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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 Section 240.14a-11(c) or Section 240.14a-12
Galileo Technology Ltd.
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(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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(4) Date Filed:
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Notes:
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GALILEO TECHNOLOGY LTD.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AUGUST 4, 1998
TO THE SHAREHOLDERS OF GALILEO TECHNOLOGY LTD.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Galileo
Technology Ltd., a corporation formed under the laws of the State of Israel
(the "Company"), will be held on Tuesday, August 4, 1998 at 1:00 p.m., Israel
time, at the principal executive offices of the Company located at Moshav
Manof, D.N. Misgav 20184, Israel, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to each of the Galileo Technology Ltd. 1997
Employees' Stock Option Plan and the Galileo Technology Ltd. 1997 GTI
Stock Option Plan (together, the "Plans") to increase by 750,000 the
number of shares reserved for issuance under such Plans.
3. To approve an amendment to the Galileo Technology Ltd. Employee Stock
Purchase Plan to increase the number of shares reserved for issuance
under that plan each year by 105 percent of the number of shares
purchased under that plan in the previous calendar year.
4. To approve the Galileo Technology Ltd. 1998 Nonemployee Directors Stock
Option Plan.
5. To ratify the appointment of Ernst & Young LLP as the Company's United
States independent auditors and Kost Forer & Gabbay as the Company's
Israeli independent auditors.
6. To transact such other business as may properly come before the meeting
or any adjournments 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 July 6, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting and any
adjournments thereof.
All shareholders are cordially invited to attend the meeting in person. Any
shareholder attending the meeting may vote in person even if such shareholder
previously signed and returned a proxy.
FOR THE BOARD OF DIRECTORS
Avigdor Willenz
Chairman of the Board of Directors
and Chief Executive Officer
Manof, Israel
July 9, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
GALILEO TECHNOLOGY LTD.
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of Galileo Technology Ltd. (the "Company") for use at the Company's
Annual Meeting of Shareholders (the "Annual Meeting") to be held Tuesday,
August 4, 1998 at 1:00 p.m., Israel time, 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 principal executive offices of the Company located at Moshav
Manof, D.N. Misgav 20184, Israel. The telephone number at that address is 011-
972-4-9999-555. The Company's principal executive offices in the United States
are located at 142 Charcot Avenue, San Jose, California 95131. The telephone
number at that address is (408) 367-1400.
These proxy solicitation materials were mailed on or about July 9, 1998 to
all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on July 6, 1998 (the "Record
Date") are entitled to notice of, and to vote at, the Annual Meeting. At the
Record Date, 20,384,275 of the Company's Ordinary Shares (the "Ordinary
Shares") were issued, outstanding and entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company, at either of the addresses set forth herein, a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not
in and of itself constitute revocation of a proxy.
VOTING AND SOLICITATION
Pursuant to the Company's Articles of Association, the presence, in person
or by proxy, of at least two shareholders entitled to vote upon the business
to be transacted in the Annual Meeting and holding or representing at least 60
percent of the outstanding Ordinary Shares of the Company is necessary to
constitute a quorum at the Annual Meeting. The affirmative vote of the holders
of a majority of the Ordinary Shares present and voting at a meeting at which
a quorum is present is required to approve the matters upon which the
shareholders will be asked to vote. Each Ordinary Share is entitled to one
vote on each proposal or item that comes before the Annual Meeting.
Under Israeli law, if a quorum is present in person or by proxy, broker non-
votes and abstentions will have no effect on whether the requisite vote is
obtained, as they do not constitute present and voting shares.
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone, facsimile or other
method. No additional compensation will be paid for any such services. Costs
of solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
shareholders, will be borne by the Company. The Company may also retain
Corporate Investor Communications, Inc. ("CIC") to assist in the solicitation
of proxies. If retained, CIC will receive a fee for such services of
approximately $5,000 plus out-of-pocket expenses, which will be paid by the
Company. The Company may reimburse the reasonable charges and expenses of
brokerage houses or other nominees or fiduciaries for forwarding proxy
materials to, and obtaining authority to execute proxies from, beneficial
owners for whose account they hold Ordinary Shares.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Articles of Association of the Company provide for a Board consisting of
not fewer than three nor more than eleven directors. The size of the Board is
currently set at four, and four directors are to be elected at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the four nominees named below. All of the nominees named
below are presently directors of the Company. In the event that any nominee 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 to fill the vacancy. 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 as will ensure the election of as
many of the nominees listed below as possible. In such event, the specific
nominees for whom such votes will be cast will be determined by the proxy
holders. The term of office of each person elected as a director will continue
until the next annual general meeting of shareholders or until his successor
has been elected and qualified. It is not expected that any nominee will be
unable or will decline to serve as a director.
The name of and certain other information regarding each nominee is set
forth in the table below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Avigdor Willenz................ 42 Chief Executive Officer and Chairman of
the Board of Directors
Manuel Alba.................... 42 President of GTI and Director
Matty Karp(1)(2)............... 49 Director
Christopher J. Schaepe(1)(2)... 34 Director
</TABLE>
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(1) Member of Compensation Committee.
(2) Member of Audit Committee.
There is no family relationship between any of the directors or executive
officers of the Company.
