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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
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<S> <C>
DOT HILL SYSTEMS CORP.
- -----------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/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:
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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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY
[INSERT DOT HILL SYSTEMS CORP. LOGO]
Dear Fellow Shareholders,
You are cordially invited to attend the Annual Meeting of Shareholders on
Monday, May 8, 2000 at 9:00 a.m. local time at the Company's headquarters,
located at 6305 El Camino Real, Carlsbad, California 92009, for the following
purposes:
At this year's Annual Meeting, you will be asked to approve:
1. the election of two directors to hold office until the 2003 Annual
Meeting of Shareholders;
2. the 2000 Amended and Restated Equity Incentive Plan;
3. the 2000 Amended and Restated Employee Stock Purchase Plan;
4. the 2000 Non-Employee Directors' Stock Option Plan;
5. the amendment of the Company's Amended and Restated Certificate of
Incorporation to increase the number of shares of common stock authorized
for issuance from 40,000,000 to 100,000,000 shares and the number of
shares of preferred stock authorized for issuance from 5,000,000 to
10,000,000 shares;
6. the change in the Company's state of incorporation from New York to
Delaware;
7. the selection of Deloitte & Touche LLP as independent auditors of the
Company for its fiscal year ending December 31, 2000; and
8. the transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Your vote on these matters is important, and we appreciate your continued
support.
Please sign, date, and return the enclosed Proxy Card in the envelope
provided as soon as possible so that your shares can be voted at the meeting in
accordance with your instructions. If you plan to attend the meeting, please
mark the box where indicated on the Proxy Card. If you will need special
assistance at the meeting because of a disability, please contact Valerie
Greenberg, Director of Investor Relations at (212) 989-4455.
Very truly yours,
Philip Black
Co-Chief Executive Officer
Very truly yours,
James L. Lambert
Co-Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
<PAGE>
PRELIMINARY COPY
DOT HILL SYSTEMS CORP.
6305 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92009
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2000
------------------------
TO THE SHAREHOLDERS OF DOT HILL SYSTEMS CORP.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DOT HILL
SYSTEMS CORP., a New York corporation (the "Company"), will be held on Monday,
May 8, 2000 at 9:00 a.m. local time at the Company's headquarters, located at
6305 El Camino Real, Carlsbad, California 92009, for the following purposes:
1. To elect two directors to hold office until the 2003 Annual Meeting of
Shareholders.
2. To approve the Company's 2000 Amended and Restated Equity Incentive
Plan.
3. To approve the Company's 2000 Amended and Restated Employee Stock
Purchase Plan.
4. To approve the Company's 2000 Non-Employee Directors' Stock Option Plan.
5. To amend the Company's Amended and Restated Certificate of Incorporation
to increase the number of shares of common stock authorized for issuance
from 40,000,000 to 100,000,000 shares and the number of shares of
preferred stock authorized for issuance from 5,000,000 to 10,000,000
shares.
6. To approve a change in the Company's state of incorporation from New
York to Delaware.
7. To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending December 31, 2000.
8. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 20, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Mark A. Mays
Secretary
Carlsbad, California
March 30, 2000
THE DOT HILL SYSTEMS CORP. 1999 ANNUAL REPORT, WHICH INCLUDES FINANCIAL
STATEMENTS, IS BEING MAILED WITH THIS PROXY STATEMENT. KINDLY NOTIFY AMERICAN
STOCK TRANSFER & TRUST COMPANY, 6201 15(TH) AVENUE, BROOKLYN, NY 11219,
TELEPHONE (718) 921-8247, IF YOU DID NOT RECEIVE A REPORT, AND A COPY WILL BE
SENT TO YOU.
<PAGE>
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
DOT HILL SYSTEMS CORP.
6305 EL CAMINO REAL
CARLSBAD, CALIFORNIA 92009
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
------------------------
MAY 8, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Dot
Hill Systems Corp., a New York corporation ("Dot Hill" or the "Company"), for
use at the Annual Meeting of Shareholders to be held on May 8, 2000, at
9:00 a.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the Company's
offices located at 6305 El Camino Real, Carlsbad, California 92009 The Company
intends to mail this proxy statement and accompanying proxy card on or about
March 30, 2000, to all shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of common stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of common stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
The common stock, $0.01 par value, of the Company is its only class of
security entitled to vote at the Annual Meeting. Only holders of record of
common stock at the close of business on March 20, 2000 will be entitled to
notice of and to vote at the Annual Meeting. At the close of business on
March 20, 2000, the Company had outstanding and entitled to vote
shares of common stock.
Each holder of record of common stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
Shares cannot be voted unless a signed proxy card is returned or other specific
arrangements are made to have shares represented at the Annual Meeting. If a
shareholder wishes to give a proxy to someone other than the individuals named
as proxies on the proxy card, he or she may cross out the names appearing on the
enclosed proxy card, insert the name of some other person, and sign and give the
proxy card to that person for use at the meeting.
Shareholders are encouraged to specify their choices by marking the
appropriate boxes on the enclosed proxy card. Shares will be voted in accordance
with such instructions. However, it is not necessary to mark any boxes if you
wish to vote in accordance with the Board of Directors' recommendations; simply
sign, date and return the proxy card in the enclosed envelope.
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All votes will be tabulated and certified by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. The affirmative vote of the holders of
a majority of the outstanding shares of common stock represented in person or by
proxy at the Annual Meeting is required to approve Proposals 1 through 5 and
Proposal 7. The affirmative vote of the holders of two-thirds of the outstanding
shares of common stock represented in person or by proxy at the Annual Meeting
is required to approve Proposal 6. With respect to Proposal 1, abstentions,
votes withheld from director nominees and broker non-votes will not be counted
as votes cast for or against the election of director nominees and, accordingly,
will not affect the outcome of the vote. With respect to Proposals 2 through 7,
abstentions and broker non-votes will not be counted as votes cast for or
against the proposals and, accordingly, will not affect the outcome of the vote.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 6305 El
Camino Real, Carlsbad, California 92009, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
SHAREHOLDER PROPOSALS
The deadline for submitting a shareholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is 5:00 p.m., PST, on November 30, 2000. If Proposal 6 is approved,
then shareholders wishing to submit proposals or director nominations that are
not to be included in such proxy statement and proxy must do so not later than
the close of business on December 31, 2000 nor earlier than the close of
business on December 1, 2000. If Proposal 6 is not approved, then unless a
shareholder who wishes to bring a matter before the shareholders at the
Company's 2001 annual meeting of shareholders notifies the Company of such
matter prior to February 14, 2001, management will have discretionary authority
to vote all shares for which it has proxies in opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
that the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the number of directors) shall serve for the remainder of the
full term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of eight members. There are two
directors in the class whose term of office expires in 2000. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the Board immediately following the merger of
Artecon, Inc. ("Artecon") and Box Hill Systems Corp. ("Box Hill"), which was
effective August 2, 1999 (the "Merger"). If elected at the Annual Meeting, each
of the nominees would serve until the 2003 annual meeting and until his or her
successor is elected and has qualified, or until such director's earlier death,
resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the two nominees named below. In the event that any nominee should
be
3
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unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL MEETING
PHILIP BLACK
Philip Black, age 45, has been Co-Chief Executive Officer, Executive Vice
President of International Sales and a Director of the Company since the Merger.
Prior to the Merger, Mr. Black was Chief Executive Officer and a Director of Box
Hill, and held those positions since joining Box Hill in May 1995. From
April 1994 until he joined the Company, Mr. Black was President and Chief
Executive Officer of Chevry, a backup software company. From September 1991
until June 1994, Mr. Black served as the Chief Executive Officer and Treasurer
of Avalon Control Technologies, a company specializing in products and services
related to Echelon's LONWorks technology. From March 1990 until August 1991,
Mr. Black served as Managing Director of Echelon Europe, of which he was a
co-founder. From 1976 to 1991, Mr. Black held a number of positions, including
Vice President, President, Chief Executive Officer and Vice Chairman of the
Board, at Tekelec, Inc., a publicly traded company, of which he was the founder,
engaged in the design, manufacturing and marketing of diagnostics systems and
network switching solutions.
NORMAN R. FARQUHAR
Norman R. Farquhar, age 53, has served as a Director of the Company since
the Merger. From April 1998 until the Merger, Mr. Farquhar was a Director of
Artecon. Mr. Farquhar has served as Executive Vice President and Chief Financial
Officer of medibuy.com, a publicly traded company that provides medical/surgical
products, commodity items, capital equipment and facility-related products
exclusively over the internet, since November 1999. From December 1998 to
November 1999, Mr. Farquhar was Executive Vice President and Chief Financial
Officer of Epicor Software Corporation (formerly known as Platinum Software
Corporation), a publicly traded developer of client/server enterprise resource
planning software. Mr. Farquhar also served as Executive Vice President and
Chief Financial Officer of DataWorks Corporation, a publicly traded supplier of
information systems to manufacturing companies (which was acquired by Platinum
Software Corporation in December 1998), from February 1996 to December 1998 and
as a director of DataWorks from August 1995 to December 1998. From April 1993 to
1995, Mr. Farquhar served as Senior Vice President, Chief Financial Officer and
Secretary of Wonderware Corporation, a manufacturer of software for the
industrial automation industry. From December 1991 to April 1993, he was Vice
President of Finance and Chief Financial Officer of MTI Technology Corporation,
a developer of system-managed storage solutions. From November 1987 to
December 1991, Mr. Farquhar was Senior Vice President and Chief Financial
Officer of Amperif Corporation, a manufacturer of cache-based data storage
subsystems. Mr. Farquhar is also a member of the Board of Directors of Alteer
Corporation, a privately held medical software company. Mr. Farquhar holds a
B.S. from California State, Fullerton and an MBA from California State, Long
Beach.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
BENJAMIN BRUSSELL
Benjamin Brussell, age 39, has served as a Director of the Company since the
Merger, and was a director of Box Hill from November 1998 until the Merger.
Throughout his career, Mr. Brussell has focused on developing and executing
acquisitions, investments and strategic alliances for technology companies.
Since March 1998, he has served as Vice President of Corporate Development for
Plantronics (NYSE:PLT), a worldwide provider of communications products. From
1990 to 1998, Mr. Brussell was responsible for corporate development at Storage
Technology Corporation, a manufacturer of storage systems, most recently serving
as Vice President of Corporate Development. From 1985 to 1990, Mr. Brussell
worked for Salomon Brothers in various capacities, including Vice President of a
technology industry group within Salomon's Corporate Finance Department.
Mr. Brussell earned a Masters Degree in Management, with a concentration in
Finance, from the M.I.T. Sloan School of Management, and a Bachelor of Arts
degree from Wesleyan University, where he majored in Math and Economics.
DR. BENJAMIN MONDERER, ENG.SC.D.
Dr. Benjamin Monderer, Eng.Sc.D., age 41, has served as Executive Vice
President of Applications Engineering/Professional Services and a Director of
the Company since the Merger. A founder of Box Hill, Dr. Monderer was President
and a Director from its incorporation in 1988 until the Merger, and served as
Chairman of the Board of Box Hill from July 1997 until the Merger. Dr. Monderer
was a member of the technical staff at Hewlett-Packard in 1980 and 1981, and was
a Research Scientist at Columbia University from 1986 to 1989. Dr. Monderer
holds a Bachelor of Science in Electrical Engineering from Princeton University
and a Master of Science degree in Electrical Engineering and a Doctor of
Engineering Science from Columbia University. Dr. Monderer is married to Carol
Turchin.
CHONG SUP PARK
Chong Sup Park, age 52, has served as a Director of the Company since the
Merger, and was a director of Artecon from 1996 until the Merger. Dr. Park has
served as the President of Hyundai Electronics American, an electronics company,
and the Chairman of Maxtor Corporation, a disk drive manufacturer, since 1996.
Dr. Park was the President of Maxtor Corporation from 1995 to 1996, the
President of Axil Computer Inc., a workstation manufacturer, from 1993 to 1995,
the Executive Vice President at Ernst & Young Consulting, Inc., a public
accounting firm, from 1992 to 1993, and the Senior Vice President of Hyundai
Electronics Company Limited from 1990 to 1992. Dr. Park holds a B.A. in
Management from Yonsei University, an M.A. in Management from Seoul National
University, an M.B.A. from the University of Chicago and a Doctorate in
Management from Nova Southeastern University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
JAMES L. LAMBERT
James L. Lambert, age 46, has served as a Director and the President, Chief
Operating Officer and Co-Chief Executive Officer of the Company since the
Merger. A founder of Artecon, Mr. Lambert served as President, Chief Executive
Officer and Director of Artecon from its inception in 1984 until the Merger.
From 1979 to 1984, Mr. Lambert served in various positions at CALMA, a division
of General Electric Company, a publicly traded company, most recently from 1981
to 1984 as Vice President of Research and Development. Mr. Lambert currently
serves as a Director of the Nordic Group of Companies, a group of privately held
companies, and of Snow Valley, Inc., a privately-held resort enterprise
affiliated with the Nordic Group. He holds a B.S. and an M.S. in Civil and
Environmental Engineering form the University of Wisconsin, Madison.
Mr. Lambert is W.R. Sauey's son-in-law.
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W.R. SAUEY
W.R. Sauey, age 72, has served as Chairman of the Board of the Company since
the Merger. Mr. Sauey was a founder of Artecon and served as its Chairman of the
Board from Artecon's inception in 1984 until the Merger. From 1984 to 1997,
Mr. Sauey also served as Treasurer of Artecon. Mr. Sauey founded and serves as
Chairman of the Board for a number of manufacturing companies in the Nordic
Group of Companies, a group of privately-held independent companies of which
Mr. Sauey is the principal shareholder. Mr. Sauey is an advisory board member of
the Liberty Mutual Insurance Company, a publicly traded insurance company, and
also serves as a Trustee to the State of Wisconsin Investment Board. Mr. Sauey
holds a M.B.A. from the University of Chicago. Mr. Sauey is James Lambert's
father-in-law.
CAROL TURCHIN
Carol Turchin, age 38, has served as a Director of the Company since the
Merger and as Vice Chairman of the Board since October 1999. A founder of Box
Hill, Ms. Turchin was an executive officer and a Director of Box Hill from its
incorporation in 1988 until the Merger and served as Executive Vice President
Strategic Planning, Executive Vice President of Sales and Vice President of
Marketing for Box Hill. Ms. Turchin holds a Bachelor of Arts degree from Vassar
College. Ms. Turchin is married to Benjamin Monderer.
BOARD COMMITTEES AND MEETINGS
From the time of the Merger through December 31, 1999, the Board of
Directors held two meetings. From January 1, 1999 until the time of the Merger,
Box Hill's Board of Directors met four times, and Artecon's Board of Directors
met five times. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee was appointed the day following the
Merger and is composed of three non-employee directors: Messrs. Brussell and
Farquhar and Dr. Park. In the opinion of the Board, the Audit Committee members
are independent of management and free of any relationship that would interfere
with their exercise of independent judgment as members of this committee. The
Audit Committee did not hold any meetings during 1999. From January 1, 1999
until the Merger, Box Hill's Audit Committee and Artecon's Audit Committee each
met once.
The Compensation Committee is responsible for administering and approving
all elements of compensation for elected corporate officers and certain other
senior management positions. It also approves, by direct action or delegation,
participation in and all awards, grants and related actions under the Company's
1995 Incentive Program and Employee Stock Purchase Plan. The Compensation
Committee is also responsible for reviewing the Company's management resources
programs and for recommending qualified candidates to the Board for election as
officers. The Compensation Committee was appointed the day following the Merger
and is composed of three non-employee directors: Messrs. Brussell and Farquhar
and Dr. Park. In the opinion of the Board, the Compensation Committee members
are independent of management and free of any relationship that would interfere
with their exercise of independent judgment as members of this committee. The
Compensation Committee held one meeting. From January 1, 1999 until the Merger,
Box Hill's Compensation Committee met once, and Artecon's Compensation Committee
did not meet.
During the fiscal year ended December 31, 1999, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he or she served, held during the period for which he or she was a
director or committee member, respectively.
6
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PROPOSAL 2
APPROVAL OF 2000 AMENDED AND RESTATED EQUITY INCENTIVE PLAN
In July 1997, the Board of Directors of the Company adopted, and the
shareholders subsequently approved, the Company's 1995 Incentive Program, as
Amended and Restated ("Incentive Plan"), which is an amended, restated and
retitled version of the Company's 1995 Incentive Program (the "Prior Plan"). As
a result of an amendment in July 1999, as of August 2, 1999, there were
4,392,500 shares of common stock reserved for issuance under the Incentive Plan.
