Company believes that
compensation should reflect the value created for stockholders and support the
Company's strategic goals. Specifically, the objectives of the program are as
follows:
- Attract and retain key executives critical to the long-term success of the
Company.
- Reflect and promote the Company's values, and reward executives for
outstanding contributions to the Company's success.
- Reward executives for long-term strategic management and the enhancement
of stockholder value by providing opportunities for ownership in the
Company.
- Provide incentives for performance, not only with respect to the
achievement of the Company's goals, but also the Company's performance
relative to that of its peers in the technology industry.
- Align the interests of the Company's executive officers with those of the
Company's stockholders through participation in stock-based incentive
plans.
EXECUTIVE OFFICER COMPENSATION PROGRAM
ANNUAL BASE SALARY
In reviewing the annual base compensation of executive officers, the
Compensation Committee considers the individual executive's performance for the
year, the Company's overall performance for the year, the compensation for
executives at competing companies in the technology industry, current market
conditions, and the recommendations of the Company's Chief Executive Officer.
The Company's general approach to annual base salary compensation is to pay
annual salaries which are competitive with salaries paid to executives of
similarly situated companies in the technology industry, after considering the
individual executive's experience and prior and potential contributions to the
Company. The annual base salary for Michael Moone for 1998 was initially based
on his rights under an employment agreement, entered into on July 8, 1996 and
amended on January 1, 1997, which provided for an annual base salary of
$250,000. The Committee determined to continue Mr. Moone's salary at that level
in view of the prior and expected future contributions of the Chief Executive
Officer to the Company's growth. The Committee determined that an annual base
salary of $240,000 was appropriate for Glenn Marschel, who assumed the prior
Chief Executive Officer's responsibilities. The Committee believes the annual
base salary for the Company's Chief Technical Officer and five Vice Presidents
are commensurate with the current incumbents' level of experience and prior and
potential future contributions to the Company.
ANNUAL INCENTIVE COMPENSATION
The Committee generally believes that, at higher executive levels, a greater
percentage of an individual's total annual cash compensation opportunity should
consist of variable compensation tied to
13
<PAGE>
the Company's performance. The Committee's practice with regard to awarding
annual bonuses to executive officers is to establish measures of performance
that the Committee determines to be appropriate under the circumstances and to
assign relative weight to any such factors. The Committee focuses particularly
on such factors as growth in earnings and increased market share in the
Company's products, as well as discretionary factors in determining whether or
not bonuses are paid. In making such determinations, the Committee takes into
consideration and gives significant weight to the recommendations of the Chief
Executive Officer with respect to the bonuses of executive officers other than
himself.
STOCK EQUITY BASED COMPENSATION
The Company believes that stock ownership is a significant incentive for the
improvement of the long-term performance of the Company by aligning the
interests of the executive officers and stockholders which, in turn, will help
build stockholder wealth. The Company also recognizes that a stock incentive
program is a necessary element of a competitive compensation package for its
employees. In January 1997, the Company adopted the 1997 Performance Stock
Option Plan (the "1997 Option Plan") to succeed the earlier 1995 Stock Option
Plan. The 1997 Option Plan is applicable to the employees of the Company
(including inside directors and officers) and authorizes the Compensation
Committee to determine the terms of the options granted, including the exercise
price, the number of shares subject to the option and exercisability thereof. In
making its determination to grant options under the 1997 Option Plan, the
Committee analyzes, among other things, the executive's level of responsibility
and the role in positively influencing future results.
COMPENSATION OF GLENN W. MARSCHEL, JR., THE CHIEF EXECUTIVE OFFICER
On October 6, 1998, the Company engaged Glenn Marschel to serve as
President, Chief Executive Officer and Co-Chairman of the Board of Directors for
an annual base salary of $240,000. The Committee reviewed the annual base salary
and considered it to be appropriate based on the same executive compensation
policy exercised above with respect to executive officers of the Company.
Factors the Compensation Committee considered in determining that this salary
was reasonable included personal qualifications and experience of Mr. Marschel,
the Company's anticipated executive requirements and compensation levels at
similar technology companies.
Compensation Committee
William J. Turner
William N. Sick, Jr.