Mr. Willenz founded the Company in November 1992 and has served as the
Company's Chief Executive Officer and Chairman of the Board of Directors since
that time. Between 1988 and 1992, Mr. Willenz was Corporate Product Definition
Manager/Chief Engineer for IDT. Between 1984 and 1988, Mr. Willenz worked as
design manager at Elbit Computers Ltd. ("Elbit"). Mr. Willenz holds a B.S.E.E.
from the Technion in Israel.
Mr. Alba has served as a director of the Company since March 1994. Mr. Alba
has also been President of Galileo Technology, Inc., the Company's wholly-
owned U.S. subsidiary ("GTI"), since its incorporation in April 1994. From
1989 to 1994, Mr. Alba worked as a marketing manager at IDT. From 1983 to
1989, Mr. Alba worked as a Staff Market Development Engineer at National
Semiconductor Corporation. He holds a B.S.E.E. from the National Polytechnic
Institute (Mexico City), an M.S.E.E. from the University of Southern
California and an M.B.A. from the University of Santa Clara.
Mr. Karp has served as a director of the Company since August 1994. Mr. Karp
has been President of Kardan Technologies Ltd. and Active Chairman of Kardan
Technology Ventures since 1994. Since April 1994, he has also managed the
Nitzanim Venture Capital Fund. Between 1979 and 1994, Mr. Karp held several
corporate management positions at Elbit, most recently the position of Senior
Executive. Mr. Karp holds a B.S.E.E. from the Technion in Israel and is a
graduate of the AMP at the Harvard Business School.
Mr. Schaepe has served as a director of the Company since November 1995. Mr.
Schaepe is a general partner of Weiss, Peck & Greer Venture Partners, a
technology focused venture capital firm that he joined in 1991. Previously,
Mr. Schaepe served in corporate finance and capital markets roles at Goldman,
Sachs & Co. after his employment as a software engineer at International
Business Machines Corporation. He is a director of several private companies
and holds B.S. and M.S. degrees in computer science from Massachusetts
Institute of Technology and an M.B.A. from Stanford Business School.
2
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board held a total of three meetings during the fiscal year ended
December 31, 1997. Each director attended all meetings of the Board and of the
committees, if any, upon which such director served.
The Audit Committee currently consists of Mr. Karp and Mr. Schaepe. The
principal functions of the Audit Committee are to recommend engagement of the
Company's independent auditors, to consult with the Company's auditors
concerning the scope of the audit and to review with them the results of their
examination, to review and approve any material accounting policy changes
affecting the Company's operating results and to review the Company's
financial control procedures and personnel. The Audit Committee held two
meetings during fiscal 1997.
The Compensation Committee currently consists of Mr. Karp and Mr. Schaepe.
The Compensation Committee determines compensation and benefits for the
Company's executive officers and administers the Company's equity incentive
plans. The Compensation Committee, which consists solely of outside directors
ineligible to participate in the Company's discretionary employee stock
programs, has sole and exclusive authority to grant stock options to officers
and to directors who are also employees or consultants of the Company. The
Compensation Committee held one meeting during fiscal 1997.
The Board does not have a nominating committee.
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<PAGE>
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Ordinary Shares as of May 31, 1998 (i) by each
person who is known by the Company to own beneficially more than 10 percent of
the outstanding Ordinary Shares of the Company and (ii) by all of the
Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
ORDINARY PERCENTAGE OF
SHARES ORDINARY
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
- ------------------------------------ ------------ -------------
<S> <C> <C>
Avigdor Willenz(3)................................. 5,746,948 28.1
c/o Galileo Technology Ltd.
Moshav Manof
D.N. Misgav 20184, Israel
Putnam Investments, Inc. .......................... 2,639,328 12.9
One Post Office Square
Boston, Massachusetts 02109
FMR Corp. ......................................... 2,465,800 12.1
82 Devonshire Street
Boston, Massachusetts 02109
All directors and executive officers as a group (11
persons)(4)....................................... 7,267,168 35.6
</TABLE>
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(1) This table is based upon information supplied by directors and officers,
as well as information included in Securities and Exchange Commission
filings made by certain principal shareholders. (Such filings are not
required of the Company's shareholders, but certain shareholders have made
such filings. There can be no assurance that such filings are current as
of the date set forth above, that those shareholders will update such
filings or that any other shareholders will make or update such filings.)
(2) Percent ownership is based on 20,432,374 Ordinary Shares outstanding as of
May 31, 1998. Shares issuable upon exercise of outstanding options are
considered outstanding for purposes of calculating the percentage of
Ordinary Shares of the person holding such options, but are not deemed
outstanding for computing the percentage of ownership of any other person.
(3) Includes 311,640 Ordinary Shares held in trust for Mr. Willenz and 360,000
shares subject to options that Mr. Willenz granted to four other executive
officers of the Company. Also includes 11,808 Ordinary Shares issuable
pursuant to stock options held by Mr. Willenz that are exercisable within
60 days of May 31, 1998.
(4) Includes an aggregate of 197,272 Ordinary Shares issuable pursuant to
stock options held by directors and executive officers that are
exercisable within 60 days of May 31, 1998.
COMPENSATION OF OFFICERS AND DIRECTORS
The directors of the Company can be remunerated by the Company for their
services as directors to the extent such remuneration is approved by the
Company's shareholders at an annual general meeting. Directors currently do
not receive compensation for their services as directors but are reimbursed
for their expenses for each Board of Directors meeting attended.