In March 2000, the Board amended and restated the Incentive Plan ("Amended
Incentive Plan"), subject to shareholder approval, generally to provide for a
more comprehensive and flexible equity incentive plan to its employees,
officers, key executive, directors, professionals, administrators and
consultants. In addition, the Board adopted this amendment and restatement in
order to permit the Company, under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), to continue to deduct as a business expense
certain compensation attributable to the exercise of stock options granted under
the Incentive Plan. Section 162(m) denies a deduction to any publicly-held
corporation for certain compensation paid to specified employees in a taxable
year to the extent that the compensation exceeds $1 million for any covered
employee. See "Federal Income Tax Information" below for a discussion of the
application of Section 162(m). In light of the Section 162(m) requirements, the
Board has amended the Incentive Plan, subject to shareholder approval, to
include a limitation providing that no employee may be granted options under the
Amended Incentive Plan during a calendar year to purchase in excess of 1,000,000
shares of common stock. Previously, no such formal limitation was placed on the
number of shares of common stock available for grants to any individual. Except
as described under "Stock Subject to the Incentive Plan" below, the number of
shares of common stock reserved for issuance under the Amended Incentive Plan
has not been increased from the number of shares of common stock reserved for
issuance under the Incentive Plan.
As of January 31, 2000, awards (net of canceled or expired awards) covering
an aggregate of 2,166,747 shares of the Company's common stock had been granted
under the Incentive Plan, and 1,686,453 shares of common stock (plus any shares
that might in the future be returned to the Incentive Plan as a result of
cancellations or expiration of awards) remained available for future grant under
the Incentive Plan.
Shareholders are requested in this Proposal 2 to approve the Amended
Incentive Plan. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote will be required
to approve the Amended Incentive Plan. For purposes of this vote, abstentions
and broker non-votes will not be counted as votes cast for or against the
approval of this matter.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Amended Incentive Plan are outlined below:
GENERAL
The Amended Incentive Plan provides for the grant of incentive stock
options, nonstatutory stock options, stock bonuses, stock appreciation rights
and restricted stock purchase awards (collectively "awards"). Incentive stock
options granted under the Amended Incentive Plan are intended to qualify as
"incentive stock options" within the meaning of the Code. Nonstatutory stock
options granted under the Amended Incentive Plan are not intended to qualify as
incentive stock options under the Code. Stock appreciation rights granted under
the Amended Incentive Plan may be tandem rights, concurrent rights or
independent rights. See "Federal Income Tax Information" for a discussion of the
tax treatment of awards. To date, the Company has granted only stock options
under the Incentive Plan.
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PURPOSE
The Board adopted the Amended Incentive Plan to provide a means by which
employees, directors and consultants of the Company and its affiliates may be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of such persons, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its affiliates. All of
the approximately 325 employees, directors and consultants of the Company and
its affiliates are eligible to participate in the Amended Incentive Plan.
ADMINISTRATION
The Board administers the Amended Incentive Plan. Subject to the provisions
of the Amended Incentive Plan, the Board has the power to construe and interpret
the Amended Incentive Plan and to determine the persons to whom and the dates on
which awards will be granted, the number of shares of common stock to be subject
to each award, the time or times during the term of each award within which all
or a portion of such award may be exercised, the exercise price, the type of
consideration and other terms of the award.
The Board has the power to delegate administration of the Amended Incentive
Plan to a committee composed of not fewer than two members of the Board. In the
discretion of the Board, a committee may consist solely of two or more outside
directors in accordance with Section 162(m) of the Code or solely of two or more
non-employee directors in accordance with Rule 16b-3 of the 1934 Act. The Board
has delegated administration of the Amended Incentive Plan to the Compensation
Committee of the Board. As used herein with respect to the Amended Incentive
Plan, the "Board" refers to any committee the Board appoints as well as to the
Board itself. The Board also has delegated to each of the Company's Chief
Executive Officers the power to grant stock awards under the Amended Incentive
Plan to non-executive officer employees of the Company pursuant to guidelines
established by the Board or the Compensation Committee.
The regulations under Section 162(m) of the Code require that the directors
who serve as members of the committee must be "outside directors." The Amended
Incentive Plan provides that, in the Board's discretion, directors serving on
the committee may be "outside directors" within the meaning of Section 162(m).
This limitation would exclude from the committee directors who are:
- current employees of the Company or an affiliate;
- former employees of the Company or an affiliate receiving compensation for
past services (other than benefits under a tax-qualified pension incentive
plan);
- current and former officers of the Company or an affiliate;
- directors currently receiving direct or indirect remuneration from the
Company or an affiliate in any capacity (other than as a director); and
- any other person who is otherwise considered an "outside director" for
purposes of Section 162(m).
The definition of an "outside director" under Section 162(m) is generally
narrower than the definition of a "non-employee director" under Rule 16b-3 of
the 1934 Act.
ELIGIBILITY
Incentive stock options, and stock appreciation rights appurtenant thereto,
may be granted under the Amended Incentive Plan only to employees (including
officers) of the Company and its affiliates. Employees (including officers),
directors, and consultants of both the Company and its affiliates are eligible
to receive all other types of awards under the Amended Incentive Plan.
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No incentive stock option may be granted under the Amended Incentive Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 110% of the
fair market value of the stock subject to the option on the date of grant and
the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year (under
the Amended Incentive Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
No employee may be granted options under the Amended Incentive Plan
exercisable for more than 1,000,000 shares of common stock during any calendar
year ("Section 162(m) Limitation").
STOCK SUBJECT TO THE AMENDED INCENTIVE PLAN
Subject to shareholder approval of this Proposal, an aggregate of 4,392,500
shares of common stock is reserved for issuance under the Amended Incentive
Plan. In addition, an annual increase to add and reserve on the day of each
shareholders' annual meeting (beginning with the annual meeting in 2001) shall
equal the lesser of:
- 2% of the Company's outstanding shares on each such date (rounded to the
nearest whole share and calculated on a fully diluted basis, that is
assuming the exercise of all outstanding stock options and warrants to
purchase common stock);
- 1,000,000 shares; or
- an amount determined by the Board.
If awards granted under the Amended Incentive Plan expire or otherwise
terminate without being exercised, the shares of common stock not acquired
pursuant to such awards again become available for issuance under the Amended
Incentive Plan. In addition, if the Company reacquires unvested stock issued
under the Amended Incentive Plan, the reacquired shares of common stock will
again become available for reissuance under the Amended Incentive Plan for
awards other than incentive stock options.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Amended Incentive Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options may
not be less than 100% of the fair market value of the stock subject to the
option on the date of the grant and, in some cases (see "Eligibility" above),
may not be less than 110% of such fair market value. The exercise price of
nonstatutory options may not be less than 85% of the fair market value of the
stock on the date of grant. If options were granted with exercise prices below
market value, deductions for compensation attributable to the exercise of such
options could be limited by Section 162(m) of the Code. See "Federal Income Tax
Information." As of March 15, 2000, the closing price of the Company's common
stock as reported on the New York Stock Exchange was $13.00 per share.
The exercise price of options granted under the Amended Incentive Plan must
be paid either in cash at the time the option is exercised, or at the discretion
of the Board, by delivery of other common stock of the Company, pursuant to a
deferred payment arrangement, or in any other form of legal consideration
acceptable to the Board.
REPRICING. In the event of a decline in the value of the Company's common
stock, the Board does not have the authority to offer participants the
opportunity to replace outstanding higher priced options with new lower priced
options.
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OPTION EXERCISE. Options granted under the Amended Incentive Plan may
become exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the Amended Incentive Plan
typically vest over a four-year period, 25% after one year and in equal monthly
installments during the following three years, during the participant's
employment by, or service as a director or consultant to, the Company or an
affiliate (collectively, "service"). Shares covered by options granted in the
future under the Amended Incentive Plan may be subject to different vesting
terms. The Board has the power to accelerate the time during which an option may
vest or be exercised. In addition, options granted under the Amended Incentive
Plan may permit exercise prior to vesting, but in such event the participant may
be required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase unvested shares, generally at their exercise price,
should the participant's service terminate before vesting. To the extent
provided by the terms of an option, a participant may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the participant, by delivering already-owned
common stock of the Company or by a combination of these means.
TERM. The maximum term of options under the Amended Incentive Plan is
10 years, except that in certain cases (see "Eligibility") the maximum term is
five years. Options under the Amended Incentive Plan generally terminate three
months after termination of the participant's service unless:
- such termination is due to the participant's permanent and total
disability (as defined in the Code), in which case the option may, but
need not, provide that it may be exercised (to the extent the option was
exercisable at the time of the termination of service) at any time within
12 months of such termination;
- the participant dies before the participant's service has terminated, or
within the period specified in the option agreement after termination of
such service, in which case the option may, but need not, provide that it
may be exercised (to the extent the option was exercisable at the time of
the participant's death) within 18 months of the participant's death by
the person or persons to whom the rights to such option pass by will or by
the laws of descent and distribution; or
- the option by its terms specifically provides otherwise.
A participant may designate a beneficiary who may exercise the option following
the participant's death. Individual option grants by their terms may provide for
exercise within a longer period of time following termination of service.
The option term generally is extended in the event that exercise of the
option within these periods is prohibited. A participant's option agreement may
provide that if the exercise of the option following the termination of the
participant's service would be prohibited because the issuance of stock would
violate the registration requirements under the 1933 Act, then the option will
terminate on the earlier of the expiration of the term of the option, or three
months after the termination of the participant's service during which the
exercise of the option would not be in violation of such registration
requirements.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PAYMENT. The Board determines the purchase price under a restricted stock
purchase agreement but the purchase price may not be less than 85% of the fair
market value of the Company's common stock on the date of grant.
The purchase price of stock acquired pursuant to a restricted stock purchase
agreement under the Amended Incentive Plan must be paid either in cash at the
time the option is exercised or, at the discretion of the Board, by delivery of
other common stock of the Company, pursuant to a deferred payment arrangement or
in any other form of legal consideration acceptable to the Board; PROVIDED,
HOWEVER, that at
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any time that the Company is incorporated in Delaware, then payment of the
common stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
VESTING. Shares of stock sold or awarded under the Amended Incentive Plan
may, but need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board. The Board has the
power to accelerate the vesting of stock acquired pursuant to a restricted stock
purchase agreement under the Amended Incentive Plan.
RESTRICTIONS ON TRANSFER. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred except where expressly authorized by the
terms of the stock purchase agreement.
STOCK APPRECIATION RIGHTS
The Amended Incentive Plan authorizes three types of stock appreciation
rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are tied
to an underlying option and require the participant to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights must be made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The participant receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the participant to
receive upon exercise an appreciation distribution equal to the market price of
a number of shares equal to the number of share equivalents to which the
participant is vested under the independent stock appreciation right less than
fair market value of such number of shares of stock on the date of grant of the
independent stock appreciation rights. Appreciation distributions payable upon
exercise of independent stock appreciation rights may, at the Board's
discretion, be made in cash, in shares of stock or a combination thereof.
REPRICING. In the event of a decline in the value of the Company's common
stock, the Board does not have the authority to offer participants the
opportunity to replace outstanding higher priced stock appreciation rights with
new lower priced stock appreciation rights.
RESTRICTIONS ON TRANSFER
The participant may not transfer an incentive stock option otherwise than by
will or by the laws of descent and distribution. During the lifetime of the
participant, only the participant may exercise an incentive stock option. The
Board may grant nonstatutory stock options that are transferable. Shares subject
to repurchase by the Company under an early exercise stock purchase agreement
may be subject to restrictions on transfer that the Board deems appropriate.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of common stock subject to the Amended
Incentive Plan and outstanding awards. In that event, the Amended Incentive Plan
will be appropriately adjusted as to the class and the maximum number of shares
of common stock subject
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to the Amended Incentive Plan, and outstanding awards will be adjusted as to the
class, number of shares and price per share of common stock subject to such
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Amended Incentive Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger, or other corporate reorganization ("change in control"), any
surviving corporation will be required to either assume awards outstanding under
the Amended Incentive Plan or substitute similar awards for those outstanding
under the Amended Incentive Plan. If any surviving corporation declines to
assume awards outstanding under the Amended Incentive Plan, or to substitute
similar awards, then, with respect to participants whose service has not
terminated, the vesting and the time during which such awards may be exercised
will be accelerated. An outstanding award will terminate if the participant does
not exercise it before a change in control. The acceleration of an award in the
event of an acquisition or similar corporate event may be viewed as an
anti-takeover provision, which may have the effect of discouraging a proposal to
acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Amended Incentive Plan without
shareholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Amended Incentive Plan will terminate on the day before
the 10th anniversary of the date on which the Amended Incentive Plan was adopted
by the Board or approved by the shareholders, whichever is earlier.
The Board may also amend the Amended Incentive Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
shareholders of the Company before its adoption by the Board, to the extent that
stockholder approval is necessary to comply with Rule 16b-3 of the 1934 Act or
satisfy the requirements of Section 422 of the Code or any securities exchange
listing requirements. The Board may submit any other amendment to the Amended
Incentive Plan for shareholder approval, including, but not limited to,
amendments intended to satisfy the requirements of Section 162(m) of the Code
regarding the exclusion of performance-based compensation from the limitation on
the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Amended
Incentive Plan are intended to be eligible for the favorable federal income tax
treatment accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the participant or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the
participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss if the participant held the
stock for more than one year.
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Generally, if the participant disposes of the stock before the expiration of
either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the participant will realize taxable ordinary income equal
to the lesser of the excess of the stock's fair market value on the date of
exercise over the exercise price, or the participant's actual gain, if any, on
the purchase and sale. The participant's additional gain or any loss upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS, RESTRICTED STOCK PURCHASE AWARDS AND STOCK
BONUSES. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the Amended Incentive Plan generally have the following
federal income tax consequences:
There are no tax consequences to the participant or the Company by reason of
the grant. Upon acquisition of the stock, the participant normally will
recognize taxable ordinary income equal to the excess, if any, of the stock's
fair market value on the acquisition date over the purchase price. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such stock plus any amount recognized as ordinary income upon
acquisition (or vesting) of the stock. Such gain or loss will be long-term or
short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the 1934 Act.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the participant in the
year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the participant.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely
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of "outside directors" and either the plan contains a per-employee limitation on
the number of shares for which such awards may be granted during a specified
period, the per-employee limitation is approved by the stockholders, and the
exercise price of the award is no less than the fair market value of the stock
on the date of grant, or the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation committee) of an
objective performance goal established in writing by the compensation committee
while the outcome is substantially uncertain, and the award is approved by
stockholders.
Compensation attributable to restricted stock and stock bonuses will qualify
as performance-based compensation, provided that the award is granted by a
compensation committee comprised solely of "outside directors" and the purchase
price of the award is no less than the fair market value of the stock on the
date of grant. Stock bonuses qualify as performance-based compensation under the
Treasury regulations only if:
- the award is granted by a compensation committee comprised solely of
"outside directors";
- the award is granted (or exercisable) only upon the achievement of an
objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain;
- the compensation committee certifies in writing prior to the granting (or
exercisability) of the award that the performance goal has been satisfied;
and
- prior to the granting (or exercisability) of the award, stockholders have
approved the material terms of the award (including the class of employees
eligible for such award, the business criteria on which the performance
goal is based, and the maximum amount--or formula used to calculate the
amount--payable upon attainment of the performance goal).
NEW PLAN BENEFITS
During the last fiscal year, options to purchase common stock were granted
under the Incentive Plan in the following amounts and having the following
values (calculated as the exercise price multiplied by the number of shares
underlying the options): Carol Turchin: 50,000 shares ($275,000); all current
executive officers as a group 100,000 shares ($537,500); all employees
(excluding executive officers) as a group 856,875 shares ($4,707,734); and all
non-employee directors as a group: 130,000 shares ($715,000).
PROPOSAL 3
APPROVAL OF 2000 AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
In August 1997, the Board adopted, and shareholders subsequently approved,
the Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan"). As a
result of an amendment approved by the shareholders in August 1999, as of
August 2, 1999, there were 750,000 shares of common stock reserved for issuance
under the Purchase Plan.
In March 2000, the Board amended and restated the Purchase Plan (the
"Amended Purchase Plan"), subject to shareholder approval, generally to provide
for a more comprehensive and flexible stock purchase plan to its employees.