14
<PAGE>
PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the Company's total stockholder
return on Common Stock with the Nasdaq Stock Market Index ("NASDAQ") and the
Hambrecht & Quist Technology Index, from the Company's initial public offering
on October 30, 1997 through the end of Fiscal 1998. The measurement points
utilized in the graph consist of the last day in each calendar quarter.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
10/30/97 12/97 03/98 06/98 09/98 12/98
<S> <C> <C> <C> <C> <C> <C>
FAROUDJA, INC. 100 173 165 142 77 52
NASDAQ STOCK MARKET (U.S.) 100 100 117 121 109 141
HAMBRECHT & QUIST TECHNOLOGY 100 97 117 120 107 151
</TABLE>
*$100 INVESTED ON 10/30/97 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
15
<PAGE>
CERTAIN TRANSACTIONS
YVES FAROUDJA LICENSE AGREEMENT
On January 20, 1997 (the "Effective Date"), the Company entered into a
license agreement (the "License Agreement") with Yves Faroudja with respect to
all intellectual property, including all rights in inventions, works of
authorship and designs owned by Mr. Faroudja prior to the Effective Date
(collectively, the "Faroudja Technology"), pursuant to which Mr. Faroudja (1)
granted to the Company a worldwide, perpetual, royalty-free, sublicensable
license to exploit the Faroudja Technology, and (2) assigned to the Company his
rights to all intellectual property, including all rights in inventions, works
of authorship and designs, first owned by him during the period commencing on
the Effective Date and ending on the date (the "Termination Date") he ceases to
be an employee of the Company. The Company's license to the Faroudja Technology
in the field of data processing for electronically displaying images to the
human eye (the "Company Field") is exclusive subject to licenses previously
granted by Mr. Faroudja. Mr. Faroudja has retained the non-exclusive,
nontransferable rights to exploit the Faroudja Technology outside of the Company
Field. The License Agreement remains in effect during the term of the Advisory
Agreement between Mr. Faroudja and the Company. See "Executive
Compensation--Employment Agreement." The Company's right to use the Faroudja
Technology and rights to enforce rights granted thereunder survive the
termination of the License Agreement.
As consideration for the License Agreement, Mr. Faroudja was granted a
warrant to purchase 100,000 shares of Common Stock at an exercise price of $7.50
per share. The warrant vests as to 1/36th of the total shares for each full
month after January 20, 1997 provided that Mr. Faroudja is then either (i)
employed by the Company (as a full or part-time employee), or (ii) acting as a
member of the Board of Directors of the Company. Certain registration rights and
anti-dilution provisions are provided to Mr. Faroudja as contained therein.
Mr. Faroudja, the Company and General Instrument Corporation ("GI") are
parties to a world-wide license agreement dated May 1, 1996 pursuant to which GI
licensed certain patents to the Company and the Company licensed certain patents
to GI relating to video compression and decompression. The licenses are
royalty-free so neither party is obligated to pay, nor entitled to receive,
license fees from the other party. The agreement grants exclusive rights to each
company in defined fields of use, includes the right to grant sublicenses and
extends until the last to expire of the licensed patents. As a result of that
agreement, GI could produce products in the field of scan conversion of source
material presented to a compression system competitive with the Company's
upconverter products.
REGISTRATION RIGHTS AGREEMENT
The Company and Yves Faroudja and Isabell Faroudja are parties to a
Registration and Shareholders Rights Agreement dated March 7, 1997, which grants
to Mr. and Mrs. Faroudja certain rights to include their Company stock in
Company registered public offerings, subject to certain limitations. In
connection with the Company's Registration Statement on Form S-1 declared
effective on August 12, 1998, a disagreement arose between Mr. and Mrs. Faroudja
and the Company with regard to whether they had received appropriate notice and
opportunity to exercise their registration rights and participate in the
offering described therein. In order to resolve the disagreement in an amicable
and mutually beneficial manner, by letter dated January 28, 1999, the Company
agreed that if requested by the Faroudja's it would, on one occasion, use its
reasonable efforts, at Company expense, to register the offer and sale of the
Faroudjas' stock. This undertaking is subject to registration on Form S-3, or an
equivalent SEC form, being available for the securities to be registered and
allows the Company to defer such registration if filing such a registration
would be seriously detrimental to the Company.