The aggregate direct remuneration paid by the Company and GTI to all
executive officers (9 persons) in 1997 was approximately $911,000. During
1997, the Company set aside an aggregate amount of approximately $51,000 to
provide for pension, retirement or similar benefits for all executive
officers. During the same period, the Company accrued severance benefits for
the same group in the aggregate amount of approximately $62,000.
There are no employment agreements between the Company and any of its
officers or directors.
4
<PAGE>
OPTION GRANTS TO EXECUTIVE OFFICERS
The aggregate number of options issued by the Company and GTI to all
executive officers (9 persons) in 1997 was 416,000. The aggregate number of
options granted by the Company and GTI to all employees in 1997 was 1,115,250.
No options were granted to any directors who are not executive officers of the
Company or GTI.
The Company did not make any awards during the fiscal year ended December
31, 1997 to any of the executive officers under any long-term incentive plan
providing compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year, excluding stock options.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is comprised of two independent nonemployee
directors. As members of the Compensation Committee, it is our responsibility
to determine the most effective total executive compensation strategy, based
upon the business needs of the Company and consistent with shareholders'
interests, to administer the Company's executive compensation plans, programs
and policies, to monitor corporate performance and its relationship to
compensation of executive officers, and to make appropriate recommendations
concerning matters of compensation.
Compensation Philosophy.
The Company was formed in 1992 as a private company and initially offered
Ordinary Shares to the public in July 1997. The major goals of the
compensation program are to align compensation with the attainment of key
business objectives and to enable the Company to attract, retain and reward
capable executives who can contribute to the continued success of the Company.
Equity participation and a strong alignment to shareholders' interests are key
elements of the Company's compensation philosophy. The Company's executive
compensation program consists of base salary, incentive stock options and
standard benefits.
Base Salary. The Compensation Committee recognizes the importance of
maintaining compensation practices and levels of compensation competitive with
high technology companies in comparable stages of development. Base salary
represents the fixed component of the executive compensation program. The
Company's philosophy regarding base salaries is conservative, maintaining
salaries somewhat below or at approximately the competitive industry median.
Determination of base salary levels is established on an annual review of
marketplace competitiveness with high technology companies, and on individual
performance. Periodic increases in base salary relate to individual
contributions evaluated against established objectives, relative marketplace
competitiveness levels and length of service.
Stock Options. The Compensation Committee strongly believes that one of the
important goals of the compensation program should be to provide key employees
who have significant responsibility for the management, growth, and future
success of the company with an opportunity to increase their ownership of the
Company and potentially gain financially from Company stock price increases.
The interests of shareholders, executives and employees should thereby be
closely aligned. Executives and key employees are eligible to receive stock
options generally not more often than once a year, giving them the right to
purchase Ordinary Shares of the Company in the future at a price equal to fair
market value at the date of grant. Under the Company's stock option plans, the
Company's Ordinary Shares may be purchased at the fair market value on the
date of grant. All grants must be exercised according to the provisions of the
Company's stock option plans.
Other Benefits. The Company's philosophy is to provide adequate health- and
welfare-oriented benefits to executives and employees, but to maintain a
highly conservative position with respect to executive benefits.
Summary. The Compensation Committee believes that the compensation of
executives by the Company is appropriate and competitive with the compensation
provided by other high technology companies with which the Company competes
for executives and employees. The Committee believes its compensation
strategy, principles, and practices result in a compensation program tied to
shareholder returns and linked to the achievement of annual and longer-term
financial and operational results of the Company on behalf of the Company's
shareholders.
5
<PAGE>
The Compensation Committee of the Board of Directors:
-- Matty Karp
-- Christopher J. Schaepe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company currently consists of Mr. Karp and
Mr. Schaepe. Neither Mr. Karp nor Mr. Schaepe serves as a member of the
compensation committee of any other entity so as to create any compensation
committee interlock. Neither Mr. Karp nor Mr. Schaepe serves as an officer of
the Company or GTI.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Kepler Software Ltd.
In 1996, the Company purchased shares of Kepler Software Ltd. ("Kepler").
Mr. Avigdor Willenz, Chief Executive Officer and Chairman of the Board of
Directors of the Company, is Kepler's chairman of the board of directors. At
December 31, 1997, the shares of Kepler owned by the Company represented
approximately 40 percent of Kepler's outstanding shares.
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO EACH OF THE GALILEO TECHNOLOGY LTD.
1997 EMPLOYEES' STOCK OPTION PLAN AND THE GALILEO TECHNOLOGY LTD. 1997 GTI
STOCK OPTION PLAN
BACKGROUND
The Board has approved, subject to shareholder approval, an amendment to
each of the Galileo Technology Ltd. 1997 Employees' Stock Option Plan (the
"GTL Plan") and the Galileo Technology Ltd. 1997 GTI Stock Option Plan (the
"GTI Plan," and together with the GTL Plan, the "Plans") increasing the
aggregate number of Ordinary Shares reserved for issuance under the Plans by
750,000 Ordinary Shares.