As of March 15, 2000, an aggregate of 119,396 shares of the Company's common
stock had been issued under the Purchase Plan, and 630,604 shares of common
stock (plus any shares that might in the future be returned to the Purchase Plan
as a result of cancellations or expiration of purchase rights) remained
available for future grant under the Purchase Plan.
Shareholders are requested in this Proposal 3 to approve the Amended
Purchase Plan. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled
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to vote will be required to approve the Amended Purchase Plan. For purposes of
this vote, abstentions and broker non-votes will not be counted as votes cast
for or against the approval of this matter.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Amended Purchase Plan are outlined below:
PURPOSE
The purpose of the Amended Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company designated
by the Board to participate in the Amended Purchase Plan) may be given an
opportunity to purchase common stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company. As of December 31,
1999, approximately 295 of the Company's approximately 329 employees were
eligible to participate in the Amended Purchase Plan.
The rights to purchase common stock granted under the Amended Purchase Plan
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Board administers the Amended Purchase Plan and has the final power to
construe and interpret both the Amended Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Amended
Purchase Plan, to determine when and how rights to purchase common stock of the
Company will be granted, the provisions of each offering of such rights, and
whether employees of any parent or subsidiary of the Company will be eligible to
participate in the Amended Purchase Plan.
The Board has the power to delegate administration of the Amended Purchase
Plan to a committee composed of not fewer than two members of the Board. The
Board has delegated administration of the Amended Purchase Plan to the
Compensation Committee of the Board. As used herein with respect to the Amended
Purchase Plan, the "Board" refers to the Compensation Committee and to the
Board.
OFFERINGS
The Amended Purchase Plan is implemented by offerings of rights to all
eligible employees from time to time by the Board. Generally, each offering is
two years long and is divided into four shorter "purchase periods" approximately
six months long.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and three
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated by the Board) on the first day of an offering is eligible to
participate in that offering, provided such employee has been continuously
employed by the Company or the designated affiliate for a period preceding the
date of such grant as the Board may require (but in no event shall this period
be greater than two years). The Board may provide that employees of the Company
who are "highly compensated" as defined in the Code are not eligible to
participate in the offering.
However, no employee is eligible to participate in the Amended Purchase Plan
if, immediately after the grant of purchase rights, the employee would own,
directly or indirectly, stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or of any parent or
subsidiary of the Company (including any stock which such employee may purchase
under all outstanding
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rights and options). In addition, no employee may purchase more than $25,000
worth of common stock (determined at the fair market value of the shares at the
time such rights are granted) under all employee stock purchase plans of the
Company and its affiliates in any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees enroll in the Amended Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to a percentage
designated by the Board not exceeding 15% of such employees' base compensation
during the offering.
PURCHASE PRICE
The purchase price per share at which shares of common stock are sold in an
offering under the Amended Purchase Plan is the lower of 85% of the fair market
value of a share of common stock on the first day of the offering, or 85% of the
fair market value of a share of common stock on the purchase date, as
established by the Board.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering. At any time during the offering, a participant may reduce or
terminate his or her payroll deductions as the Board provides in the offering. A
participant may not increase or begin such payroll deductions after the
beginning of the offering, except as provided for in the offering. All payroll
deductions made for a participant are credited to his or her account under the
Amended Purchase Plan and deposited with the general funds of the Company. A
participant may not make additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Amended Purchase Plan, the
employee is entitled to purchase shares under the Amended Purchase Plan. In
connection with offerings made under the Amended Purchase Plan, the Board
specifies a maximum number of shares of common stock an employee may be granted
the right to purchase and the maximum aggregate number of shares of common stock
that may be purchased pursuant to such offering by all participants. If the
aggregate number of shares to be purchased upon exercise of rights granted in
the offering would exceed the maximum aggregate number of shares of common stock
available, the Board would make a pro rata allocation of available shares in a
uniform and equitable manner. Unless the employee's participation is
discontinued, the amount, if any, of accumulated payroll deductions remaining in
each participant's account after the purchase of shares on the final purchase
date of an offering shall be distributed to the participant after such final
purchase date, without interest. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Amended Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering to
the Company a notice of withdrawal from the Amended Purchase Plan. Such
withdrawal may be elected at any time prior to the end of the applicable
offering, unless the Board provides otherwise in the offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
shares of common stock on the employee's behalf during such offering, and such
employee's interest in the offering will be automatically terminated. The
employee is not entitled to again
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participate in that offering. However, an employee's withdrawal from an offering
will not have any effect upon such employee's eligibility to participate in
subsequent offerings under the Amended Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Amended Purchase Plan
terminate immediately upon cessation of an employee's employment for any reason,
and the Company will distribute to such employee all of his or her accumulated
payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Amended Purchase Plan are not transferable and may
be exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Amended Purchase Plan at any time.
Unless sooner terminated, the Amended Purchase Plan will terminate on the day
before the 10th anniversary of the date on which the Amended Purchase Plan was
adopted by the Board or approved by the shareholders, whichever is earlier.
Any amendment of the Amended Purchase Plan must be approved by the
shareholders within 12 months of its adoption by the Board if the amendment
would:
- increase the number of shares of common stock reserved for issuance under
the Amended Purchase Plan;
- modify the provisions as to eligibility for participation in the Amended
Purchase Plan (to the extent such modification requires shareholder
approval in order for the Amended Purchase Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with
the requirements of Rule 16b-3 of the 1934 Act); or
- modify the Amended Purchase Plan in any other way if such modification
requires shareholder approval in order for the Amended Purchase Plan to
obtain employee stock purchase plan treatment under Section 423 of the
Code or to comply with the requirements of Rule 16b-3 of the 1934 Act.
Rights granted before amendment or termination of the Amended Purchase Plan
will not be altered or impaired by any amendment or termination of the Amended
Purchase Plan without consent of the employee to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, then, as determined by the Board:
- the surviving corporation either will assume the rights under the Amended
Purchase Plan or substitute similar rights;
- such rights may continue in full force and effect; or
- the participants' accumulated payroll deductions may be used to purchase
common stock immediately prior to the transaction described above and the
participants' rights under the ongoing offering terminates.
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STOCK SUBJECT TO AMENDED PURCHASE PLAN
An aggregate of 750,000 shares of common stock is reserved for issuance
under the Amended Purchase Plan. In addition, an annual increase to add and
reserve the following number of shares of common stock on the day of each
shareholders' annual meeting (beginning with the annual meeting in 2001) shall
equal the lesser of 100,000 shares, or an amount determined by the Board. If
rights granted under the Amended Purchase Plan expire, lapse or otherwise
terminate without being exercised, the shares of common stock not purchased
under such rights again become available for issuance under the Amended Purchase
Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Amended Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
of common stock as if such amounts were actually received. Other than this, no
income will be taxable to a participant until disposition of the acquired
shares, and the method of taxation will depend upon the holding period of the
acquired shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of the excess of the fair market value of the stock
at the time of such disposition over the exercise price, or the excess of the
fair market value of the stock as of the beginning of the offering period over
the exercise price (determined as of the beginning of the offering period) will
be treated as ordinary income. Any further gain or any loss will be taxed as a
long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term,
depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Amended Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of tax reporting obligations).
NEW PLAN BENEFITS
During the last fiscal year, shares of common stock were purchased in the
amounts and at the weighted average prices per share under the Purchase Plan as
follows: all current executive officers as a group no shares ($0.00 per share);
and all employees (excluding executive officers) as a group 40,319 shares ($3.06
per share). None of the executive officers named in the Summary Compensation
Table purchased shares under the Purchase Plan during the last fiscal year.
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PROPOSAL 4
APPROVAL OF 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 2000, the Board adopted the Company's 2000 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan"), subject to shareholder approval.
There are 500,000 shares of common stock reserved for issuance under the
Directors' Plan.
Shareholders are requested in this Proposal 4 to approve the Directors'
Plan. The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote will be required to approve
the Directors' Plan. For purposes of this vote, abstentions and broker non-votes
will not be counted as votes cast for or against the approval of this matter.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Directors' Plan are outlined below:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory stock
options. Options granted under the Directors' Plan are not intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Code. See
"Federal Income Tax Information" under Proposal 2 for a discussion of the tax
treatment of nonstatutory stock options.
PURPOSE
The Board adopted the Directors' Plan to provide a means by which
non-employee directors of the Company may be given an opportunity to purchase
stock in the Company, to assist in retaining the services of such persons, to
secure and retain the services of persons capable of filling such positions and
to provide incentives for such persons to exert maximum efforts for the success
of the Company. Five of the current directors of the Company would be eligible
to participate in the Directors' Plan if it is approved by the shareholders.
ADMINISTRATION
The Board administers the Directors' Plan and may not delegate
administration of the Directors' Plan to a committee. The Board has the power to
construe and interpret the Directors' Plan, but not to determine the persons to
whom or the dates on which options will be granted, the number of shares to be
subject to each option, the time or times during the term of each option within
which all or a portion of such option may be exercised, the exercise price, the
type of consideration or the other terms of the option; except that the Board
may, subject to and within the express provisions of the Directors' Plan:
- determine the provisions of each option to the extent not specified in the
Directors' Plan;
- construe and interpret the Directors' Plan and options granted under it
and establish, amend and revoke rules and regulations for its
administration (i.e., correct any defect, omission, inconsistency in the
Directors' Plan or any option agreement);
- amend the Directors' Plan subject to the limitations of the Directors'
Plan; and
- generally, exercise such powers and perform such acts as the Board deems
necessary or expedient to promote the best interests of the Company that
are not in conflict with the Directors' Plan.
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ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or an affiliate of the Company.
STOCK SUBJECT TO THE DIRECTORS' PLAN
Subject to shareholder approval of this Proposal, an aggregate of 500,000
shares of common stock is reserved for issuance under the Directors' Plan. If
options granted under the Directors' Plan expire or otherwise terminate without
being exercised, the shares of common stock not acquired pursuant to such
options again become available for issuance under the Directors' Plan.
TERMS OF OPTIONS
The following is a description of the terms of the options under the
Directors' Plan. Individual option grants may not be more restrictive than the
terms described below.
AUTOMATIC INITIAL GRANTS. Without any further action of the Board, each
person who, following the Company's 2000 Annual Meeting, is duly elected or
appointed by the Board of Directors or shareholders of the Company to serve as a
non-employee director and who, for at least one year preceding such election or
appointment has at no time served as a non-employee director, shall, effective
as of the effective date of such election or appointment, automatically be
granted an option to purchase 50,000 shares of common stock.
AUTOMATIC ANNUAL GRANTS. Without any further action of the Board, each
person who, immediately following each Annual Meeting commencing with the 2000
Annual Meeting, is a non-employee director, and who has been a non-employee
director for at least four months prior to such Annual Meeting shall, effective
as of the date of such Annual Meeting, automatically be granted an option to
purchase 10,000 shares of common stock.
EXERCISE PRICE; PAYMENT. The exercise price of options may not be less than
100% of the fair market value of the stock subject to the option on the date of
the grant. At March 15, 2000, the closing price of the Company's common stock as
reported on the New York Stock Exchange was $13.00 per share.
The exercise price of options granted under the Directors' Plan must be paid
either:
- in cash at the time the option is exercised; or
- by delivery of already-owned shares of common stock either that the
optionholder has held for the period required to avoid a charge to the
Company's reported earnings or that the optionholder did not acquire,
directly or indirectly from the Company; or
- pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of common stock, results
in either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the
Company from the sales proceeds; or
- by promissory note.
REPRICING. In the event of a decline in the value of the Company's common
stock, the Board does not have the authority to offer optionholders the
opportunity to replace outstanding higher priced options with new lower priced
options.
OPTION EXERCISE. Options granted under the Directors' Plan become
exercisable in cumulative increments ("vest") as set out in the Directors' Plan
during the optionholder's service as a director of the Company and any
subsequent employment of the optionholder by and/or service by the optionholder
as a consultant to the Company or an affiliate (collectively, "service"). The
Board does not have the power to
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accelerate the time during which an option may vest or be exercised. Options
granted under the Directors' Plan do not permit exercise prior to vesting. To
the extent provided by the terms of an option, an optionholder may satisfy any
federal, state or local tax withholding obligation relating to the exercise of
such option by:
- tendering a cash payment;
- authorizing the Company to withhold shares from the shares of the common
stock otherwise issuable to the optionholder as a result of the exercise
or acquisition of stock under the option, PROVIDED, HOWEVER, that no
shares of common stock are withheld with a value exceeding the minimum
amount of tax required to be withheld by law; or
- delivering to the Company owned and unencumbered shares of the common
stock.
TERM. The term of options under the Directors' Plan is 10 years. Options
under the Directors' Plan terminate three months after termination of the
optionholder's service unless:
- such termination is due to the optionholder's permanent and total
disability (as defined in the Code), in which case the option may be
exercised (to the extent the option was exercisable at the time of the
termination of service) at any time within 12 months of such termination;
or
- the optionholder dies before the optionholder's service has terminated, or
within three months after termination of such service, in which case the
option may be exercised (to the extent the option was exercisable at the
time of the optionholder's death) within 18 months of the optionholder's
death by the person or persons to whom the rights to such option pass by
will or by the laws of descent and distribution.
An optionholder may designate a beneficiary who may exercise the option
following the optionholder's death.
The option term is extended in the event that if the exercise of the option
following the termination of the optionholder's service (other than by death or
disability) would be prohibited solely because the issuance of stock would
violate the registration requirements under the 1933 Act, then the option will
terminate on the earlier of the expiration of the term of the option, or three
months after the termination of the optionholder's service during which the
exercise of the option would not be in violation of such registration
requirements.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as
determined by the Board.
RESTRICTIONS ON TRANSFER
The optionholder may transfer an option by will or by the laws of descent
and distribution. In addition, an option under the Directors' Plan is
transferable by instrument to an inter vivos or testamentary trust, in a form
acceptable to the Company, in which the option is to be passed to beneficiaries
upon the death of the trustor, and by gift, in a form acceptable to the Company,
to a member of the immediate family of the optionholder. During the lifetime of
the optionholder, an option may be exercised only by the optionholder and a
permitted transferee under the Directors' Plan.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of common stock subject to the Directors'
Plan and outstanding options. In that event, the Directors' Plan will be
appropriately adjusted as to the class and the maximum number of shares of
common stock subject to the Directors' Plan, and outstanding options will be
adjusted as to the class, number of shares and price per share of common stock
subject to such options.
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EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger, or other corporate reorganization ("change in control"), then,
with respect to an optionholder whose service has not terminated, the vesting
and the time during which such option may be exercised will be accelerated. An
outstanding option will terminate if the optionholder does not exercise it
before a change in control. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan at any time. Unless
sooner terminated, the Directors' Plan will terminate on the day before the 10th
anniversary of the date on which the Directors' Plan was adopted by the Board or
approved by the shareholders, whichever is earlier.
The Board may also amend the Directors' Plan at any time, or from time to
time. However, no amendment will be effective unless approved by the
shareholders of the Company before adoption by the Board to the extent such
modification requires shareholder approval in order for the Directors' Plan to
satisfy the requirements of Rule 16b-3 of the 1934 Act or any Nasdaq or
securities exchange listing requirements. However, the Board may not amend the
Plan so as to impair the rights under any option unless the optionholder
consents in writing. The Board may submit any other amendment to the Directors'
Plan for shareholder approval.
FEDERAL INCOME TAX INFORMATION
Options granted under the Directors' Plan generally have the federal income
tax consequences of nonstatutory stock options described under "Federal Income
Tax Information" in Proposal 2 above.
NEW PLAN BENEFITS
To date, no options have been granted under the Directors' Plan. If this
Proposal 4 is approved, then each of our five current non-employee directors
will, effective as of the date of the Annual Meeting, automatically be granted
an option to purchase 10,000 shares of common stock.
PROPOSAL 5
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK
In connection with the proposal to change the Company's state of
incorporation from New York to Delaware described in Proposal 6 below, and the
filing of a Certificate of Incorporation (the "Delaware Certificate") in
Delaware, the Board of Directors has approved and adopted, subject to
shareholder approval, filing the Delaware Certificate which will (i) increase
the Company's authorized number of shares of common stock from 40,000,000 shares
to 100,000,000 shares (the "Common Stock Amendment") and (ii) increase the
Company's authorized number of shares of preferred stock from 5,000,000 to
10,000,000 shares (the "Preferred Stock Amendment"). IN THE EVENT THAT THIS
PROPOSAL 5 IS APPROVED BUT PROPOSAL 6 REGARDING THE REINCORPORATION OF THE
COMPANY IN DELAWARE IS NOT APPROVED, THE COMPANY WILL NOT FILE AN AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION WITH THE NEW YORK SECRETARY OF STATE TO
EFFECT THE COMMON STOCK AMENDMENT AND PREFERRED STOCK AMENDMENT.