16
<PAGE>
CONSULTING AGREEMENTS
In December 1996, the Company entered into a three year consulting agreement
("Adelson Consulting Agreement") with Merv Adelson, a director of the Company,
pursuant to which Mr. Adelson agreed to provide certain consulting services in
the analysis and implementation of potential strategic alliances ("Proposed
Strategic Alliances") in the specific field of TV signal enhancement for TV,
cable TV, satellite TV and DVDs, including, but not limited to (i) providing the
Company with a list of possible corporate investors, partners, customers,
buyers, lenders and joint ventures ("Proposed Strategic Alliance Partners"),
(ii) coordinating and making approaches to Proposed Strategic Alliance Partners,
and (iii) assisting in the negotiation of the principal forms of Proposed
Strategic Alliances and preparation of all contracts, documents, approvals and
related matters necessary to consummate a Proposed Strategic Alliance with a
Proposed Strategic Alliance Partner. On December 17, 1997, the Adelson
Consulting Agreement, which had provided that the Company would compensate Mr.
Adelson for any strategic alliance or combination of strategic alliances during
the term of the agreement in which the Company receives consideration (as
defined in the amendment to the agreement) of at least $5 million, through the
issuance of a three year warrant to Mr. Adelson for the purchase of 65,152
shares of Common Stock with an exercise price of $0.15 per share ("Adelson
Contingent Warrant"), was amended. The Adelson Consulting Agreement was amended
to compensate Mr. Adelson for services valued at less than $5 million by
providing for the immediate issuance of the Adelson Contingent Warrant, with the
number of shares for which the Warrant may be exercised currently to be
determined by the Company's Board of Directors, from time to time, based upon
the level of consideration received by the Company as a result of Mr. Adelson's
services. On December 17, 1997, the Board of Directors determined that
consideration expected to be received by the Company as a result of Mr.
Adelson's services was $1,666,666 and made the Adelson Contingent Warrant
currently exercisable with respect to 21,718 shares of Common Stock as of that
date. During the term of the Consulting Agreement, the Company also agreed to
use its best efforts to cause the election to the Board of Directors of Mr.
Adelson (or a designee of Mr. Adelson reasonably acceptable to the Board of
Directors) and an additional designee of Mr. Adelson reasonably acceptable to
the Board of Directors. Mr. Buchalter serves on the Board of Directors as Mr.
Adelson's designee. The Board of Directors and Mr. Adelson have agreed to amend
the Adelson Consulting Agreement to extend its term until February 9, 2000.
LICENSE AGREEMENT WITH S3
In March 1997, the Company entered into a license agreement with S3
Incorporated ("S3") to develop integrated circuits incorporating the Company's
video processing technologies for use in PCs. Portions of the license were
exclusive for certain markets for a period of five years provided that
performance criteria, including minimum license fees were satisfied. S3 has not
made minimum license payments necessary to maintain its exclusive rights with
respect to any periods after March 31, 1998. No director, officer or affiliate
of S3 is an affiliate of the Company.
On June 30, 1997, the Company issued 526,316 shares of Common Stock to S3
for an aggregate purchase price of $5.0 million. Under the terms of the Stock
Purchase Agreement and an Investor's Rights Agreement, S3 is entitled to certain
anti-dilution and registration rights as described therein. The anti-dilution
provisions of the Stock Purchase Agreement provided that S3 was entitled to
receive additional shares if the Company's initial public offering was at a
price of less than $9.50 per share. Based on the Company's initial public
offering price of $6.00, the Company issued 307,018 additional shares of Common
Stock to S3. Under the purchase agreement, S3 has the right to have an observer
attend meetings of the Company's Board of Directors and committees thereof,
except that the Company may exclude the observer from a meeting of the Board of
Directors or portion thereof if (i) such meeting concerns the relationship
between the Company and S3, or (ii) such attendance would result in disclosure
of trade secrets to S3 or would adversely affect the attorney-client privilege
between the Company and its counsel.