DESCRIPTION OF THE PROPOSAL
Currently, the GTL Plan provides that a total of 2,769,656 Ordinary Shares
may be issued thereunder and the GTI Plan provides that a total of 2,270,000
shares may be issued thereunder. The number of shares that may be issued under
the Plans increases automatically in January each year by an aggregate of four
percent of the Ordinary Shares of the Company then outstanding. As of May 31,
1998, there were 376,402 shares available for option grant under the GTL Plan
and 254,823 shares available for option grant under the GTI Plan. The proposed
amendments to the GTL Plan and the GTI Plan will increase the number of shares
available for issuance under the two Plans by a total of 750,000 shares. The
allocation of the shares between the Plans will be determined by the Company's
Board of Directors. The proposed amendments to the Plans will ensure that
there will be a sufficient reserve of shares to permit the grant of further
options to existing and new employees of and consultants to the Company and
GTI.
DESCRIPTION OF THE GTL PLAN
The GTL Plan is intended to strengthen the Company by providing selected
eligible Israeli employees of, and consultants to, the Company an opportunity
to participate in the Company's future by offering them an opportunity to
acquire shares in the Company so as to retain, attract and motivate them.
Administration of the GTL Plan may be either by the Board or a Committee of
the Board (in either case, the "Administrator"). The Administrator may select
key employees, including executive officers or consultants, to receive awards
under the GTL Plan and has broad discretion to determine the amount and type
of awards and terms and conditions of the awards. Individual grants will
generally be based on a person's present and potential contribution to the
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<PAGE>
Company. Nonemployee directors are not eligible to participate in the GTL
Plan. Since the grant of awards is based upon a determination made by the
Administrator after a consideration of various factors, the Company currently
cannot determine the nature and amount of any awards that will be granted in
the future to any eligible individual or group of individuals.
The consideration payable upon issuance or exercise of an award and any
taxes related to an award may be paid in cash or such other method of payment
as is authorized by the Administrator. The Administrator may, at any time
prior to the exercise of options under the GTL Plan, reduce the exercise price
of such options to the then current fair market value if the previous exercise
price exceeds the then current fair market value of the Ordinary Shares
underlying such options. Awards generally may be exercised at any time within
three months after a participant's employment by, or consulting relationship
with, the Company terminates for any reason (but only to the extent
exercisable or payable at the time of termination). No award shall be
assignable or otherwise transferable by a participant other than by will or by
the laws of descent and distribution.
The Administrator may waive in whole or in part any or all restrictions,
conditions, vesting provisions or forfeiture provisions with respect to any
award granted under the GTL Plan. The Board may amend, alter or discontinue
the GTL Plan or any award at any time, except that the consent of a
participant is required if the participant's rights under an outstanding award
would be impaired. In addition, the shareholders of the Company must approve
any amendment or alteration of the GTL Plan to the extent required by
applicable laws, rules or regulations or to the extent that the Board
otherwise concludes that shareholder approval is advisable.
In the event of a consolidation or merger of the Company with or into
another corporation, each option outstanding under the GTL Plan shall be
assumed, or an equivalent substitute option issued, by the successor
corporation or its parent subsidiary.
ISRAELI INCOME TAX CONSEQUENCES RELATING TO THE GTL PLAN
The GTL Plan was approved by Israel's Income Tax Commissioner pursuant to
Section 102 of the Israel Income Tax Ordinance (New Version), 1961, which
entitles holders of options under the GTL Plan to certain Israeli tax
benefits. Section 102 provides, among other things, that holders of options
generally will not recognize income for Israeli tax purposes until the earlier
of (i) the delivery of the options or the Ordinary Shares by the Trustee to
the holder or to a third party pursuant to the holder's instructions and (ii)
a sale by the holder of the options or the beneficial rights under the
options. The gain recognized by a holder upon any such event will be treated
as a capital gain for Israeli income tax purposes. Upon such recognition of
gain by the holder, the Company shall be entitled to deduct the same amount as
an ordinary deduction.
DESCRIPTION OF THE GTI PLAN
The GTI Plan is intended to strengthen the Company by providing selected
eligible key employees of, and consultants to, GTI an opportunity to
participate in the Company's and GTI's future by offering them an opportunity
to acquire shares in the Company so as to retain, attract and motivate them.
Administration of the GTI Plan may be either by the Company's Board or a
Committee of the Company's Board (in either case, the "Committee"). The
Committee may select key employees of GTI, including executive officers or
consultants, to receive awards under the GTI Plan and has broad discretion to
determine the amount and type of awards and terms and conditions of the
awards. Individual grants will generally be based on a person's present and
potential contribution to GTI and the Company. Nonemployee directors are not
eligible to participate in the GTI Plan. Since the grant of awards is based
upon a determination made by the Committee after a consideration of various
factors, the Company currently cannot determine the nature and amount of any
awards that will be granted in the future to any eligible individual or group
of individuals.
Awards may be granted in the form of incentive stock options ("ISOs") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonqualified stock options ("NQOs") (each ISO or NQO, an
"Option," and collectively, "Options") or stock purchase rights ("Stock
Purchase Rights").
7
<PAGE>
Any award may be granted either alone or in addition to other awards granted
under the GTI Plan. The Committee may condition the grant of the award upon
the attainment of specified Company, group or division performance goals or
other criteria, which need not be the same for all participants.