REASONS FOR AMENDMENT. Although at present the Company has no plans to
issue additional shares of common stock other than the shares currently reserved
as discussed below, or any shares of preferred stock (of which the Company has
none outstanding), it desires to have such shares available to provide
additional flexibility to use its capital stock for business and financial
purposes in the future. The additional shares may be used, without further
shareholder approval, for various purposes including, without
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limitation, raising capital, providing equity incentives to employees, officers,
directors or consultants, establishing strategic relationships with other
companies and expanding the Company's business through the acquisition of other
businesses or products. Shareholders will not be entitled to preemptive rights
with respect to any such issuances.
PRINCIPAL EFFECTS. The additional shares of common stock to be authorized
by adoption of the Common Stock Amendment would have rights identical to the
currently authorized common stock of the Company. Adoption of the Common Stock
Amendment and the issuance of common stock would not affect the rights of the
holders of currently outstanding common stock of the Company, except for effects
incidental to increasing the number of shares of the Company's common stock
outstanding, such as dilution of the earnings per share and voting rights of
current holders of common stock. Adoption of the Preferred Stock Amendment,
however, would affect the rights of the holders of currently outstanding common
stock in the event the Company were to issue any shares of preferred stock. The
complete text of the Certificate of Incorporation that would be filed with the
office of the Secretary of State of the State of Delaware to effect the Common
Stock Amendment and Preferred Stock Amendment is set forth in Exhibit B to this
Proxy Statement. If the Common Stock Amendment and Preferred Stock Amendment are
approved by the shareholders (and provided Proposal 6 is also approved by the
shareholders), they will become effective upon the filing of the Delaware
Certificate and the effectuation of the merger of the Company into and with the
Delaware corporation, which is expected to occur as soon as practicable
following the Annual Meeting.
At December 31, 1999, of the 40,000,000 shares of common stock presently
authorized:
- 23,887,871 shares were issued and outstanding;
- under the Company's 1995 Incentive Program, as Amended and Restated,
1,648,712 shares remained available for future option grants and 2,369,037
shares remained available for issuance upon exercise of presently
outstanding options;
- under the Company's 1997 Employee Stock Purchase Plan, 630,604 shares
remained available for issuance; and
- 11,178,498 shares were unissued and unreserved.
In addition, if Proposal 4 is approved, 500,000 shares will be reserved for
future option grants under the Company's 2000 Non-Employee Directors' Stock
Option Plan. At December 31, 1999, none of the 5,000,000 shares of preferred
stock presently authorized were issued or outstanding.
VOTE REQUIRED. The affirmative vote of the holders of a majority of the
shares of the common stock outstanding on the Record Date will be required to
approve Proposal 5. As a result, abstentions and broker non-votes will have the
same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
PROPOSAL 6
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from New York to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, the Board of
Directors believes that reincorporation will enhance the Company's ability to
attract and retain qualified members of the Company's Board of Directors as well
as encourage directors to continue to make
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independent decisions in good faith on behalf of the Company. The Company
believes that the more favorable corporate environment afforded by Delaware will
enable it to compete more effectively with other public companies, most of which
are incorporated in Delaware, to attract new directors and to retain its current
directors. Reincorporation in Delaware will allow the Company the increased
flexibility and predictability afforded by Delaware law. Concurrent with the
reincorporation, the Company proposes to adopt or maintain certain measures
designed to make hostile takeovers of the Company more difficult. The Board
believes that adoption of these measures will enable the Board to consider fully
any proposed takeover attempt and to negotiate terms that maximize the benefit
to the Company and its shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years, Delaware has followed a policy of encouraging incorporation
in that state. In furtherance of that policy, Delaware has adopted comprehensive
corporate laws which are revised regularly to meet changing business
circumstances. The Delaware Legislature is particularly sensitive to issues
regarding corporate law and is especially responsive to developments in modern
corporate law. The Delaware courts have developed considerable expertise in
dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under New York law.
The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under New
York law. Reincorporation of the Company in Delaware may make it more difficult
for minority shareholders to elect directors and influence Company policies. A
discussion of the principal differences between New York and Delaware law as
they affect shareholders is set forth below.
In addition, portions of the reincorporation proposal may have the effect of
deterring hostile takeover attempts. A hostile takeover attempt may have a
positive or a negative effect on the Company and its shareholders, depending on
the circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a corporation
and generally present to the shareholders the risk of terms which may be less
than favorable to all of the shareholders than would be available in a
board-approved transaction. Board-approved transactions may be carefully planned
and undertaken at an opportune time in order to obtain maximum value for the
corporation and all of its shareholders with due consideration to matters such
as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great so that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to shareholders
of the changes, shareholders should recognize that one of the effects of such
changes may be to discourage a future attempt to acquire control of the Company
which is not presented to and approved by the Board of Directors, but which a
substantial number and perhaps even a majority of the Company's shareholders
might believe to be in their best interests or in which shareholders might
receive a substantial premium for their shares over
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the current market price. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so.
The Company's current Amended and Restated Certificate of Incorporation (the
"New York Certificate") and the Amended and Restated Bylaws (the "New York
Bylaws") do not contain the following provision available to certain public
companies under New York law that deters hostile takeover attempts: elimination
of action by written consent of shareholders. This provision will be included in
the Company's new charter documents following the reincorporation. In addition,
the Delaware certificate and bylaws will contain a provision limiting the
ability of the stockholders to remove any director without cause and a provision
to require a vacancy on the board resulting from an increase in number of
directors to be filled by the majority vote of the directors.
In considering the proposals, shareholders should be aware that the overall
effect of certain of the proposed changes is to make it more difficult for
holders of a majority of the outstanding shares of common stock to change the
composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
The new provisions in the Company's charter documents could make a proxy
contest a less effective means of removing or replacing existing directors or
could make it more difficult to effect a change in control of the Company which
is opposed by the Board of Directors. This strengthened tenure and authority of
the Board of Directors could enable the Board of Directors to resist change and
otherwise thwart the desires of a majority of the stockholders. Because this
provision may have the effect of continuing the tenure of the current Board of
Directors, the Board has recognized that the individual directors have a
personal interest in this provision that may differ from those of the
shareholders. However, the Board believes that these provisions' primary purpose
is to ensure that the Board will have sufficient time to consider fully any
proposed takeover attempt in light of the short- and long-term benefits and
other opportunities available to the Company and, to the extent the Board
determines to proceed with the takeover, to effectively negotiate terms that
would maximize the benefits to the Company and its stockholders.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions included in the proposed
charter documents outweigh the possible disadvantages. In particular, the Board
believes that the benefits associated with attracting and retaining skilled and
experienced outside directors and with enabling the Board to fully consider and
negotiate proposed takeover attempts, as well as the greater sophistication,
breadth and certainty of Delaware law, make the proposed reincorporation
beneficial to the Company, its management and its shareholders.
The proposal to include these anti-takeover provisions in the proposed
reincorporation does not reflect knowledge on the part of the Board of Directors
or management of any presently proposed takeover or other attempt to acquire
control of the Company. Management may in the future propose other measures
designed to discourage takeovers apart from those proposed in this Proxy
Statement, if warranted from time to time in the judgment of the Board of
Directors.
The proposed reincorporation would be accomplished by merging the Company
into a newly formed Delaware corporation which, just before the merger, will be
a wholly-owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as EXHIBIT A to this Proxy Statement. Upon the effective date of the
merger, the Delaware Company's name will remain Dot Hill Systems Corp. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
As soon as the reincorporation becomes effective, the Delaware Company will
issue a press release announcing that the transaction has occurred. At the same
time, each outstanding share of common stock
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of the Company will automatically convert into one share of common stock of the
Delaware Company, and shareholders of the Company will automatically become
shareholders of the Delaware Company on the following terms:
- The conversion will be on a one-for-one basis.
- Each share of the old common stock, $.01 par value per share, of the
Company which is outstanding at the effective date will become one share
of the new common stock, $.001 par value per share, of the Delaware
Company.
- Each share of the old common stock held in the treasury of the Company
will become a share of treasury stock in the Delaware Company, and each
share of preferred stock in the treasury of the Company will become a
share of treasury stock in the Delaware Company.
In addition, each outstanding option, right or warrant to acquire shares of
common stock of the Company will be converted into an option or right to acquire
an equal number of shares of common stock of the Delaware Company, under the
same terms and conditions as the original options or rights. All of the
Company's employee benefit plans, including the Incentive Plan and the Purchase
Plan (each as amended and restated as described in Proposals 2 and 3, if
approved), as well as the Directors' Plan described in Proposal 4, if approved,
will be continued by the Delaware Company following the reincorporation.
Shareholders should recognize that approval of the proposed reincorporation will
constitute approval of the adoption and assumption of those plans by the
Delaware Company.
NO ACTION NEED BE TAKEN BY SHAREHOLDERS TO EXCHANGE THEIR STOCK CERTIFICATES
FOR NEW DELAWARE COMPANY STOCK CERTIFICATES. CERTIFICATES FOR SHARES IN THE
COMPANY WILL AUTOMATICALLY REPRESENT AN EQUAL NUMBER OF SHARES IN THE DELAWARE
COMPANY UPON COMPLETION OF THE REINCORPORATION. Shareholders should not destroy
their old certificates and should not send their old certificates to the Company
or the Company's transfer agent, either before or after the effective date of
the reincorporation. After the reincorporation, those who were formerly
shareholders of the Company may continue to make sales or transfers using their
Company stock certificates. The Delaware Company will issue new certificates
representing shares of Delaware Company common stock for transfers occurring
after the reincorporation. On request, the Delaware Company will issue new
certificates to anyone who holds Company stock certificates. Any request for new
certificates will be subject to normal stock transfer requirements, including
proper endorsement, signature guarantee, if required, and payment of applicable
taxes.
Shareholders whose shares of the Company's common stock were freely tradable
before the reincorporation will own shares of the Delaware Company which are
freely tradable after reincorporation. Similarly, any shareholders holding
securities with transfer restrictions before reincorporation will hold shares of
the Delaware Company which have the same transfer restrictions after
reincorporation. For purposes of computing the holding period under Rule 144 of
the Securities Act of 1933, as amended, those who hold Delaware Company stock
certificates will be deemed to have acquired their shares on the date they
originally acquired their shares in the Company.
After the reincorporation, the Delaware Company will continue to be a
publicly held company. The Delaware Company intends to list its common stock on
the New York Stock Exchange. It will also file with the Securities and Exchange
Commission and provide to its stockholders the same types of information that
the Company has previously filed and provided.
REQUIRED VOTE
Under New York law, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the Company's voting stock is required
for approval of the reincorporation. If approved by the shareholders, it is
anticipated that the reincorporation would be completed as soon thereafter as
practicable. The reincorporation may be abandoned or the Merger Agreement may be
amended (with certain exceptions), either before or after shareholder approval
has been obtained, if in the opinion of the Board
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of Directors, circumstances arise that make such action advisable; provided,
that any amendment that would effect a material change from the charter
provisions discussed in this Proxy Statement would require further approval by
the holders of a majority of the outstanding voting shares.
NO RIGHT TO DISSENT
New York law provides that, because the Company's common stock is listed on
the New York Stock Exchange, no shareholder has a right to dissent from the
reincorporation if the holders of at least two-thirds of the outstanding stock
approve it.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of New York, the Company's state of incorporation, and by the New
York Certificate and the New York Bylaws, which have been adopted pursuant to
New York law. The New York Certificate and New York Bylaws are available for
inspection during business hours at the principal executive offices of the
Company. In addition, copies may be obtained by writing to the Company at Dot
Hill Systems Corp., 161 Avenue of the Americas, New York, New York 10013,
Attention: Valerie Greenberg.
If the reincorporation proposal is approved by the shareholders, the Company
will merge into, and its business will be continued by, the Delaware Company.
Following the merger, issues of corporate governance and control would be
controlled by the General Corporation Law of Delaware ("Delaware Law"), rather
than the Business Corporation Law of New York ("New York Law"). The New York
Certificate and New York Bylaws, will, in effect, be replaced by the Certificate
of Incorporation of the Delaware Company (the "Delaware Certificate") and the
bylaws of the Delaware Company (the "Delaware Bylaws"), copies of which are
attached as EXHIBIT B and EXHIBIT C, respectively, to this Proxy Statement.
Accordingly, the differences among these documents and between Delaware Law and
New York Law are relevant to your decision whether to approve the
reincorporation proposal. IN THE EVENT THAT THIS PROPOSAL 6 IS APPROVED BUT
PROPOSAL 5 REGARDING THE INCREASE IN THE COMPANY'S AUTHORIZED CAPITAL STOCK IS
NOT APPROVED, THE DELAWARE CERTIFICATE THAT WILL BE FILED WILL BE THE SAME AS
THE ATTACHED EXHIBIT B, WITH THE EXCEPTION THAT THE AUTHORIZED NUMBER OF SHARES
OF COMMON STOCK OF THE COMPANY WILL BE 40,000,000 SHARES INSTEAD OF 100,000,000
SHARES, AND THE AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK OF THE COMPANY
WILL BE 5,000,000 SHARES INSTEAD OF 10,000,000 SHARES.
A number of differences between New York Law and Delaware Law and among the
various charter documents are summarized in the chart below. Shareholders are
requested to read the following chart in conjunction with the discussion
following the chart and the Merger Agreement, the Delaware Certificate
27
<PAGE>
and the Delaware Bylaws attached to this Proxy Statement. For each item
summarized in the chart, there is a reference to a page of this Proxy Statement
on which a more detailed discussion appears.
<TABLE>
<CAPTION>
ISSUE DELAWARE NEW YORK
- ------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Amendment of Certificate Amendments to provisions relating to Under New York Law, amendment of the
(see page 30). director indemnification, management of New York Certificate requires approval
the Delaware Company, and amendment of by a majority of the voting stock of
the Delaware Certificate require the Company.
approval by a majority of the voting
stock of the Delaware Company.
Amendment of Bylaws (see By the Board or the holders of a New York Law provides for amendment by
page 31). majority of the outstanding voting the Board, except for amendments
shares for amendments relating to relating to indemnification provisions,
certain provisions relating to at annual and special meetings and by
stockholder meetings, the number of the shareholders at annual and special
directors and vacancies on the Board. meetings.
Who May Call Special The Board, the Chairman of the Board, Under New York Law, the Board, the
Meetings of Stockholders the Chief Executive Officer or holders Chairman of the Board, the President or
(see page 31). of at least 20% of the outstanding holders of at least 30% of the
voting stock. outstanding shares.
Action by Written Action by written consent not permitted Actions by written consent permitted by
Consent of Stockholders by Delaware Certificate. All New York law.
in Lieu of a Stockholder stockholder action must take place by a
Vote at Stockholder stockholder vote at a meeting of
Meeting (see page 32). stockholders.
Right of Shareholders to Permitted for any purpose reasonably Permitted under New York Law for most
Inspect Shareholder List related to such stockholder's interest purposes reasonably related to such
(see page 32). as a stockholder. shareholder's interest as a shareholder
upon the shareholder's written demand
at least five days prior to inspection.
Vote Required for Generally not required unless a Under New York Law, approval of holders
Certain Transactions reorganization adversely affects a of two-thirds of outstanding stock
(see page 31). specific class of shares. required for certain transactions
unless charter provides otherwise. The
New York Certificate contains no such
provision.
Classified Board (see The Delaware Certificate presently The New York Certificate presently
page 32). designates three classes of directors. designates three classes of directors.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
ISSUE DELAWARE NEW YORK
- ------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Removal of Directors by Removal for cause by affirmative vote Under New York Law, directors may be
Stockholders (see of a majority of the outstanding shares removed for cause by affirmative vote
page 33). of voting stock entitled to vote at an of outstanding shares of voting stock
election of directors. entitled to vote at election of
directors or, if the charter so
provides, for cause by majority vote of
the Board.
Limitation of Directors' Delaware Law permits the limitation of New York Law permits limitation of
Liability (see liability of directors to the Company liability of directors to the Company
page 33). except in connection with (i) breaches or its shareholders if director has
of the duty of loyalty; (ii) acts or acted in good faith and with the same
omissions not in good faith or degree of care that an ordinarily
involving intentional misconduct or prudent person would exercise in
knowing violations of law; (iii) the similar circumstances.
payment of unlawful dividends or
unlawful stock repurchases or
redemptions; or (iv) transactions in
which a director received an improper
personal benefit.