17
<PAGE>
Mr. Buchalter is Of Counsel to the California law firm of Buchalter, Nemer,
Fields and Younger, which from time to time provides legal services to the
Company.
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 stockholders 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.
PROPOSAL TO AMEND THE
FAROUDJA 1997 PERFORMANCE STOCK OPTION PLAN
The stockholders will be asked to consider and act upon a proposal to amend
the Faroudja 1997 Performance Stock Option Plan (the "1997 Option Plan"). The
1997 Option Plan was adopted and approved by the Company's stockholders on
January 2, 1997.
PROPOSED AMENDMENTS TO THE 1997 OPTION PLAN
The Board has proposed an amendment to the 1997 Option Plan to increase the
number of shares available for issuance upon the exercise of stock options under
the 1997 Option Plan by 500,000 shares to 1,625,000.
REASONS FOR THE AMENDMENTS
The 1997 Option Plan currently authorizes the issuance of options to acquire
an aggregate of 1,125,000 shares. As of March 31, 1999, 52,911 shares were
available for the issuance of additional options. This balance does not give
effect to options granted under the 1997 Option Plan by the Board of Directors
on January 14, 1999. At that time, the Board granted options to purchase an
aggregate of 335,000 shares to Messrs. Butler (90,000 shares), Harvey (40,000
shares), Boschwitz (40,000 shares), Balram (125,000 shares) and another
executive of the Company (40,000 shares). These grants were conditioned upon
stockholder approval of an amendment to the 1997 Option Plan increasing the
number of shares available for issuance upon the exercise of options. The Board
of Directors considered, among other things, the Company's reliance primarily on
stock options in place of long-term cash based bonuses to provide long term
incentive compensation to its employees. The Board of Directors believes it is
in the best interests of the Company to make available such options to the key
employees named above and to attract and retain other talented individuals. In
order to permit the Company to continue the policy of using the 1997 Option Plan
for these purposes, additional shares must be made available under the 1997
Option Plan.
An amendment to the 1997 Option Plan, increasing the number of shares
available for issuance upon the exercise of stock options, was approved at the
1998 Annual Meeting of Stockholders. During 1998 the option shares available for
issuance was depleted, primarily due to the unanticipated departure of the
Company's chief executive officer and chief financial officer. Options to
purchase an aggregate of 406,250 shares were granted under the 1997 Option Plan
to individuals recruited to fill those positions. See "Executive
Compensation--Option Grants in Last Fiscal Year." Certain stock options granted
under the 1995 Stock Option Plan held by departing executives were cancelled in
connection with their departure. The cancellation of those options did not
increase the number of shares available for future option grants, because no
further options may be issued under the 1995 Stock Option Plan and shares
reserved for issuance under the 1995 Stock Option Plan cannot be transferred to
the 1997 Option Plan.
SUMMARY OF THE 1997 OPTION PLAN
The 1997 Option Plan was adopted by the Board of Directors and Stockholders
of the Company on January 2, 1997 and was amended on June 13, 1997 and June 10,
1998. The 1997 Option Plan is not
18
<PAGE>
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and is not subject to any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
PURPOSE
The purpose of the 1997 Option Plan is to further the growth and success of
the Company and its subsidiaries by enabling the employees and consultants of
the Company and its subsidiaries to acquire shares of Common Stock, thereby
increasing their personal interest in the growth and success of the Company and
providing a means of rewarding outstanding performance.
Options granted under the 1997 Option Plan may be either incentive stock
options ("Incentive Stock Options") as that term is used in Section 422 of the
Code, or any successor thereto, or options which do not qualify as incentive
stock options ("Non-Qualified Stock Options"). Options granted to consultants
shall be Non-Qualified Stock Options.
SHARES RESERVED
There are currently 1,125,000 shares of Common Stock reserved for issuance
upon exercise of options granted under the 1997 Option Plan. If the Stockholders
approve the amendment, there will be 1,625,000 shares reserved for issuance.
Shares of Common Stock will be made available from authorized but unissued
shares of the Common Stock or from outstanding shares of Common Stock which have
been reacquired by the Company. If any option granted under the 1997 Option Plan
expires or becomes unexercisable for any reason without having been exercised in
full, the unpurchased shares of Common Stock subject to such option shall again
become available for the grant of options under the 1997 Option Plan.