Options. Options granted under the GTI Plan may be ISOs or NQOs. The
exercise price of ISOs may not be less than the fair market value of the
shares subject to the Option on the date of grant. The exercise price of NQOs
must be at least 85 percent of the fair market value of the shares subject to
the Option on the date of grant. The term of any Option granted under the GTI
Plan may not exceed ten years. Certain other limitations are also applicable
to ISOs in order to take advantage of the favorable tax treatment that may be
available for ISOs.
Stock Purchase Rights. Stock Purchase Rights consist of a grant to purchase
Ordinary Shares at a purchase price determined by the Committee. Stock
Purchase Rights are exercisable for a period of up to 30 days after the grant
date.
The consideration payable upon issuance or exercise of an award and any
taxes related to an award may be paid in cash, by check or by promissory note
of the participant, as authorized by the Committee. The Committee may, at any
time prior to the exercise of options under the GTI Plan, reduce the exercise
price of such options to the then current fair market value of the Ordinary
Shares underlying such Options. Awards generally may be exercised at any time
within three months after a participant's employment by, or consulting
relationship with, the Company terminates (but only to the extent exercisable
or payable at the time of termination). If termination is due to the
participant's death, retirement or disability, the award may be exercised for
12 months thereafter.
The Committee may adjust the performance goals and measurements applicable
to awards. The Committee also may waive in whole or in part any or all
restrictions, conditions, vesting or forfeiture with respect to any award
granted under the GTI Plan.
The Board may amend, alter or discontinue the GTI Plan or any award at any
time, except that the consent of a participant is required if the
participant's rights under an outstanding award would be impaired. In
addition, the shareholders of the Company must approve any amendment,
alteration or discontinuance of the GTI Plan (i) that would increase the total
number of shares reserved under the GTI Plan, (ii) with respect to provisions
solely as they relate to ISOs, to the extent required for the GTI Plan to
comply with Section 422 of the Code, (iii) to the extent required by other
applicable laws, rules or regulations or (iv) to the extent that the Board
otherwise concludes that shareholder approval is advisable.
In the event of a merger of the Company with or into another corporation,
each outstanding Option or Stock Purchase Right may be assumed, or an
equivalent option or right issued, by the successor corporation. If any Option
or Stock Purchase Right is not assumed or a substitute right not issued, the
Option or Stock Purchase Right shall terminate as of the date of the merger.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE GTI PLAN
THE FOLLOWING SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS
BASED UPON EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE
APPLICABLE RULES ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING
UPON THE PARTICULAR CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY
STATEMENT DESCRIBES UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF GENERAL
APPLICABILITY, BUT DOES NOT PURPORT TO DESCRIBE PARTICULAR CONSEQUENCES TO
EACH INDIVIDUAL PLAN PARTICIPANT, OR FOREIGN, STATE OR LOCAL INCOME TAX
CONSEQUENCES, WHICH MAY DIFFER FROM THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.
8
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Incentive Stock Options
Award; Exercise. ISOs are intended to constitute "incentive stock options"
within the meaning of Section 422 of the Code. ISOs may be granted only to
employees of the Company or GTI (including directors who are also employees).
The recipient of an Option (the "Optionee") does not recognize taxable income
upon either the grant or exercise of an ISO. However, the excess of the fair
market value of the shares purchased upon exercise over the Option exercise
price (the "Option Spread") is includable in the Optionee's "alternative
minimum taxable income" ("AMTI") for purposes of the alternative minimum tax.
The Option Spread is generally measured on the date of exercise and is
includable in AMTI in the year of exercise. Special rules regarding the time
of AMTI inclusion may apply for shares subject to a repurchase right or other
"substantial risk of forfeiture." In addition, when stock is acquired subject
to a "substantial risk of forfeiture," an Optionee's holding period for
purposes of determining whether any capital gain or loss on sale is long-term
will generally not begin until the restriction lapses or the Optionee files an
election under Section 83(b) of the Code (a "Section 83(b) Election").
Sale of Option Shares. If an Optionee holds the shares purchased under an
ISO for at least two years from the date the ISO was granted and for at least
one year from the date the ISO was exercised, any gain from a sale of the
shares other than to the Company should be taxable as capital gain. Under
these circumstances, GTI would not be entitled to a tax deduction at the time
the ISO was exercised or at the time the shares were sold. If an Optionee were
to dispose of shares acquired pursuant to an ISO before the end of the
required holding periods (a "Disqualifying Disposition"), the amount by which
the market value of the shares at the time the ISO was exercised exceeded the
exercise price (or, if less, the amount of gain realized on the sale) would be
taxable as ordinary income, and GTI would be entitled to a corresponding tax
deduction. Such income is subject to information reporting requirements and
may become subject to withholding. Gain from a Disqualifying Disposition in
excess of the amount required to be recognized as ordinary income is capital
gain. Optionees are required to notify the Company immediately prior to making
a Disqualifying Disposition. If shares are sold to the Company rather than to
a third party, the sale may not produce capital gain or loss. A sale of shares
to the Company could be taxable as a dividend unless the redemption satisfies
one of the paragraphs of Section 302(b) of the Code.