Indemnification of Delaware Law permits broad New York Law permits broad
Directors and Officers; indemnification and the purchase of indemnification but restricts the kinds
Insurance (see directors' and officers' insurance. of claims that may be made under
page 33). directors' and officers' insurance
policies.
Loans and Guarantees of Holders of a majority of the shares Under New York Law, shareholders, other
Obligations for entitled to vote are required to than interested directors, must approve
Directors (see approve loans to, or guarantees of loans or guarantees of obligations for
page 34). obligations of, a non-employee directors, or the Board may authorize
director. such loans or guarantees expected to
benefit the Company if the charter so
provides.
Issuance of Rights and Board may authorize. Under New York Law, must be approved by
Options to Directors, a majority of votes cast at a
Officers and Employees shareholders' meeting.
(see page 34).
Consideration for Shares Cash, services, personal or real New York Law provides for money or
(see page 34). property, leases of real property or other property, tangible or intangible,
any combination of these. labor or services actually received, a
binding obligation to pay the purchase
price or provide services or any
combination of these.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
ISSUE DELAWARE NEW YORK
- ------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Dividends; Redemption of Paid from surplus (including paid- in Under New York Law, dividends may be
Stock (see page 34). and earned surplus or net profits). paid from surplus, which is the excess
of net assets over stated capital.
Appraisal Rights (see Generally available if shareholders Under New York Law, generally available
page 35). receive cash in exchange for the shares if shareholders receive cash in
and in certain other circumstances. exchange for the shares and in certain
other circumstances.
Business Combinations Delaware Law restricts hostile two- New York Law restricts hostile two-step
with Interested step takeovers. takeovers.
Stockholders (see
page 35).
Purpose Clause (see Any lawful act or activity. The New York Certificate contains
page 37). specific additional historical language
that is no longer necessary.
Capitalization; Blank Under the Delaware Certificate, Under the New York Certificate,
Check Preferred (see 40,000,000 shares of common stock, 40,000,000 shares of common stock, $.01
page 37). $.001 par value per share, and par value per share, and 5,000,000
5,000,000 shares of preferred stock, shares of preferred stock, $.01 par
$.001 par value per share, are value per share, are authorized.
authorized, subject to increase if
Proposal 5 is approved. See Proposal 5
above.
Nomination of Directors Delaware Bylaws permit stockholder There is no comparable provision in the
(see page 38). nominations only if written notice New York Bylaws.
provided to the Delaware Company not
less than 90 nor more than 120 days
prior to anniversary of the mailing of
the proxy statement for the immediately
preceding annual meeting.
Number of Directors; Number fixed by Board resolution. The New York Bylaws provide that the
Filling Vacancies (see Vacancies must be filled by Board number is fixed by Board resolution and
page 38). unless Board determines otherwise. that vacancies may be filled by the
Board.
Other Responsive legislature and larger body
of corporate case law in Delaware
provides more predictable corporate
legal environment in Delaware.
</TABLE>
AMENDMENT OF CHARTER
Delaware Law allows a board of directors to recommend a charter amendment
for approval by stockholders, and a majority of the shares entitled to vote at a
stockholders' meeting are normally enough
30
<PAGE>
to approve that amendment. Under New York Law except for certain ministerial
changes to the charter which may be authorized by the Board and except as
otherwise required by the charter, the Board of Directors recommends a charter
amendment for approval by shareholders, and a majority of the shares entitled to
vote at a shareholders' meeting is enough to approve that amendment. Both laws
require that a majority of the holders of any particular class of stock must
approve the amendment if it would have an adverse effect on the holders of that
class. In addition, both laws allow a corporation to require a vote larger than
a majority on special types of issues.
The Delaware Certificate provides that any amendment to the Delaware
Certificate can only be effected by the affirmative vote of the holders of at
least a majority of the voting power of the then outstanding voting stock of the
Delaware Company. The New York Certificate contains no comparable provision.
AMENDMENT OF BYLAWS
The New York Bylaws provide, as permitted by the New York Law, that the
Board of Directors may amend, adopt or repeal the Company's bylaws. Under the
Delaware Law, however, the board may amend, adopt or repeal bylaws only if
permitted by its certificate of incorporation. The Delaware Certificate will
specifically permit amendment of the bylaws by the board. Additionally, both the
New York Law and the Delaware Law allow stockholders to further amend or repeal
bylaws adopted or amended by the board.
The New York Bylaws (other than the provisions regarding indemnification of
officers and directors) may be amended by the Board at any regular meeting or at
any special meeting the notice of which states that amendment of the New York
Bylaws is to be one of the purposes of the meeting. The indemnification
provisions of the New York Bylaws may only be amended or repealed, and any other
provisions of the New York Bylaws or any amendments adopted by the Board may be
amended or repealed, by the vote of the shareholders at any annual meeting or at
any special meeting the notice of which states that amendment of the New York
Bylaws is to be one of the purposes of the meeting. Upon the effectiveness of
the proposed reincorporation, the Delaware Board will be able to adopt, amend or
repeal any of the Delaware Bylaws. Certain provisions of the Delaware Bylaws may
also be adopted, amended or repealed by the holders of at least a majority of
the voting power of the outstanding capital stock of the Delaware Company.
WHO MAY CALL SPECIAL MEETINGS OF SHAREHOLDERS
Under both the New York Law and the Delaware Law, the board of directors or
anyone authorized in the charter or bylaws may call a special meeting of
stockholders. Currently, the New York Bylaws allow the Board, the Chairman of
the Board or the President to call a special meeting, and a special meeting must
be called by the Chief Executive Officer, the Chairman of the Board, the
President or the Secretary upon written request of holders of at least 30% of
the outstanding shares entitled to vote at such meeting. The Delaware Bylaws
provide that such a meeting may be called by the Board of Directors, the
Chairman of the Board of Directors, the Chief Executive Officer or the holders
of at least 20% of the outstanding shares entitled to vote at such meeting.
Pursuant to the Delaware Bylaws, if the meeting is called by a person or persons
other than the Board of Directors (i.e., by the Chairman of the Board or the
Chief Executive Officer), the Board of Directors shall determine the time and
the place of such meeting which shall be from 35 to 120 days after the receipt
of the request of the meeting.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS IN LIEU OF A SHAREHOLDER VOTE
The New York Law permits shareholder action in lieu of a meeting only by
unanimous written consent of those who would have been entitled to vote on a
given action at a meeting, unless the charter permits such action by the holders
of outstanding shares having at least the minimum number of votes required to
authorize the action. The Delaware Law, on the other hand, permits stockholders
to take action by the written consent of at least the minimum number of votes
required for action at a stockholders' meeting,
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<PAGE>
unless the charter prohibits it. The Delaware Certificate eliminates actions by
written consent of stockholders.
Elimination of such shareholders' written consents may lengthen the amount
of time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirement of a shareholders'
meeting. The elimination of shareholders' written consents will deter hostile
takeover attempts because of the lengthened shareholder approval process. The
Board believes this provision, like the other provisions to be included in the
Delaware Certificate and Delaware Bylaws, will enhance the Board's opportunity
to fully consider and effectively negotiate in the context of a takeover
attempt.
RIGHT OF SHAREHOLDERS TO INSPECT SHAREHOLDER LIST
Under the New York Law, a shareholder of record may inspect the list of
record shareholders upon giving at least five days' written demand to do so. The
inspection may be denied if the shareholder refuses to give an affidavit that
such inspection is not for certain purposes unrelated to company business and
that the shareholder has not been involved in selling or offering to sell such a
list in the last five years. Under the Delaware Law, any stockholder may inspect
the stockholders' list for any purpose reasonably related to the person's
interest as a stockholder. In addition, for at least ten days prior to each
stockholders' meeting, a Delaware corporation must make available for
examination a list of stockholders entitled to vote at the meeting.
VOTE REQUIRED FOR CERTAIN TRANSACTIONS
Until February 1998, the New York Law required the holders of at least
two-thirds of the outstanding stock of a New York corporation to approve certain
mergers, consolidations or sales of all or substantially all the corporation's
assets that may occur outside the ordinary course of business. Since
February 1998, however, a New York corporation may provide in its charter that
the holders of a majority of the outstanding stock may approve such
transactions, although the Company has not adopted such a charter provision.
Under the Delaware Law, on the other hand, holders of a majority of the
outstanding stock entitled to vote on such transactions have the power to
approve a merger, consolidation or sale of all or substantially all the assets
without a special provision in the charter, unless the charter provides
otherwise. Furthermore, in the case of a merger under the Delaware Law,
stockholders of the surviving corporation do not have to approve the merger at
all, unless the charter provides otherwise, if these three conditions are met:
- No amendment of the surviving corporation's charter is made by the merger
agreement; and
- Each share of the surviving corporation's stock outstanding or in the
treasury immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after
the effective date; and
- The merger results in no more than a 20% increase in its outstanding
common stock.
Special vote requirements may apply to certain business combinations with
interested stockholders. See the discussion of these below under the heading
"Business Combinations with Interested Stockholders."
CLASSIFIED BOARD
Both the New York Law and the Delaware Law permit "classified" boards of
directors, which means the directors have staggered terms that do not all expire
at once. The New York Law permits as many as four classes, the Delaware Law only
three. The Company now has three classes of directors, and the Delaware Company
will also have three.
32
<PAGE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS
Under the New York Law, directors may be removed by the stockholders for
cause, or by either the stockholders or the directors if the charter so
provides. Furthermore, if the charter or bylaws so provide, directors may be
removed without cause by a vote of the shareholders. The New York Certificate
provides that directors may be removed for cause by majority vote of the Board.
After the reincorporation, directors under the Delaware Law would generally be
subject to removal with or without cause by a majority of the stockholders,
unless the charter provides otherwise, but in a Delaware corporation with a
classified board, directors can be removed only for cause.
LIMITATION OF DIRECTORS' LIABILITY
Both states permit the limitation of a director's personal liability while
acting in his or her official capacity. Under the New York Law, a director is
not liable to the corporation for the benefit of its creditors or shareholders
for damages if the director has acted in good faith and with the same degree of
care that an ordinarily prudent person would exercise in similar circumstances.
The New York Law also permits a corporation to provide in its charter a
provision eliminating or limiting the personal liability of a director, with
certain specific exceptions, to the corporation or its shareholders for damages
for any breach of duty in such capacity. The Delaware Law requires a charter
provision in order to limit a director's liability. The New York Certificate
limits monetary liability to the fullest extent permitted by the New York Law,
and the Delaware Certificate will likewise limit such liability to the fullest
extent permitted by the Delaware Law. However, in some cases directors may be
liable despite these limitations. Under the New York Law, for example, a
director is not immune from liability if he or she violates applicable statutes
which expressly make directors liable. The Delaware Law forbids any limitation
of liability if the director breached his or her duty of loyalty to the
corporation or its stockholders, or if he or she failed to act in good faith,
received an improper personal benefit from the corporation, or authorized a
dividend or stock repurchase that was forbidden by the Delaware Law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
With some variations, both the New York Law and the Delaware Law allow a
corporation to "indemnify," that is, to make whole, any person who is or was a
director or officer of the corporation if that person is held liable for
something he or she did or failed to do in an official capacity. Besides
covering court judgments, out-of-court settlements, fines and penalties, both
laws also allow the corporation to advance certain reasonable expenses the
person will incur or to reimburse the person's expenses after he or she incurs
them, even if liability is not actually proven. The right to indemnification
under both laws does not normally exclude other rights of recovery the
indemnified person may have.
Additionally, each of the two laws permits a corporation to purchase
insurance for its directors and officers against some or all of the costs of
such indemnification or against liabilities arising from actions and omissions
of the insured person, even though the corporation may not have power to
indemnify the person against such liabilities. The New York Law, however,
restricts the kinds of claims that may be made under insurance purchased by the
corporation against these liabilities. For example, there would be no insurance
coverage if the person to be indemnified was guilty of deliberate dishonesty and
that dishonesty was material to the event that produced the claim, or if the
person gained some financial profit or other advantage to which he or she was
not entitled.
The New York Bylaws currently indemnify to the fullest extent permitted by
the New York Law, and the Delaware Bylaws will indemnify as fully as the
Delaware Law allows. However, neither the New York Law nor the Delaware Law
permits indemnification of a director or officer if a court finds the person
liable to the corporation itself, unless the court determines otherwise.
Furthermore, if the corporation sues the person because of some act or omission,
the corporation does not need to indemnify the person unless a court determines
the person was not liable. Furthermore, the Delaware Law generally requires that
the
33
<PAGE>
person to be indemnified must have acted in good faith and in a manner he or she
reasonably believed was consistent with the best interests of the corporation.
If Proposal 6 is approved by the Company's shareholders, the Delaware Law
indemnification provisions will not apply to acts and omissions that occurred
before the effective date of the reincorporation. The New York Law will govern
these.
LOANS AND GUARANTEES OF OBLIGATIONS FOR DIRECTORS
Under the New York Law, a corporation may not lend money to or guarantee the
obligation of a director unless (1) the shareholders (other than the interested
director) approve the transaction or (2) the charter provides that the board may
approve such a loan or guarantee that it determines will benefit the
corporation. For purposes of the shareholder approval, the holders of a majority
of the votes of the shares entitled to vote constitute a quorum, but shares held
by directors who are benefitted the loan or guarantee are not included in the
quorum. Under the Delaware Law, a board of directors may authorize loans or
guarantees of indebtedness to employees, officers and directors. The Delaware
Certificate provides that loans or guarantees of indebtedness to non-employee
directors must be approved by holders of a majority of the voting power of all
of the then outstanding shares of the voting stock of the Company entitled to
vote.
ISSUANCE OF RIGHTS AND OPTIONS TO DIRECTORS, OFFICERS AND EMPLOYEES
Under the New York Law, the issuance of any stock rights or stock options,
as well as plans to issue rights or options, to directors, officers or employees
must be approved by a majority of votes cast at a shareholders' meeting. The
Delaware Law does not require stockholder approval of such transactions.
However, the rules of the New York Stock Exchange, where the Company's stock is
listed and where the stock of the Delaware Company will be listed, require
stockholder approval of option plans in certain circumstances.
CONSIDERATION FOR SHARES
Under the New York Law, consideration for the issue of shares may consist of
money or other property, tangible or intangible, labor or services actually
received, a binding obligation to pay the purchase price, a binding obligation
to perform services or any combination of the above. Stock certificates may not
be issued until the amount of the consideration determined to be stated capital
has been paid in the form of cash, services rendered, personal or real property
or any combination of these, plus consideration for the balance, if any, which
may include the above-referenced binding obligation. Under the Delaware Law a
corporation can receive cash, services, personal or real property, leases of
real property or any combination of these as payment in full or in part for the
shares. A purchaser of shares under the Delaware Law may pay an amount equal to
or greater than the par value of such shares if the corporation receives a
binding obligation of the purchaser to pay the balance of the purchase price.
DIVIDENDS; REDEMPTION OF STOCK
Subject to its charter provisions, a corporation may generally pay
dividends, redeem shares of its stock or make other distributions to
stockholders if the corporation is solvent and would not become insolvent
because of the dividend, redemption or distribution. The assets applied to such
a distribution may not be greater than the corporation's "surplus."
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<PAGE>
Under New York Law, dividends may be paid or distributions made out of
surplus only, so that the net assets of the corporation remaining after such
payment or distribution shall be at least equal to the amount of surplus. The
New York Law defines surplus as the excess of net assets over stated capital and
permits the board to adjust stated capital. The Delaware Law defines surplus as
the excess of net assets over capital and lets the board adjust capital. If
there is no surplus, the Delaware Law allows the corporation to apply net
profits from the current or preceding fiscal year, or both, unless the
corporation's net assets are less than the capital represented by issued and
outstanding stock which has a preference on any distribution of assets. In
general, with certain restrictions, the New York Law permits a corporation to
provide in its charter for redemption of one or more classes or series of its
shares. One such restriction provides that common stock may be redeemed, with
certain exceptions, only when the corporation has an outstanding class of common
shares that is not subject to redemption. The Delaware Law permits redemptions
only when the corporation has outstanding one or more shares of one or more
classes or series of stock, which share or shares have full voting powers.