ADMINISTRATION
The Board has delegated administration of the 1997 Option Plan to its
Compensation Committee (the "Committee"). The Committee has full power and
authority, in its discretion, to take any and all actions required or permitted
to be taken under the 1997 Option Plan, including selecting optionees,
determining the number of shares which may be covered by stock options, the date
at which the options may be exercised or granted, whether or not options are
Incentive Stock Options or Non-Qualified Stock Options, and other option terms
and conditions.
ELIGIBILITY
Options may be granted to any person who, on the date of grant, is an
employee of, or consultant to, the Company or any of its subsidiaries, except
that (i) no options may be granted to any optionee possessing more than 10% of
the voting power of all classes of stock of the Company or its subsidiaries
unless the exercise price is fixed at not less than 110% of the fair market
value on the date of grant and the option is not exercisable after five years
from the date of grant, (ii) no options may be granted to any person serving on
the Committee, and (iii) no options may be granted to any optionee if such
options are in excess of 25% of the options issued or issuable under the 1997
Option Plan for any particular year.
The Company may issue Incentive Stock Options provided that the aggregate
fair market value (determined at the time the Incentive Stock Option is granted)
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the optionee during any calendar year (under
all Incentive Stock Option plans of the Company) shall not exceed $100,000.
Should it be determined that any Incentive Stock Option granted pursuant to the
1997 Option Plan exceeds such maximum, such Incentive Stock Option shall be
considered to be a Non-Qualified Stock Option and not to qualify for treatment
as an Incentive Stock Option under Section 422 of the Code to the extent, but
only to the extent, of such excess.
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OPTION PRICE
The exercise price of each Incentive Stock Option shall be determined by the
Committee and shall not be less than 100% of the fair market value of the Common
Stock subject to the option on the date the option is granted; provided,
however, that the exercise price of the Common Stock subject to the Incentive
Stock Option may not be less than 110% of such fair market value (without regard
to any restriction other than a restriction which, by its terms, will never
lapse) if the optionee owns (or is deemed to own pursuant to Section 424(d) of
the Code) Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries. The
exercise price of each Non-Qualified Stock Option shall be determined by the
Committee and shall not be less than 85% of the fair market value of the shares
of Common Stock on the date of grant.
An option shall be exercised by written notice to the Company upon terms and
conditions set forth in the optionee's stock option agreement. The purchase
price of Common Stock acquired pursuant to an option shall be paid by (i) a
certified or cashier's check payable to the order of the Company, (ii) by
transfer to the Company of shares of Common Stock owned by the optionee having a
fair market value on the exercise date equal to the option price for the shares
being purchased, or (iii) by a combination of both. Any person or persons other
than the optionee, that attempts to exercise the option shall be required to
furnish the Company with documentation satisfactory to Company counsel that such
person or persons have the full legal right and power to exercise the option on
behalf of the optionee.
ADJUSTMENTS UPON CHANGES IN COMMON STOCK; REORGANIZATION, MERGER, CONSOLIDATION
If the outstanding shares of the Common Stock of the Company are increased,
decreased, or changed into, or exchanged for a different number or kind of
shares or securities of the Company, without receipt of consideration by the
Company, through reorganization, merger, recapitalization, reclassification,
stock split, stock dividend, stock consolidation, or otherwise, an appropriate
and proportionate adjustment shall be made in the number and kind of shares as
to which options may be granted. A corresponding adjustment changing the number
or kind of shares and the exercise price per share allocated to unexercised
options, or portions thereof, which shall have been granted prior to any such
change shall likewise be made. Adjustments shall be made by the Committee whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final and conclusive. No fractional shares of stock shall be issued on
account of any such adjustment. Upon the dissolution or liquidation of the
Company, or upon any reorganization, merger or consolidation of the Company
where the Company is the surviving corporation and the stockholders immediately
prior to such transaction do not own at least 80% of the Company's Common Stock
immediately after such transaction, or upon any reorganization, merger or
consolidation of the Company where the Company is not the surviving corporation,
or upon a sale of substantially all of the assets or 80% of the outstanding
Common Stock, the 1997 Option Plan will terminate and any options granted prior
thereto shall become immediately exercisable in full and shall remain
exercisable until the effective date of such transaction.