Nonqualified Stock Options
Award; Exercise. An Optionee is not taxed upon the award of a NQO. Federal
income tax consequences upon exercise will depend upon whether the shares
thereby acquired are subject to a "substantial risk of forfeiture." If the
shares are not subject to a substantial risk of forfeiture, or if they are so
restricted and the Optionee files a Section 83(b) Election with respect to the
shares, the Optionee will have ordinary income at the time of exercise
measured by the Option Spread on the exercise date. The Optionee's tax basis
in the shares will be their fair market value on the date of exercise, and the
holding period for purposes of determining whether capital gain or loss upon
sale is long- or short-term also will begin on that date. If the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, the Optionee will not be taxable upon exercise, but instead will have
ordinary income on the date the restrictions lapse, in an amount equal to the
difference between the amount paid for the shares under the Option and their
fair market value as of the date of lapse; in addition, the Optionee's holding
period will begin on the date of lapse.
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an Optionee who was an employee at
the time of grant constitutes "supplemental wages" subject to withholding of
income and employment taxes by GTI, and GTI is entitled to a corresponding
income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an Optionee generally will recognize capital gain or
loss to the extent of the difference between the sale price and the Optionee's
tax basis in the shares, which will be long-term gain or loss if the
employee's holding period in
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the shares is more than one year. If shares are sold to the Company rather
than to a third party, the sale may not produce capital gain or loss. A sale
of shares to the Company could be taxable as a dividend unless the redemption
satisfies one of the paragraphs of Section 302(b) of the Code.
Stock Purchase Rights.
The tax treatment of Stock Purchase Rights is identical to that of NQOs, as
described above.
PROPOSAL
Shareholders are being asked to approve the amendment to each of the GTL
Plan and the GTI Plan. The affirmative vote of the holders of a majority of
the outstanding Ordinary Shares of the Company represented and voting at the
Annual Meeting is required to adopt the amendment to the Plans.
BOARD RECOMMENDATION
The Board recommends a vote "FOR" approval of the proposal.
PROPOSAL THREE
APPROVAL OF AN AMENDMENT TO THE GALILEO TECHNOLOGY LTD.
EMPLOYEE STOCK PURCHASE PLAN
BACKGROUND
The Board has approved, subject to shareholder approval, an amendment to the
Galileo Technology Ltd. Employee Stock Purchase Plan (the "Purchase Plan")
increasing the aggregate number of shares reserved for issuance thereunder
each year by 105 percent of the number of shares purchased under that plan in
the previous year.
DESCRIPTION OF THE PROPOSAL
The Purchase Plan permits employees to purchase the Company's Ordinary
Shares at a discounted price. Currently, the Purchase Plan provides that a
total of 100,000 Ordinary Shares may be issued thereunder. As of May 31, 1998,
no shares have been issued under the Purchase Plan, as the first Purchase Date
(as defined below) will not occur until June 30, 1998. The proposed amendment
to the Purchase Plan increases the number of shares available for issuance
under the Purchase Plan each year by 105 percent of the number of shares
purchased under that plan in the previous year, in order to ensure that there
will be a sufficient reserve of shares to permit purchases by existing and new
employees of the Company and to satisfy certain regulatory and accounting
requirements. The increase will be effected each year on January 1.
DESCRIPTION OF PURCHASE PLAN
All employees of the Company and GTI, including executive officers and
directors who are employees of either the Company or GTI, and who (i) are
employed by the Company or GTI on or prior to an Offering Date (as defined
below), (ii) are customarily employed more than 20 hours per week by the
Company or GTI and (iii) are customarily employed more than five months per
year by the Company or GTI are eligible to participate in the Purchase Plan as
of the first Offering Date following employment. However, employees who hold,
directly or through options, five percent or more of the shares of the Company
are not eligible to participate. Participants may elect to make contributions
up to a maximum of ten percent of the participant's compensation through
payroll deductions to a plan account. Employees who elect to participate in
the Purchase Plan will enroll prior to the beginning of a two-year offering
period (the "Offering Period"). Offering Periods will begin on January 1 and
July 1 of each year (each, an "Offering Date"). Each Offering Period consists
of four six-month purchase periods ("Purchase Periods"). At the end of each
Purchase Period during the Offering Period, the Company applies the funds then
in each participant's account to the purchase of Ordinary Shares. The cost of
each share purchased is 85 percent of the lower of the closing price for
Ordinary Shares on: (i) the Offering Date or (ii) the last day of the
applicable Purchase Period (the "Purchase Date"). If the price of the Ordinary
Shares on any
10
<PAGE>
Purchase Date is lower than the price on the Offering Date, the participant
will automatically be re-enrolled in the new (lower priced) Offering Period,
and will thus receive the benefit of the lower price for the ensuing two
years. The length of the Offering Period may not exceed 24 months. The Board
has limited the maximum number of shares that may be purchased by a
participant during any Purchase Period to 500 Ordinary Shares, and no
participant's right to acquire shares may accrue at a rate exceeding $25,000
of fair market value of Ordinary Shares (determined as of the first trading
day in an Offering Period) in any calendar year.
The Purchase Plan is administered by a plan administrator appointed by the
Board of Directors. The Board of Directors may amend, modify or terminate the
Purchase Plan at any time. The number and price of Ordinary Shares offered
under the Purchase Plan will be adjusted in the event of a reorganization,
stock split or other similar event. However, amendments that would increase
the number of shares reserved for purchase under the Purchase Plan require
shareholder approval.