APPRAISAL RIGHTS
Generally, "appraisal rights" entitle dissenting stockholders to receive the
fair value of their shares in the merger or consolidation of a corporation or in
the sale of all or substantially all its assets. The New York Law also extends
appraisal rights to an exchange of a corporation's shares. The New York Law
provides that dissenting stockholders have no appraisal rights if their shares
are listed on the New York Stock Exchange or another national securities
exchange. However, in the case of shares not listed on an exchange, appraisal
rights under the New York Law allow a voting and dissenting stockholder of a New
York corporation, with various exceptions, to receive fair value for his or her
shares in such transactions. One exception is a merger between a parent
corporation and its subsidiary when the parent owns at least 90% of the
subsidiary. In this case, a shareholder in the parent corporation has no
appraisal rights. On the other hand, appraisal rights are available to
stockholders who are not allowed to vote on a merger or consolidation and whose
shares will be cancelled or exchanged for cash or something else of value other
than shares of the surviving corporation or another corporation. When appraisal
rights are available, the stockholder may have to request the appraisal and
follow other required procedures.
Similarly, under the Delaware Law, appraisal rights are not available to a
stockholder if the corporation's shares are listed on the New York Stock
Exchange or another national securities exchange or held by more than 2,000
stockholders of record, or if the corporation will be the surviving corporation
in a merger which does not require the approval of the surviving corporation's
stockholders. However, regardless of listing on an exchange, a dissenting
stockholder in a merger or consolidation has appraisal rights under the Delaware
Law if the transaction requires him or her to exchange shares for anything of
value other than one or more of the following:
- Shares of stock of the surviving corporation or of a new corporation which
results from the merger or consolidation.
- Shares of another corporation which will be listed on a national
securities exchange or held by more than 2,000 stockholders of record
after the merger or consolidation occurs.
- Cash instead of fractional shares of the surviving corporation or another
corporation.
The Company's common stock is currently listed on the New York Stock
Exchange, and the Delaware Company will also list its own common stock on the
New York Stock Exchange by filing a Substitution Listing Application.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Provisions in both the New York Law and the Delaware Law may help to prevent
or delay changes of corporate control. In particular, both the New York Law and
the Delaware Law restrict or prohibit an
35
<PAGE>
interested stockholder from entering into certain types of business combinations
unless the board of directors approves the transaction in advance.
Under the New York Law, an interested stockholder is generally prohibited
from entering into certain types of business combinations with a New York
corporation for a period of five years after becoming an interested stockholder,
unless the board of directors approved either the business combination or the
acquisition of stock by the interested stockholder before the interested
stockholder acquired his or her shares. An "interested stockholder" under the
New York Law is generally a beneficial owner of at least 20% of the
corporation's outstanding voting stock. "Business combinations" under the New
York Law include mergers and consolidations between corporations or with an
interested stockholder; sales, leases, mortgages or other dispositions to an
interested stockholder of assets with an aggregate market value which either
equals 10% or more of the corporation's consolidated assets or outstanding
stock, or represents 10% or more of the consolidated earning power or net income
of the corporation; issues and transfers to an interested shareholder of stock
with an aggregate market value of at least 5% in relation to the aggregate
market value of the outstanding stock of the corporation; liquidation or
dissolution of the corporation proposed by or in connection with an interested
stockholder; reclassification or recapitalization of stock that would increase
the proportionate stock ownership of an interested stockholder; and the receipt
by an interested stockholder of benefit from loans, guarantees, pledges or other
financial assistance or tax benefits provided by the corporation.
After a five-year period, the New York Law allows such business combination
if it is approved by a majority of the voting stock not owned by the interested
stockholder or by an affiliate or associate of the interested stockholder.
Business combinations are also permitted when certain statutory "fair price"
requirements are met.
One section of the Delaware Law, Section 203, generally prohibits an
interested stockholder from entering into certain types of business combinations
with a Delaware corporation for three years after becoming an interested
stockholder. An "interested stockholder" under the Delaware Law is any person
other than the corporation and its majority-owned subsidiaries who owns at least
15% of the outstanding voting stock, or who owned at least 15% within the
preceding three years, and this definition includes affiliates of the
corporation. Briefly described, the prohibited combinations include:
- Mergers or consolidations.
- Sales, leases, exchanges or other dispositions of 10% or more of (1) the
aggregate market value of all assets of the corporation or (2) the
aggregate market value of all the outstanding stock of the corporation.
- Issuances or transfers by the corporation of its stock that would increase
the proportionate share of stock owned by the interested stockholder.
- Receipt by the interested stockholder of the benefit of loans, advances,
guarantees, pledges or other financial benefits provided by the
corporation.
- Any other transaction, with certain exceptions, that increases the
proportionate share of the stock owned by the interested stockholder.
A Delaware corporation may choose not to have Section 203 of the Delaware
Law apply. The Company has chosen, however, to accept the protections of
Section 203, and therefore the charter of the Delaware Company will not waive
those protections. Nevertheless, Section 203 will not apply in the following
cases:
- If, before the stockholder became an interested stockholder, the board of
directors approved the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder.
36
<PAGE>
- If, after the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, subject to technical calculation rules.
- If, on or after the time the interested stockholder became an interested
stockholder, the board of directors approved the business combination, and
at least two-thirds of the outstanding voting stock which is not owned by
the interested stockholder also ratified the business combination at a
stockholders' meeting.
PURPOSE CLAUSE
The "purpose" clause of the Delaware Certificate has been revised to permit
the Delaware Corporation to engage in any lawful act or activity for which
corporations may be organized under Delaware Law. The New York Certificate
contains additional historical language in its "purpose" clause which is no
longer necessary.
CAPITALIZATION; BLANK CHECK PREFERRED
The Company's capital stock currently consists of 40,000,000 authorized
shares of common stock, $.01 par value, of which 24,052,480 shares were issued
and outstanding as of January 31, 2000, and 5,000,000 authorized shares of
preferred stock, $.01 par value, of which no shares were issued and outstanding
as of January 31, 2000.
Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of common stock and preferred stock
that the Company had outstanding immediately prior to the reincorporation.
HOWEVER, THE BOARD OF DIRECTORS, SUBJECT TO SHAREHOLDER APPROVAL, HAS ALSO
UNANIMOUSLY APPROVED A PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK OF THE COMPANY. FOR A DESCRIPTION OF THE PROPOSED CHANGE IN THE
COMPANY'S AUTHORIZED CAPITAL STOCK, SEE PROPOSAL 5 ABOVE.
Under the Delaware Certificate, as under the New York Certificate, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of preferred stock and to fix the number of shares constituting any such
series and to determine the designation thereof.
The Board may authorize the issuance of preferred stock in connection with
various corporate transactions, including corporate partnering arrangements. The
Board may also authorize the issuance of preferred stock for the purpose of
adopting a shareholder rights plan. IF THE REINCORPORATION IS APPROVED, IT IS
NOT THE PRESENT INTENTION OF THE BOARD OF DIRECTORS TO SEEK SHAREHOLDER APPROVAL
PRIOR TO ANY ISSUANCE OF PREFERRED STOCK, EXCEPT AS REQUIRED BY LAW OR
REGULATION.
In addition to the various anti-takeover measures that would be available to
the Delaware Company after the reincorporation due to the application of
Delaware Law, the Delaware Company would retain the rights currently available
to the Company under New York Law to issue shares of its authorized but unissued
capital stock. Following the effectiveness of the proposed reincorporation,
shares of authorized and unissued common stock and preferred stock of the
Delaware Company could (within the limits imposed by applicable law) be issued
in one or more transactions, or preferred stock could be issued with terms,
provisions and rights which would make more difficult and, therefore, less
likely, a takeover of the Delaware Company. Any such issuance of additional
stock could have the effect of diluting the earnings per share and book value
per share of existing shares of common stock and preferred stock, and such
additional shares could be used to dilute the stock ownership of persons seeking
to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of preferred stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board. Accordingly, if the Delaware Board so
authorizes, the holders of Delaware Preferred Stock may be entitled to vote
37
<PAGE>
separately as a class in connection with approval of certain extraordinary
corporate transactions in circumstances where Delaware law does not ordinarily
require such a class vote, or might be given a disproportionately large number
of votes. Such Delaware Preferred Stock could also be convertible into a large
number of shares of common stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a controlling
interest in the Delaware Company more difficult or more costly, including the
right to elect additional directors to the Delaware Board. Potentially, the
Delaware Preferred Stock could be used to create voting impediments or to
frustrate persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware Preferred Stock could be privately placed
with purchasers who might side with the management of the Delaware Company in
opposing a hostile tender offer or other attempt to obtain control.
The Board may also authorize the issuance of preferred stock in connection
with various corporate transactions, including corporate partnering
arrangements. The Board may also authorize the issuance of preferred stock for
the purpose of adopting a shareholder rights plan. However, future issuances of
Delaware Preferred Stock as an anti-takeover device might preclude shareholders
from taking advantage of a situation which might otherwise be favorable to their
interests. In addition (subject to the considerations referred to above as to
applicable law), the Delaware Board could authorize issuance of shares of common
stock of the Delaware Company ("Delaware Common Stock") or Delaware Preferred
Stock to a holder who might thereby obtain sufficient voting power to ensure
that any proposal to alter, amend, or repeal provisions of the Delaware
Certificate unfavorable to a suitor would not receive the necessary majority
vote of the voting stock required for certain of the proposed amendments (as
described below).
If the reincorporation is approved, it is not the present intention of the
Board of Directors to seek stockholder approval prior to any issuance of the
Delaware Preferred Stock or Delaware Common Stock, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board of Directors that the delay necessary for stockholder
approval of a specific issuance would be a detriment to the Delaware Company and
its stockholders. The Board of Directors does not intend to issue any preferred
stock except on terms which the Board of Directors deems to be in the best
interests of the Delaware Company and its then existing stockholders.
NOMINATION OF DIRECTORS
The Delaware Bylaws provide that shareholders may make nominations for the
election of directors only if written notice of such stockholder's intent to
make such nomination is provided to the secretary of the Company not less than
90 nor more than 120 days prior to the anniversary of the date of mailing of the
proxy statement for the immediately preceding annual meeting. Such notice must
set forth certain basic information with regard to each individual to be
nominated by the stockholder. The New York Bylaws are silent as to shareholder
nominations.
NUMBER OF DIRECTORS; FILLING VACANCIES
The New York Bylaws provide that the number of directors constituting the
Board shall be fixed by resolution adopted by the majority of the Board, subject
to change by amendment to the New York Bylaws. The Company presently has eight
members on its Board of Directors. In the event of an increase in the number of
directors, the New York Bylaws provide that additional directors may be elected
by the Board of Directors.
The Delaware Certificate provides that the number of directors constituting
the Board shall be fixed by resolution adopted by the majority of the Board. In
addition, the Delaware Bylaws provide that any vacancy on the Delaware Company
Board of Directors that results from death, resignation, disqualification,
removal or other causes and any newly created directorships resulting from an
increase in the number of directors shall, unless the Board determines by
resolution that any such vacancies or newly created directorships shall be
filled by the stockholders, and except as otherwise provided by law, be filled
only by
38
<PAGE>
the affirmative vote of a majority of the directors then in office, even though
less than a quorum of the Board of Directors, and not by the stockholders.
OTHER CHANGES TO REFLECT TECHNICAL DIFFERENCES BETWEEN DELAWARE LAW AND NEW YORK
LAW
In addition to the changes described above, certain technical changes have
been made in the Delaware Certificate and Delaware Bylaws from the New York
Certificate and New York Bylaws to reflect differences between the Delaware Law
and the New York Law. Such technical changes include: designation of a
registered office and registered agent in the State of Delaware; changes in the
minimum and maximum number of days applicable for giving notice of meetings and
for setting record dates to be consistent with Delaware Law; and changing
references in the Bylaws to place or to applicable law from New York to
Delaware.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be a
tax-free reorganization under the Internal Revenue Code of 1986, as amended.
Assuming the reincorporation qualifies as a reorganization, no gain or loss will
be recognized to the holders of capital stock of the Company as a result of
consummation of the reincorporation, and no gain or loss will be recognized by
the Company or the Delaware Company. Each former holder of capital stock of the
Company will have the same basis in the capital stock of the Delaware Company
received by such holder pursuant to the reincorporation as such holder has in
the capital stock of the Company held by such holder at the time of consummation
of the reincorporation. Each shareholder's holding period with respect to the
Delaware Company's capital stock will include the period during which such
holder held the corresponding Company capital stock, provided the latter was
held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal Revenue
Service or an opinion of legal or tax counsel with respect to the consequences
of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
Shareholders should consult their own tax advisers regarding the specific tax
consequences to them of the merger, including the applicability of the laws of
any state or other jurisdiction.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and New York and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the New York Law and to
the Delaware Law. In addition, both the New York Law and the Delaware Law
provide that some of the statutory provisions as they affect various rights of
holders of shares may be modified by provisions in the charter or bylaws of the
corporation.
The Board of Directors unanimously recommends that shareholders vote "FOR"
the proposal to change the state of incorporation of the Company from New York
to Delaware by means of a merger of the Company with and into a wholly-owned
Delaware subsidiary.
A vote "FOR" the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, the adoption and
assumption by the Delaware Company of each of the Company's stock option, stock
purchase and employee benefit plans and all other aspects of this Proposal 6.
39
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 6.
PROPOSAL 7
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP ("Deloitte &
Touche") as the Company's independent auditors for the fiscal year ending
December 31, 2000 and has further directed that management submit the selection
of independent auditors for ratification by the shareholders at the Annual
Meeting. Representatives of Deloitte & Touche are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Deloitte & Touche as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Deloitte & Touche. Abstentions and broker
non-votes will not be counted as votes cast for or against the ratification of
the selection of Deloitte & Touche and, accordingly, will not affect the outcome
of the vote.
In December 1999, the Board of Directors approved the appointment of
Deloitte & Touche as the Company's independent auditors to audit the Company's
financial statements for the fiscal year ended December 31, 1999 and the fiscal
year ending December 31, 2000 in place of Arthur Andersen LLP ("Arthur
Andersen"). Prior to the Merger, Deloitte & Touche had been Artecon's
independent auditors, and Arthur Andersen had been the independent auditors for
Box Hill. The decision to change independent auditors was authorized by the
Company's Board of Directors.
The reports of Arthur Andersen on the Company's financial statements as of
December 31, 1997 and 1998 and for each of the years in the three-year period
ended December 31, 1998 contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. Because following the Merger, the Company's headquarters, primary
manufacturing facility and finance department were relocated to the former
headquarters of Artecon in Carlsbad, California, the Board of Directors
concluded that it would be more convenient to retain Deloitte & Touche, the
independent accountants of Artecon prior to the Merger, as the Company's
independent accountants. Accordingly, the Company's Audit Committee recommended
that the Company dismiss Arthur Andersen and retain Deloitte & Touche as the
Company's independent accountants. During the Company's two most recent fiscal
years and through December 9, 1999, there have been no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Arthur Andersen would have caused them to make
reference thereto in their report. During the two most recent fiscal years and
through December 9, 1999, there were no reportable events (as defined in
Regulation S-K Item 304(a)(1)(v)) with respect to the Company's relationship
with Arthur Andersen.
The Company engaged Deloitte & Touche as its new independent accountants
effective December 10, 1999. During the two most recent fiscal years and through
December 9, 1999, the Company has not consulted with Deloitte & Touche on items
which were or should have been subject to Statement of
40
<PAGE>
Auditing Standard No. 50 or concerned the subject matter of a disagreement or
reportable event with the former accountants (as described in Regulation S-K
Item 304(a)(2)).
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 7.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's common stock as of January 31, 2000 by:
- all those known by the Company to be beneficial owners of more than five
percent of its common stock;
- each director and nominee for director;
- each of the executive officers named in the Summary Compensation Table;
and
- all executive officers and directors of the Company as a group;
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- ----------- ----------
<S> <C> <C>
Dr. Benjamin Monderer(2)(3)................................. 7,705,059 32.0%
Carol Turchin(2)(3)......................................... 7,705,059 32.0
Mark A. Mays(2)(3).......................................... 7,705,059 32.0
W.R. Sauey(4)............................................... 2,436,945 10.1
James L. Lambert(5)......................................... 1,415,910 5.9
Hollybank Investment, LP(6) P.O. Box 190240 Miami Beach, FL
33119..................................................... 1,292,940 5.4
Chong Sup Park(7)........................................... 660,000 2.7
Dana W. Kammersgard(8)...................................... 562,734 2.3
Philip Black(9)............................................. 469,950 1.9
Norman R. Farquhar(10)...................................... 20,000 *
Benjamin Brussell(11)....................................... 3,125 *
All executive officers and directors as a group (10 persons)
(12)...................................................... 13,273,723 54.1%
</TABLE>
- ------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the shareholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
24,052,480 shares outstanding on January 31, 2000, adjusted as required by
rules promulgated by the SEC.