VESTING
The Committee shall determine vesting periods for options granted under the
1997 Option Plan that will be set forth in the option agreement. Notwithstanding
the foregoing, all options will vest at a rate of at least 20% per year over 5
years from the date of grant.
EXPIRATION, TERMINATION AND TRANSFER OF OPTIONS
Subject to earlier termination as provided in the 1997 Option Plan, each
option granted and all rights or obligations thereunder by its terms shall
expire on such date as the Committee may determine as set forth in such stock
option agreement, but not later than (i) 5 years from the date of grant in the
case of any Incentive Stock Option granted to an optionee who owns (or is deemed
to own pursuant to Section
20
<PAGE>
424(d) of the Code) Common Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries,
and (ii) 10 years from the date of grant in the case of all other options.
Except in the event of termination of employment due to death, disability or
"termination for cause" (as determined by the Committee which shall be binding
on the optionee), options will terminate 90 days after an optionee ceases to be
employed by the Company or its subsidiaries unless the options by their terms
were scheduled to terminate earlier but only as to such number of shares as to
which the option was exercisable on the date of termination. If termination
occurs by reason of disability (as defined in Section 22(e)(3) of the Code) or
due to the optionee's death, such period shall be extended to one year. If
employment is terminated for cause, the optionee's period to exercise will be
reduced to thirty days. In addition, the option agreement may provide that
subsequent to the grant of any option, the Committee may, in its sole
discretion, terminate in whole or in part, any portion of such option which has
not yet become exercisable if it determines that the optionee is not
satisfactorily performing the duties to which such optionee was assigned on the
date such option was granted. Simultaneously with the consummation of the sale
of the Company, options will terminate if such optionee was given an opportunity
to exercise such options.
An option by its terms may only be transferred by will or by laws of descent
and options shall be exercisable during the lifetime of the person to whom the
option is granted only by such person. Notwithstanding the foregoing, a third
party may exercise an option if such person provides to the Company proof,
satisfactory to the Company's counsel, of his or her right to exercise the
option.
TERMINATION AND AMENDMENT OF THE 1997 OPTION PLAN
The 1997 Option Plan will terminate in 2007, or upon such earlier date
determined by the Board. The 1997 Option Plan will also terminate upon
liquidation, reorganization, merger or consolidation of the Company as discussed
above. No options may be granted under the 1997 Option Plan after it is
terminated. No amendment of the 1997 Option Plan may, without the consent of the
person to whom an option shall theretofore have been granted, impair or
adversely alter the rights of such person with respect to such option. No
modification, extension, renewal or other change in any option granted under the
1997 Option Plan shall be made after the grant of such option, unless the same
is consistent with the provisions of the 1997 Option Plan.
The 1997 Option Plan may be amended by the Board of Directors at any time,
and from time to time. However, except as otherwise provided in the 1997 Option
Plan, no amendment shall be effective unless approved by a vote of a majority of
the outstanding shares of the common stock of the Company, represented in person
or by proxy and entitled to vote, at a meeting of the stockholders of the
Company and any adjournment or postponement thereof if the amendment will: (a)
materially modify the requirements as to eligibility for participation in the
1997 Option Plan, (b) increase the number of shares reserved for options under
the 1997 Option Plan, (c) change the exercise price for Incentive Stock Options,
(d) lengthen the term during which Incentive Stock Options may be granted, or
(e) materially increase the benefits accruing to participants under the 1997
Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is only a summary of the principal federal income
tax consequences of the options and rights to be granted under the 1997 Option
Plan, and is based on existing federal law (including administration,
regulations and rulings) which is subject to change, in some cases
retroactively. This discussion is also qualified by the particular circumstances
of individual optionees, which may substantially alter or modify the federal
income tax consequences herein discussed. Each employee should consult his or
her tax advisor with respect to the specific tax consequences of his or her
participation in the 1997 Option Plan.