Since the number of shares purchased under the Purchase Plan by an employee
and the purchase price thereof are determined by the level of voluntary
contribution by such employee and the market price of the shares in effect
from time to time, the Company currently cannot determine the number of shares
that may be purchased in the future by any eligible individual or group of
individuals or the purchase price thereof.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE PURCHASE
PLAN
In general, United States taxpayer participants in the Purchase Plan will
not have taxable income or loss under the Purchase Plan until they sell or
otherwise dispose of shares acquired under the Purchase Plan (or die holding
such shares). If the shares are held, as of the date of sale or disposition,
for longer than both: (i) two years after the beginning of the Purchase Period
during which the shares were purchased; and (ii) one year following purchase,
a participant who sells the shares (or who dies holding the shares) will have
taxable ordinary income equal to the lower of the excess of the fair market
value of the shares on the first or last day of the Offering Period over the
Purchase Price (but not in excess of the gain on the sale). Any additional
gain from the sale will be long-term capital gain. The Company is not entitled
to an income tax deduction if the holding periods are satisfied.
If the shares are disposed of before the expiration of both of the foregoing
holding periods (a "disqualifying disposition"), a participant will have
taxable ordinary income equal to the excess of the fair market value of the
shares on the purchase date over the purchase price. In addition, the
participant will have taxable capital gain (or loss) measured by the
difference between the sale price and the participant's purchase price plus
the amount of ordinary income recognized, which gain (or loss) will be long-
term if the shares have been held as of the date of sale for more than one
year. The Company is entitled to an income tax deduction equal to the amount
of ordinary income recognized by a participant in a disqualifying disposition.
Special rules apply to participants who are directors or officers.
PROPOSAL
Shareholders are being asked to approve the amendment to the Purchase Plan.
The affirmative vote of the holders of a majority of the outstanding Ordinary
Shares of the Company represented and voting at the Annual Meeting is required
to adopt the amendment to the Purchase Plan.
BOARD RECOMMENDATION
The Board recommends a vote "FOR" approval of the proposal.
11
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PROPOSAL FOUR
APPROVAL OF GALILEO TECHNOLOGY LTD. 1998 NONEMPLOYEE DIRECTORS STOCK OPTION
PLAN
BACKGROUND
In 1998, the Board approved, subject to shareholder approval, the Galileo
Technology Ltd. 1998 Nonemployee Directors Stock Option Plan (the "Directors
Plan").
DESCRIPTION OF THE DIRECTORS PLAN
The Board has approved, subject to shareholder approval, the Directors Plan.
A total of 100,000 Ordinary Shares have been reserved for issuance upon
exercise of NQOs granted under the Directors Plan, none of which has yet been
issued. The Company currently has two nonemployee directors who are eligible
to participate in the Directors Plan, both of whom have been nominated for re-
election at the Annual Meeting. The Directors Plan provides for the automatic
granting of NQOs to directors of the Company who are not employees of the
Company or GTI and who have not been employees of either the Company or GTI in
the previous 12 months ("Eligible Outside Directors"). Each person (i) who is
elected as an Eligible Outside Director at the 1998 Annual Meeting or (ii) who
is initially elected or appointed as an Eligible Outside Director on or after
the date of the 1998 Annual Meeting (and who has not previously been a
director of the Company) will be granted an option to purchase 25,000 Ordinary
Shares on the date of such election or appointment (the "Initial Grant");
provided, however, that the Chairman of the Board may, at his discretion,
increase the number of shares subject to the Initial Grant. Thereafter, each
Eligible Outside Director will be granted an option to purchase 6,250 Ordinary
Shares (the "Annual Grant") on the date of the first meeting of the Board of
Directors following the annual general meeting of shareholders each year,
unless such director has received an Initial Grant in the six months preceding
that Board meeting.
Options granted under the Directors Plan will have an exercise price equal
to the fair market value of the Ordinary Shares on the date of grant. An
Initial Grant will vest monthly for a period of four years following the date
of the Initial Grant, so that such option will be fully vested on the fourth
anniversary of the Initial Grant. An Annual Grant will vest monthly for a
period of one year beginning on the third anniversary of the Annual Grant, so
that such option will be fully vested on the fourth anniversary of the Annual
Grant.
The consideration payable in connection with any option (including any
related taxes) may be paid by promissory note of the nonemployee director.
Options granted under the Directors Plan have a term of ten years. Options
generally may be exercised at any time within three months after a nonemployee
director ceases to be, for any reason, a director of the Company (but only to
the extent exercisable at the time of such cessation), but if a nonemployee
director ceases to be a director due to death, disability or retirement, the
option may be exercised for two years after that event.
The Board may amend, alter, or discontinue the Directors Plan or any option
at any time, except that the consent of a participant is required if the
participant's existing rights under an outstanding option would be impaired.
In addition, to the extent required under applicable laws, rules or
regulations, the shareholders of the Company must approve any amendment or
alteration of the Directors Plan that would increase the total number of
shares reserved under the Directors Plan and in certain other circumstances as
the Board may deem advisable to comply with such laws, rules and regulations.
In addition, the provisions of the plan governing who is granted options, the
number of shares covered by each option, the exercise price, and the period of
exercisability and the timing of option grants may not be amended more than
once every six months, other than for changes to comport with the Code or the
United States Employee Retirement Income Security Act of 1974.