(2) The shares held by Dr. Monderer, Ms. Turchin, the Monderer Trust and
Mr. Mays are subject to the voting agreement described under "Certain
Transactions" below. Therefore, ownership for each individual includes those
shares beneficially owned by all three.
(3) Dr. Monderer and Ms. Turchin are married. Includes 2,476,753 shares held by
Dr. Monderer, as to which shares Ms. Turchin disclaims beneficial ownership,
2,476,653 shares held by the Monderer 1999 GRAT u/a/d March 1999 Trust (the
"Monderer Trust"), as to which Dr. Monderer is the trustee and Ms. Turchin
is the sole beneficiary, and 2,751,653 shares held by Mr. Mays.
41
<PAGE>
(4) Includes (i) 655,876 shares held by Flambeau Corp., (ii) 393,618 shares held
by Flambeau Products Corp., and (iii) 64,075 shares held by Seats, Inc.
Mr. Sauey is Chairman of the Board and the principal shareholder of each of
Flambeau Corp., Flambeau Products Corp. and Seats, Inc. (collectively, the
"Sauey Affiliates"). Mr. Sauey disclaims beneficial ownership of all the
above-listed shares, except to the extent of his pecuniary or pro rata
interest in such shares. Also includes options to purchase 20,000 shares
exercisable within 60 days of January 31, 2000.
(5) Includes (i) 1,397,072 shares held jointly with Pamela Lambert, the spouse
of Mr. Lambert, (ii) 1,440 shares held by Pamela Lambert, (iii) 66 shares
held by Mr. Lambert's daughter and (iv) options to purchase 16,000 shares
exercisable within 60 days of January 31, 2000.
(6) Includes 1,202,160 shares held by Hollybank Investment, LP ("Hollybank"),
90,780 shares held by Thistle Investment LLC ("Thistle") and 116,500 shares
held by Dorsey R. Gardner, the general partner of Hollybank and a managing
member of Thistle. Mr. Gardner, as general partner of Hollybank and a
managing member of Thistle, may be deemed to beneficially own shares held by
Hollybank and Thistle. Except to the extent of his direct pecuniary interest
as a limited partner of Hollybank and a member of Thistle, Mr. Gardner
expressly disclaims such beneficial ownership.
(7) Includes options to purchase 20,000 shares exercisable within 60 days of
January 31, 2000.
(8) Includes (i) 218 shares held by Lisa Kammersgard, the spouse of
Mr. Kammersgard and (ii) options to purchase 10,000 shares exercisable
within 60 days of January 31, 2000.
(9) Includes options to purchase 394,950 shares exercisable within 60 days of
January 31, 2000.
(10) Includes options to purchase 20,000 shares exercisable within 60 days of
January 31, 2000.
(11) Includes options to purchase 3,125 shares exercisable within 60 days of
January 31, 2000.
(12) Includes 1,113,569 shares held by the Sauey Affiliates and 7,705,059 shares
subject to the voting agreement described in Note (2) above. Also includes
options to purchase 484,075 shares exercisable within 60 days of
January 31, 2000, as described in Notes (4), (5) and (7) through
(11) above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
In August 1999, the Company adopted a compensation policy for its
non-employee directors, pursuant to which each non-employee director of the
Company receives an annual fee of $16,000 (plus an additional $2,000 for each
scheduled regular meeting of the Board attended in person and an additional
$1,000 for each scheduled regular meeting of the Board attended via telephone).
The members of the Board of Directors are also eligible for reimbursement for
their expenses incurred in connection with attendance at Board and committee
meetings in accordance with Company policy.
42
<PAGE>
From January 1, 1999 until the Merger, Box Hill's compensation policy for
its non-employee directors provided for: an annual fee of $25,000 payable in
quarterly installments; reimbursement for out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors or committees; and
an initial stock option grant pursuant to the Company's Incentive Plan.
From January 1, 1999 until the Merger, Artecon's compensation policy for its
non-employee directors provided for: an annual fee of $10,000; an additional
$2,000 for each board meeting attended in person; an additional $1,000 for each
scheduled regular meeting of the Board attended via telephone; $1,000 for each
committee meeting attended in person so long as not held on the same day as a
board meeting; $500 for each committee meeting attended via telephone so long as
not held on the same day as a board meeting; and reimbursement for out-of-pocket
expenses incurred in attending board or committee meetings; and an initial stock
option grants.
In the fiscal year ended December 31, 1999, the total compensation paid to
the Company's current non-employee directors was $46,167.
Under current Company policy, upon joining the Board, each non-employee
director receives an initial stock option grant of 50,000 shares (pro-rated to
take into account any initial stock options received upon joining Box Hill's or
Artecon's Board of Directors), and, upon the date of each annual meeting
thereafter, each non-employee director continuing in office following such
meeting receives an annual stock option grant of 10,000 shares. To date, all of
such option grants to non-employee directors have been under the Company's
Incentive Plan. If Proposal 4 is approved by shareholders at the Annual Meeting,
the Company's current policy regarding option grants to non-employee directors
will be replaced by the 2000 Non-Employee Directors' Stock Option Plan and
options to purchase 10,000 shares of common stock will be granted to
Messrs. Brussell, Farquhar and Sauey, Dr. Park and Ms. Turchin pursuant to the
terms of the 2000 Non-Employee Directors' Stock Option Plan, as described in
Proposal 4 above, immediately following the Annual Meeting. If Proposal 4 is not
approved by shareholders, options to purchase the same number of shares will be
granted to such non-employee directors at such time under the Incentive Plan.
Pursuant to the current compensation policy set forth above, during the last
fiscal year, the Company granted options covering an aggregate of 180,000 shares
of common stock to each non-employee director of the Company, at an exercise
price per share of $5.50, as follows: Mr. Brussell received an initial option to
purchase 40,000 shares; Mr. Sauey received an initial option to purchase 30,000
shares; Dr. Park received an initial option to purchase 30,000 shares;
Mr. Farquhar received an initial option to purchase 30,000 shares; and
Ms. Turchin received an initial option to purchase 50,000 shares. The fair
market value of such common stock on the date of grant was $5.50 per share
(based on the closing sales price reported on the New York Stock Exchange on the
date of grant). As of January 31, 2000, none of such options had been exercised
by the non-employee directors.
43
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1997, 1998
and 1999, compensation awarded or paid to, or earned by, the Company's Co-Chief
Executive Officers, its other two most highly compensated executive officers at
December 31, 1999 who earned at least $100,000 during 1999 and two former
executive officers who departed from the Company during fiscal year 1999 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- -------- --------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Philip Black .................... 1999 336,466 170,650 -- -- --
Co-Chief Executive Officer and 1998 316,664 194,531 -- -- 210,390(1)
Executive Vice President, 1997 290,975 149,065 -- -- --
International Sales
James L. Lambert ................ 1999 272,633 168,106(2) -- -- 906(4)
Co-Chief Executive Officer, 1998 211,702 96,808(2) -- 16,000 906(4)
President and Chief Operating 1997 133,781 14,936(2) 291,250(3) -- 906(4)
Officer
Dana W. Kammersgard ............. 1999 201,870 132,106(5) -- -- --
Chief Technical Officer 1998 164,575 48,870(5) -- 10,000 --
1997 120,586 22,624(5) 146,625(6) -- --
Benjamin Monderer ............... 1999 416,667 75,000 36,558(7) -- --
Executive Vice President, 1998 500,000 -- -- -- --
Technology Services/Engineering 1997 281,910 3,063,179(8) -- -- 39,803(9)
Applications
Elizabeth Strong ................ 1999 152,192 1,634 124,061(10) -- 544,824(11)
Former Executive Vice President 1998 175,321 -- 133,670(10) 150,000 23,240(12)
of Sales
Carol Turchin ................... 1999 344,840 50,254 -- 50,000 --
Former Executive Vice President 1998 425,000 -- -- -- --
of Sales 1997 340,297 3,063,179(8) -- -- --
</TABLE>
- ------------------------
(1) Represents amounts received from dispositions of non-qualified stock
options.
(2) Includes tax gross-up paid to Mr. Lambert of $33,606 in 1999, $44,808 in
1998 and $14,396 in 1997.
(3) Represents the dollar value of shares of Artecon California common stock
purchased pursuant to an option exercise, calculated by multiplying the
difference between the fair market value of such stock on the date of grant
($1.20 per share) and the exercise price ($0.035 per share) by the number of
shares of Artecon California common stock purchased (125,000 shares).
(4) Includes term life insurance premium paid on behalf of Mr. Lambert.
(5) Includes tax gross-ups paid to Mr. Kammersgard of $33,606 in 1999, $44,808
in 1998 and $14,396 in 1997.
44
<PAGE>
(6) Represents the dollar value of shares of Artecon California common stock
purchased pursuant to an option exercise, calculated by multiplying the
difference between the fair market value of such stock on the date of grant
($1.20 per share) and the exercise price ($0.035 per share) by the number of
shares of Artecon California common stock purchased (250,000 shares).
(7) Includes tax gross-up paid to Mr. Monderer of $36,558.
(8) 1997 bonuses paid to Dr. Monderer and Ms. Turchin were calculated in
accordance with their compensation schemes that existed prior to their
employment agreements dated September 22, 1997.
(9) Represents amounts paid in 1997 prior to the Company's initial public
offering in September 1997 to two employees of the Company who provide
housekeeping services to Dr. Monderer which are not Company-related.
Following the initial public offering, the Company continues to employ these
individuals, and Dr. Monderer reimburses the Company for the full amount of
their salary, benefits and related expenses.
(10) Represents sales commissions paid.
(11) Represents severance payments paid or due as of December 31, 1999.
(12) Represents moving expenses paid.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Incentive
Plan. As of January 31, 2000, options to purchase a total of shares were
outstanding under the Incentive Plan and options to purchase shares
remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1999,
certain information regarding options granted to, and held at year end by, the
Named Executive Officers. None of the Named Executive Officers exercised options
during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL
SECURITIES RATES OF STOCK PRICE
UNDERLYING % OF TOTAL EXERCISE APPRECIATION FOR OPTION
OPTIONS OPTIONS GRANTED OR BASE TERM(3)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- ---- ---------- --------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Carol Turchin................. 50,000(4) 4.4% $5.50 10/25/09 $172,946 $438,279
</TABLE>
- ------------------------
(1) Options generally vest over a four-year period, 25% after one year and in
equal monthly installments during the following three years. The options
will fully vest upon a change of control, as defined in the Company's option
plans, unless the acquiring company assumes the options or substitutes
similar options.
(2) Based on options to purchase 1,136,875 shares of common stock granted to
employees, including Named Executive Officers, under the Incentive Plan
during the fiscal year ended December 31, 1999.
(3) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. The total appreciation
of the options over their 10-year terms at 5% and 10% is 63% and 159%,
respectively.
(4) Options granted pursuant to the Company's compensation policy for
non-employee directors. See "Compensation of Directors" above.
45
<PAGE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING OPTIONS MONEY OPTIONS
AS OF FY-END(#)(1) AS OF FY-END($)(2)
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Philip Black.................................. 368,846 52,207 $1,586,444 $224,550
James L. Lambert.............................. 16,000 -- -- --
Dana W. Kammersgard........................... 10,000 -- -- --
Carol Turchin................................. -- 50,000 -- --
</TABLE>
- ------------------------
(1) Includes both in-the-money and out-of-the-money options. Certain options
granted under the Incentive Plan are immediately exercisable but are subject
to the Company's right to repurchase unvested shares on termination of
employment.
(2) The fair market value of the Company's common stock on December 31, 1999
($4.94) less the exercise or base price. Excludes out-of-the-money options.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
Effective August 2, 1999, the date of the Merger, the Company entered into
employment contracts with James Lambert, Benjamin Monderer and Dana Kammersgard
that provide for base salaries in the amounts of $350,000, $300,000 and
$250,000, respectively ("Employment Contracts"). Other than the base salary
provisions, the three Employment Contracts are identical. The Employment
Contracts provide for a quarterly performance bonus of up to 50% of base salary
for the Company's meeting certain revenue and income goals for any given
quarter. The bonuses are payable at the discretion of the Compensation
Committee, and the revenue and income goals are approved by the Board of
Directors. The formula for the quarterly performance bonus is as follows. Half
of the quarterly performance bonus is based on meeting revenue goals. If the
Company attains less than 75% of the revenue goal after any given quarter, no
revenue-based bonus is payable for that quarter. For attaining every additional
1% of revenue above 75% of the revenue goal, the employee shall receive an
additional 2% of the quarterly performance bonus. The other half of the
quarterly performance bonus is based on meeting income goals. The employee shall
receive 0.5% of the quarterly performance bonus for each 1% achieved of the net
income goal, up to a maximum of 100%. The Employment Contracts may be terminated
at the option of either the Company or the employee "for cause" or, upon
30 days written notice, for convenience and "without cause." If the Company
terminates for convenience, the employee is entitled to a severance payment
equal to the employee's then-current annual base salary, and the Company may
hire the employee as a consultant for a period of one year at a cost of 25% of
the employee's then-current annual base salary, during which period the employee
may not engage in any business activities that directly compete with the
business of the Company. The agreements also provide for indemnification of the
employees, non-disclosure of confidential or proprietary Company information and
health and dental insurance for the employee, his or her spouse and his or her
children under the age of 21.
Prior to the Merger, from January 1, 1999 through August 2, 1999, Benjamin
Monderer and Carol Turchin were employed pursuant to employment agreements
effective September 22, 1997. The agreements provided for annual base
compensation of $500,000 and $425,000 for Dr. Monderer and Ms. Turchin,
respectively. The agreements also provided for an annual bonus of (i) 0.5% of
the net revenues in excess of $100,000,000 for each of Dr. Monderer and
Ms. Turchin and (ii) 4.0% and 2.5% of the net pre-tax income above $20,000,000,
respectively, for Dr. Monderer and Ms. Turchin. The employment agreements with
Dr. Monderer and Ms. Turchin provided that the Company was to secure term life
insurance on the life of each of them in the amount of at least $1,000,000 for
the benefit of his or her spouse. Each of their employment agreements also
provided that in the event of the employee's death, the
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Company would pay the employee's spouse the employee's base compensation for
twelve months following such death plus the amount of any bonus which would have
been earned during the following 12 months. The agreements also provided that in
event of termination due to disability, as defined in the agreement, the Company
would pay base compensation for the twelve-month period following such
termination.
In January 1999, the Company entered into a Compensation Plan and Agreement
(the "Plan") with Mr. Black. The Plan provided for an annual base salary of
$350,000, commissions at the rate of 0.20% of revenue for calendar year 1999 and
a quarterly bonus at the rate of 1.12% of each quarter's pre-tax income. For
each year subsequent to 1999 that Mr. Black remains employed under the Plan, the
Company shall offer Mr. Black a package with potential, "on plan" compensation
equal to or greater than that offered in 1999. The Plan may be terminated at the
option of either the Company or Mr. Black "for cause" or, upon 30 days written
notice, for convenience and "without cause." In the event that the Company
terminates Mr. Black for convenience, Mr. Black is entitled to a severance
payment equal to his annual compensation for the calendar year prior to the
termination. In the event of disability, Mr. Black is entitled to a one-time
payment of 60% of his annual compensation for the calendar year prior to the
disability. The 1999 Plan contains certain restrictions on competition for an
eighteen-month period following termination of employment and non-disclosure
restrictions.
Effective as of the time of the Merger, the bonus portion of Mr. Black's
compensation was changed to mirror those of the Employment Contracts, as
described above. Mr. Black's base salary was changed to $300,000. However, the
remaining terms and conditions of Mr. Black's employment remain as set forth in
the Plan.
In July 1999, the Company terminated its employment relationship with
Elizabeth Strong, then Executive Vice President of Sales for Box Hill.
Ms. Strong was employed pursuant to terms contained in a letter of agreement
(the "Letter"). From January 1, 1999 until her termination, Ms. Strong received
an annual base salary of $250,000 and was paid base commissions at the following
rates on the following level of sales in each quarter: 0.15% on sales from $0 to
$15 million and .87% on sales above $15 million during the first quarter; 0.15%
on sales from $0 to $18 million and .87% on sales above $18 million during the
second quarter, and; 0.15% on sales from $0 to $20.25 million and 0.87% on sales
above $20.25 million during the third quarter. Ms Strong was also entitled to a
quarterly bonus of 0.75% of each quarter's pre-tax positive income as defined by
EBIT-DA under GAAP. The Letter provided for a severance package equal to one
year's compensation. As of December 31, 1999, Ms. Strong was due to receive
$264,912 in severance payments.