21
<PAGE>
Generally, when an option qualifies as an Incentive Stock Option under
Section 422 of the Code: (i) an optionee will not realize taxable income either
upon the grant or the exercise of the option, (ii) any gain or loss upon a
qualifying disposition of the shares acquired by the exercise of the option will
be treated as capital gain or loss, and (iii) no deduction will be allowed to
the Company for federal income tax purposes in connection with the grant or
exercise of an Incentive Stock Option or a qualifying disposition of the shares.
A disposition by an optionee of Common Stock acquired upon exercise of an
Incentive Stock Option will constitute a qualifying disposition if it occurs
more than two years after the grant of the option, and one year after the
transfer of the shares to the optionee. If such Common Stock is disposed of by
the optionee before the expiration of those time limits, the transfer would be a
"disqualifying disposition" and the optionee, in general, will recognize
ordinary income in the year of the disqualifying disposition equal to the lesser
of (i) the aggregate fair market value of the shares, as of the date of
exercise, less the option price, or (ii) the amount realized on the
disqualifying disposition less the option price. Ordinary income from a
disqualifying disposition will constitute ordinary compensation income. Any gain
in addition to the amount reportable as ordinary income on a "disqualifying
disposition" generally will be capital gain.
Capital gain recognized by an optionee on shares held more than one year but
less than 18 months prior to disposition will be taxable at a maximum rate of
28%; capital gain recognized on shares held for more than 18 months will be
taxable at a maximum rate of 20%.
While the exercise of an Incentive Stock Option does not result in current
taxable income, there are implications with regard to the alternative minimum
tax. Upon the exercise of an Incentive Stock Option, the difference between the
fair market value of Common Stock on the date of exercise and the option price
generally is treated as an adjustment to taxable income in that taxable year for
alternative minimum tax purposes, as are a number of other items specified by
the Code. Such adjustments (along with tax preference items) form the basis for
the alternative minimum tax (presently at the rate of 26% on the first $175,000
of alternative minimum taxable income and 28% on amounts in excess of $175,000
for individuals), which may apply depending on the amount of the computed
"regular tax" of the employee for that year. Under certain circumstances the
amount of alternative minimum tax is allowed as a carry forward credit against
regular tax liability in subsequent years.
In the case of stock options which do not qualify as an Incentive Stock
Option (Non-Qualified Stock Options), no income generally is recognized by the
optionee at the time of the grant of the option. Under present law the optionee
generally will recognize ordinary income at the time the Non-Qualified Stock
Option is exercised equal to the aggregate fair market value of the shares
acquired less the option price. Ordinary income from a Non-Qualified Stock
Option will constitute compensation for which withholding may be required under
federal and state law.
Subject to special rules applicable when an optionee uses Common Stock of
the Company to exercise an option, shares acquired upon exercise of a
Non-Qualified Stock Option will have a tax basis equal to their fair market
value on the date on which ordinary income is recognized and the holding period
for the shares generally will begin on such date. Upon subsequent disposition of
the shares, the optionee normally will recognize capital gain or loss.
The Company will generally be entitled to a deduction equal to the ordinary
income (i.e., compensation) recognized by the optionee in the case of a
"disqualifying disposition" of shares of Common Stock received upon exercise of
an Incentive Stock Option or in connection with the exercise of a Non-Qualified
Stock Option.
Federal income tax laws limit to $1,000,000 the annual amount publicly held
corporations may deduct for reasonable compensation paid to certain executive
officers (including compensation attributable to stock options) if such
reasonable compensation does not qualify as "performance based compensation" or
compensation paid on a "commission basis." The $1,000,000 limitation is
determined for each executive officer to which the deduction applies.
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<PAGE>
If, as a result of certain changes in control of the Company, certain
employee options become immediately exercisable, the additional economic value
attributable to the acceleration may be deemed an "excess parachute payment" to
the extent the additional value (when combined with the value of other change of
control payments) equals or exceeds 300% of the employee's average annual
taxable compensation over the five calendar years preceding the change of
control. Any such excess over the employee's average annual taxable compensation
will be subject to a 20% excise tax. To the extent that an excess parachute
payment is not deductible and is paid to an executive officer whose compensation
is subject to the $1,000,000 deduction limitation rules, the $1,000,000
deduction limitation is reduced by such amount, but not below zero.