In the event of a "change in control" of the Company, as defined in the
Directors Plan, the vesting of options will automatically accelerate. A
"change in control" is defined to include the acquisition of 50% or more of
the voting power of the Company's outstanding stock, a proxy solicitation for
one or more directors without support of the then-current Board, and certain
mergers or reorganizations or other changes in ownership of the Company's
assets or stock.
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The following table shows, based on the current composition of the Board,
the number of options which will be granted to the listed groups under the
Directors Plan in 1998.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS(1)
--------------------
<S> <C>
All executive officers as a group...................... 0
All directors who are not executive officers as a
group................................................. 50,000
All employees (other than executive officers) as a
group................................................. 0
</TABLE>
- --------
(1) All options granted at fair market value as of the date of grant.
Under the GTI Plan, the GTL Plan and the Purchase Plan, nonemployee
directors are not eligible to receive options. The Company believes it
important that directors have meaningful equity ownership in the Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTORS PLAN
The United States Federal Income Tax treatment of options granted under the
Directors Plan is generally the same as the tax treatment of NQOs as discussed
above with respect to Proposal Two.
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the Directors Plan. The affirmative
vote of the holders of a majority of the outstanding Ordinary Shares of the
Company represented and voting at the Annual Meeting is required for approval
of the Directors Plan. The Board recommends a vote "FOR" approval of the
proposal.
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
BACKGROUND
The Board has selected Ernst & Young LLP as its United States independent
auditors to audit the consolidated financial statements of the Company for the
1998 fiscal year, and Kost Forer & Gabbay (a member firm of Ernst & Young
International) as its Israeli independent auditors to audit the financial
statements of the Company for the 1998 fiscal year. Ernst & Young LLP has been
engaged as the Company's United States auditors since 1996 and audited the
Company's consolidated financial statements for all fiscal years since 1994.
Ernst & Young LLP has also been GTI's independent auditors since fiscal year
1994. Ratzkovsky Fried & Co. had been engaged as the Company's Israeli
auditors from 1994 to 1996. Kost Forer & Gabbay and Ratzkovsky Fried & Co.
were engaged as the Company's Israeli joint independent auditors for fiscal
year 1997. Representatives of Ernst & Young LLP are expected to be available
to respond to questions raised during the Annual Meeting.
PROPOSAL
Shareholders are being asked to ratify the selection of Ernst and Young LLP
as the Company's United States independent auditor for the 1998 fiscal year,
and the selection of Kost Forer & Gabbay as the Company's Israeli independent
auditors for the 1998 fiscal year. The affirmative vote of the holders of a
majority of the outstanding Ordinary Shares of the Company represented and
voting at the Annual Meeting is required for ratification of the selection of
the independent auditors.
BOARD RECOMMENDATION
The Board recommends a vote "FOR" approval of the proposal.
13
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: July 9, 1998
14
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1663-PS98
<PAGE>
PROXY
GALILEO TECHNOLOGY LTD.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) George Hervey and Avigdor Willenz, or either
of them, each with full power of substitution, the lawful attorneys and
proxies of the undersigned to vote as designated below, and, in their
discretion, upon such other business as may properly be presented to the
meeting, all of the Ordinary Shares of GALILEO TECHNOLOGY LTD. that the
undersigned shall be entitled to vote at the Annual Meeting of Shareholders to
be held on August 4, 1998, and at any adjournments or postponements thereof.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
[X] Please mark
votes as in
this example.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned shareholder. WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS LISTED BELOW. This proxy may be revoked at any time prior to
the time it is voted by any means described in the accompanying Proxy Statement.
1. To elect as directors Avigdor Willenz, Manuel Alba, Matty Karp and
Christopher J. Schaepe.
[_] FOR [_] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
MARK HERE [_]
FOR ADDRESS
CHANGE AND
NOTE BELOW
[_]___________________________________________________________
To withhold authority to vote for any individual nominee,
write that nominee's name on the line above.
FOR AGAINST ABSTAIN
2. To approve an amendment to each of the [_] [_] [_]
Galileo Technology Ltd. 1997 Employees'
Stock Option Plan and the Galileo
Technology Ltd. 1997 GTI Stock Option
Plan (together, the "Plans") to increase
by 750,000 the number of shares reserved
for issuance under such Plans.
FOR AGAINST ABSTAIN
3. To approve an amendment to the Galileo [_] [_] [_]
Technology Ltd. 1997 Employee Stock
Purchase Plan to increase the number of
shares reserved for issuance under that
plan each year by 105 percent of the
number of shares purchased under that
plan in the previous calendar year.
FOR AGAINST ABSTAIN
4. To approve the Galileo Technology Ltd. [_] [_] [_]
1998 Nonemployee Directors Stock Option
Plan.
FOR AGAINST ABSTAIN
5. To ratify the appointment of Ernst & Young [_] [_] [_]
LLP as the Company's United States
independent auditors and Kost Forer &
Gabbay as the Company's Israeli independent
auditors.
Please date and sign exactly as name(s) appear(s) hereon. If shares are held
jointly, each holder should sign. Please give full title and capacity in which
signing if not signing as an individual.
Signature:__________________ Date:_____ Signature:__________________ Date:_____