GRANT OF OPTIONS
The following table sets forth certain information with respect to options
granted under the 1997 Option Plan as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
GRANTED UNDER 1997
NAME AND POSITION OPTION PLAN
- -------------------------------------------------------------------------- ------------------
<S> <C>
Glenn W. Marschel, Jr.
President, Chief Executive Officer and Director......................... 281,250
Yves C. Faroudja
Chief Technical Officer, Secretary and Director......................... 22,500
Donald S. Butler
Senior Vice President--Engineering...................................... --
Thomas A. Harvey
Vice President--Sales and Marketing..................................... 100,000
Kenneth S. Boschwitz
Vice President--Business Development, General Counsel
and Secretary........................................................... 80,000
All current Directors who are not executives as group..................... 50,000
Non-executive employees as a group........................................ 431,475
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE PROPOSAL TO AMEND THE FAROUDJA 1997 PERFORMANCE STOCK OPTION PLAN.
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as the Company's independent
accountants for Fiscal 1998. This firm has advised the Company that it has no
direct or indirect financial interest in the Company. Representatives of this
firm are expected to be present at the Annual Meeting of Stockholders, with the
opportunity to make a statement should they desire to do so, and will be
available to respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors knows of no business other than that described herein
that will be presented for consideration at the annual meeting. If, however,
other business shall properly come before the meeting, the persons named in the
enclosed form of Proxy intend to vote the shares represented by said Proxies on
such matters in accordance with their judgment in the best interests of the
Company.
23
<PAGE>
STOCKHOLDERS' PROPOSALS FOR THE 2000 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received by the Company for inclusion in
the Proxy Statement and form of Proxy for that meeting no later than January 6,
2000.
AVAILABILITY OF FORM 10-K
THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER WITHOUT CHARGE, UPON THE WRITTEN
REQUEST OF THAT STOCKHOLDER, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE ADDRESSED TO: ROBERT A. SHEFFIELD,
CHIEF FINANCIAL OFFICER, FAROUDJA, INC., 750 PALOMAR AVENUE, SUNNYVALE,
CALIFORNIA 94086.
24
<PAGE>
PROXY FAROUDJA, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FAROUDJA, INC. (THE
"COMPANY") FOR USE AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS (THE "MEETING") TO
BE HELD ON JUNE 10, 1999, AT 9:00 A.M., AT THE OFFICES OF THE COMPANY, LOCATED
AT 750 PALOMAR AVENUE, SUNNYVALE, CALIFORNIA.
The undersigned hereby appoints Glenn W. Marschel, Jr. and Robert A.
Sheffield, or either one of them, as Proxies, with full power of substitution,
to vote all shares of Common Stock of the Company held of record by the
undersigned on April 16, 1999 at the Meeting or at any adjournments thereof, on
the proposals set forth below and in their discretion upon such other business
as may properly come before the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE LISTED IN PROPOSAL
1 AND A VOTE TO APPROVE AN AMENDMENT TO THE COMPANY'S 1997 PERFORMANCE STOCK
OPTION PLAN.
1. ELECTION OF DIRECTORS
/ / FOR the nominee listed below for the term set forth in the Proxy
Statement (except as marked to the contrary below).
/ / WITHHOLD AUTHORITY to vote for the nominee listed below.
GLENN W. MARSCHEL, JR.
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the line provided below.)
- --------------------------------------------------------------------------------
<PAGE>
2. AMENDMENT TO THE COMPANY'S 1997 PERFORMANCE STOCK OPTION PLAN
/ / FOR approval of the amendment on the terms set forth in the Proxy
Statement.
/ / AGAINST the approval of the amendment.
/ / ABSTAIN to vote for the approval of the amendment.
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
This proxy, when properly executed will be voted in the manner directed by
the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND PROPOSAL 2. All proxies heretofore given by the undersigned
are hereby revoked. Receipt of the Proxy Statement dated May 7, 1999 is
acknowledged.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING PREPAID
ENVELOPE.
Date: ______________________, 1999
__________________________________
(Signature)
__________________________________
(Signature)
Please sign exactly as your name
appears hereon. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
officer, please include full
title.