In October 1999, the Company and Carol Turchin entered into a separation and
consulting letter agreement pursuant to which Ms. Turchin resigned as an
executive officer and employee of the Company. Pursuant to this letter
agreement, Ms. Turchin agreed to provide consulting services to the Company for
a period of 12 months following termination of her employment with the Company,
and the Company agreed to pay her for such services on a monthly basis at the
rate of $25,000 per quarter. Ms. Turchin also agreed that during such consulting
period, she would not engage in activities competitive with those of the Company
or solicit or hire employees or consultants of the Company. As of December 31,
1999, Ms. Turchin had received $0.00 for 1999 in consulting payments and is due
a total of $16,667.
In November 1999, the Company and Preston Romm executed an employment offer
letter pursuant to which Mr. Romm became the Chief Financial Officer of the
Company. Mr. Romm's employment agreement provides for a base salary of $175,000,
a signing bonus of $20,000 and a quarterly performance bonus of up to 35% of
base salary for the Company's meeting certain revenue and income goals for any
given quarter. The bonus is payable at the discretion of the Compensation
Committee, and the revenue and income goals are approved by the Board of
Directors. The formula for the quarterly performance bonus is as follows. Half
of the quarterly performance bonus is based on meeting revenue goals. If the
Company attains less than 75% of the revenue goal after any given quarter, no
revenue-based bonus is payable for that quarter. For attaining every additional
1% of revenue above 75% of the revenue goal, the
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employee shall receive an additional 2% of the quarterly performance bonus. The
other half of the quarterly performance bonus is based on meeting income goals.
The employee shall receive 0.5% of the quarterly performance bonus for each 1%
achieved of the net income goal, up to a maximum of 100%. Mr. Romm's employment
agreement may be terminated by the Company or Mr. Romm at will. The agreement
also provides for non-disclosure of confidential or proprietary Company
information and health and dental insurance for Mr. Romm, his spouse and his
children under the age of 21.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of directors who are not employees of the Company. The Committee is
responsible for establishing and administering compensation arrangements with
the Company's executive officers.
COMPENSATION OBJECTIVES AND IMPLEMENTATION
The objectives of the Company's executive compensation arrangements are to
attract and retain the services of key management and to align the interests of
its executives with those of the Company's shareholders. The Committee endeavors
to accomplish these by:
- Establishing compensation arrangements that are adequate to attract and
retain the services of key management personnel and that deliver
compensation commensurate with the Company's performance, as measured
against the achievement of operating, financial and strategic objectives
and taking into account competitive compensation practices in the
industry.
- Providing significant equity-based incentives for executives to ensure
that they are motivated over the long term to respond to the Company's
business challenges and opportunities as owners rather than solely as
employees.
- Rewarding executives if stockholders receive an above-average return on
their investment over the long term.
COMPENSATION MIX AND MEASUREMENT
A significant portion of the Company's annual executive compensation program
is determined on the basis of corporate performance. The Company's current
executive compensation mix generally consists of an annual base salary, which in
the Committee's opinion is adequate under the circumstances to retain the
services of the executive, a cash bonus based on the Company's performance and,
for certain executive officers, stock options that are intended to provide
long-term incentives tied to increases in the value of the Company's common
stock. Future executive compensation may include bonuses based on individual
performance.
SALARY. The Committee establishes the annual base salary for the executive
officers in line with their responsibilities and with external market practices.
In determining base salary, the Committee reviews information about similar
companies from third party, nationally recognized surveys.
For fiscal 1999, the Committee established the compensation of one executive
officer, Preston Romm. The compensation of the other executive officers was
established prior to the formation of the Committee, and was negotiated along
with other issues in the merger of Artecon, Inc. and Box Hill Systems Corp.,
which merger formed the Company. With respect to Mr. Romm, the Committee made
its compensation
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(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended (the "1933
Act") or the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
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determinations subjectively after considering the competitive nature of the
Company's industry, nationally recognized surveys and the level of
responsibility and experience of Mr. Romm.
In the future, the Committee will consider nationally recognized surveys,
and the level of responsibility, experience and contributions of each executive
officer when setting each officer's compensation. The Committee will also take
into account recent corporate and individual performance.
QUARTERLY PERFORMANCE BONUS. The Committee, on a quarterly basis, evaluates
the Company's corporate performance based on achievement of established
financial goals. Currently, the executive officers are eligible to receive a
quarterly performance bonus of up to 50% of base salary earned during any
quarter for the Company's meeting certain revenue and income goals for that
quarter. The bonuses are payable at the discretion of the Compensation
Committee, and the revenue and income goals are approved by the Board of
Directors.
LONG-TERM INCENTIVES. Long-term incentives are provided to executives
through the Company's Employee Incentive Plan. Grants under the Employee
Incentive Plan generally have a term of 10 years and generally are tied to the
market valuation of the Company's common stock, thereby providing an additional
incentive for executives to build stockholder value. In addition, grants are
generally subject to vesting over four years, with vesting tied to continued
employment. Executives receive value from this plan only if the Company's common
stock appreciates accordingly. This component is intended to retain and motivate
executives to improve long-term stock market performance. Additional long-term
incentives are provided through the Company's Employee Stock Purchase Plan in
which all eligible employees may participate up to 15% of their annual
compensation.
Option grant levels to executive officers are subjectively determined by the
Committee after considering the practices of other, similar companies, as well
as the level of responsibility, experience and contributions of each executive
officer. The Committee may grant options to executive officers annually as part
of the performance review process for each officer. In determining the size of
individual grants, the Committee also considers the number of shares held by,
and options previously granted to, each executive officer.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Committee has determined that stock options granted under the
Company's Employee Incentive Plan with an exercise price at least equal to the
fair market value of the Company's common stock on the date of grant shall be
treated as "performance-based compensation."
CHIEF EXECUTIVE OFFICER COMPENSATION
Fiscal year 1999 compensation of the Chief Executive Officers was
established prior to the formation of the Committee, and was negotiated along
with other issues in the August 2, 1999 merger of Artecon, Inc. and Box Hill
Systems Corp., which merger formed the Company.
March , 2000 COMPENSATION COMMITTEE
Benjamin Brussell
Norman R. Farquhar
Chong Sup Park
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In August 1997, prior to the Merger, Artecon acquired Falcon Systems for
$3,5000,000. That purchase price included $1,000,000 in cash and a promissory
note in the original principal amount of $1,250,000, which was later amended by
Artecon and Falcon to $750,000 (the "Artecon Note"). Concurrently, Falcon
transferred the Falcon Technology to Founding Partners, a California general
partnership ("Founding Partners"), in exchange for a promissory note with a
principal amount of $1,750,000 (the Founding Partners Note"). Dana Kammersgard,
James Lambert and W.R. Sauey, each of whom is an executive officer and/or
director of the Company, were the general partners of Founding Partners.
Founding Partners was considered a "special purpose entity" and, accordingly,
has been consolidated with the Company for financial reporting purposes. The
purchase price of Falcon consisted of $10,232,000 for other assets acquired,
$638,000 for goodwill and other tangible assets, $14,138,000 for liabilities
assumed and in-process research and development expenses of $3,700,000, which
had no future alternative use, based on management assumptions. Under the terms
of the Artecon Note and the Founding Partners Note (collectively, the "Notes"),
Artecon and Founding Partners were required to make monthly payments to Falcon
of $15,935 and $37,182, respectively, through August 2002. Each of the Notes
bore interest at the rate of 10% per annum. After the Merger in August 1999, the
Company paid the Notes in full and payments to Founding Partners were
discontinued. On December 27, 1999, Founding Partners was dissolved.
In connection with the Falcon acquisition and the transfer of Falcon's
technology to Artecon, Artecon and Founding Partners entered into a Technology
License Agreement, dated August 21, 1997, pursuant to which Founding Partners
granted to Artecon an exclusive, perpetual license of the Falcon technology in
exchange for monthly payments of $39,000 payable through August 2002. On
December 27, 1998, Founding Partners and Artecon amended the Technology License
Agreement to provide for, among other things, the transfer of the Falcon
technology from Founding Partners to Artecon upon the satisfaction in full of
Artecon's obligations under the Founding Partners Note. On August 2, 1999, the
Founding Partners Note was fully satisfied, and on August 9, 1999, Founding
Partners transferred all of Founding Partner's right, title and interest in the
Falcon technology to Artecon, a wholly owned subsidiary of the Company.
In February 1999, Artecon issued a promissory note to Flambeau Corporation,
a company in which W.R. Sauey is the principal shareholder, for the principal
amount of $500,000 at an interest rate of prime minus one-half of one percent.
Artecon paid this note in full on March 30, 1999.
During Artecon's fiscal years ended March 29, 1997, March 31, 1998, and
March 31, 1999 and from January 1, 1999 through December 31, 1999, Artecon
and/or the Company made payments to certain entities affiliated with W.R. Sauey
(the "Nordic Group Companies") of approximately $85,000, $130,000, $80,000 and
$88,500, respectively, for the purchase of certain products and services from
the Nordic Group Companies. In addition, during Artecon's fiscal years ended
March 29, 1997, March 31, 1998, and March 31, 1999 and from January 1, 1999
through December 31, 1999, Artecon and/or the Company received payments for the
sale of certain products and services from certain of the Nordic Group Companies
of approximately $74,000, $125,000, $48,000 and $18,000, respectively. As of
December 31, 1999, the Company had no accounts receivable from, or accounts
payable to, W.R. Sauey and/or the Nordic Group Companies.
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total shareholder return of an investment of
$100 in cash on September 17, 1997, the date of Box Hill's initial public
offering, for (i) the Company's common stock, (ii) the Standards & Poor's 500
Index (the "S&P 500") and (iii) the common stock of a group of peer issuers. The
group of peer issuers consists of eleven companies with common stock that is
publicly traded and which operate in the computer data storage industry:
Advanced Digital Info Corp., Auspex Sys Inc., Ciprico, Inc., EMC Corp., Exabyte
Corp., MTI Technology Corp., Network Appliance, Inc., Overland Data, Inc.,
Procom Technology Inc., Storage Computer Corp. and Storage Technology. During
1997, the Company compared itself to fourteen companies--those listed above,
plus Artecon, Andataco, Inc. and ATL Corporation. However, ATL Corporation was
acquired by Quantum Corporation this year, and no longer trades separately.
During 1998, the Company compared itself to thirteen companies--those listed
above, plus Artecon and Andataco, Inc. As you know, Artecon, Inc. merged with
Box Hill to form Dot Hill, and no longer trades separately. Likewise,
Andataco, Inc. merged with nStor Technologies, and no longer trades separately.
All values assume reinvestment of the full amount of all dividends and are
calculated as of December 31 of each year:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
9/17/97 9/97 12/97 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dot Hill Systems Corp. 100.00 116.67 69.58 85.42 46.25 57.50 35.83 34.17 39.17 44.17 32.92
Peer Group 100.00 104.22 103.94 136.01 156.26 179.86 267.41 380.57 333.42 426.79 670.54
S & P 500 100.00 100.45 103.34 117.75 121.64 109.54 132.87 139.49 149.32 140.00 160.83
</TABLE>
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(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
51
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CERTAIN TRANSACTIONS
On July 31, 1997, Dr. Monderer, Ms. Turchin and Mark A. Mays, who is an
employee of the Company, entered into a voting agreement with respect to the
shares of Company stock each owns which became effective upon the consummation
of Box Hill's initial public offering. Pursuant to the agreement, the three
shareholders have agreed to vote their respective shares for the election of
each other as a director of the Company and will vote their shares in accordance
with the determination of the holders of a majority of their shares as to any
proposal to merge, consolidate, liquidate or sell substantially all the assets
of the Company. The agreement, which is to terminate on the earliest of
December 31, 2009, the deaths of both Dr. Monderer and Ms. Turchin or upon the
mutual consent of Dr. Monderer, Ms. Turchin and Mr. Mays, prohibits the transfer
of their shares other than:
- to a member of the transferor's family who agrees to be bound by the
agreement;
- pursuant to a sale exempt from registration pursuant to Rule 144 under the
Securities Act; or
- in a merger, consolidation or sale of substantially all the assets of the
Company.
The Company maintains directors' and officers' insurance coverage. These
insurance policies cover directors and officers individually where exposure
exists and run from September 16, 1999 through September 16, 2000 at a total
cost of $562,500. The Company renewed Artecon's directors and officers
indemnification insurance, which runs from March 31, 1999 through March 21,
2000, at a total cost of $155,945. The Company also purchased a discovery period
extension for the former Artecon directors and officers insurance at a total
cost of $124,540, which runs from August 2, 1999 through August 2, 2005.
The Company has entered into certain transactions with its directors or
their affiliated entities, as described under the captions "Executive
Compensation--Compensation of Directors" and "Compensation Committee Interlocks
and Insider Participation."
The Company has also entered into certain agreements with its current
Co-Chief Executive Officers and certain of its other current and former
executive officers, as described under the caption "Executive
Compensation--Employment, Severance and Change of Control Agreements."
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers to the fullest extent permitted by New York law. In
addition, the Company's Amended and Restated Certificate of Incorporation
provides that to the fullest extent permitted by New York law, the Company's
directors will not be liable for monetary damages for breach of the directors'
duty to the Company and its shareholders. This provision in the Amended and
Restated Certificate of Incorporation does not eliminate the duty of care, and
in appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for acts or omissions in bad
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit or for
acts involving violation of Section 719 of the New York Business Corporation
Law. This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Company is subject to a class action lawsuit filed against Box Hill
Systems Corp., certain of its officers and directors, and the underwriters of
the Company's September 16, 1997 initial public offering (the "Offering"), which
is proceeding in the United States District Court for the Southern District of
New York. The action was filed on December 4, 1998 on behalf of purchasers of
the stock of the Company during the period from September 16, 1997 to April 14,
1998. Plaintiffs allege that, in violation of federal securities laws,
defendants made misrepresentations of material fact, and omitted material facts
required to be disclosed in the Company's registration statement and prospectus
issued in connection with the Offering and in statements allegedly made by the
Company and certain of its officers and directors subsequent to the Offering.
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Except as described in the preceding paragraph, there is no pending
litigation or proceeding involving a director, officer, employee or other agent
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Mark A. Mays
Secretary
March 30, 2000
53
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "MERGER
AGREEMENT") is made as of , 2000, by and between DOT HILL SYSTEMS
CORP., a New York corporation ("DOT HILL NEW YORK"), and DOT HILL SYSTEMS CORP.
(DELAWARE), a Delaware corporation ("DOT HILL DELAWARE"). Dot Hill New York and
Dot Hill Delaware are sometimes referred to collectively herein as the
"CONSTITUENT CORPORATIONS."
RECITALS
WHEREAS, the authorized capital stock of Dot Hill New York consists of
forty-five million (45,000,000) shares, of which forty million (40,000,000)
shares are designated Common Stock, par value of $.01, of which shares are
outstanding as of the Effective Time (defined below), and five million
(5,000,000) shares are designated Preferred Stock, par value of $.01, none of
which is outstanding as of the Effective Time. The authorized capital stock of
Dot Hill Delaware consists of one hundred ten million (110,000,000) shares, of
which one hundred million (100,000,000) shares are designated Common Stock,
$.001 par value per share, and ten million (10,000,000) shares are designated
Preferred Stock, $.001 par value per share;
WHEREAS, Dot Hill New York was originally incorporated under the laws of the
State of New York on April 5, 1988 under the name "Box Hill Systems Corp.";
WHEREAS, the respective directors of the Constituent Corporations deem it
advisable and to the advantage of said corporations that Dot Hill New York merge
with and into Dot Hill Delaware upon the terms and conditions herein provided;
and
WHEREAS, following the Merger (as defined below) the subsidiaries of Dot
Hill New York shall be the subsidiaries of Dot Hill Delaware.
NOW, THEREFORE, the parties hereto do hereby adopt the plan of
reorganization encompassed by this Merger Agreement and do hereby agree that Dot
Hill New York shall merge with and into Dot Hill Delaware on the following
terms, conditions and other provisions:
AGREEMENT
1. TERMS AND CONDITIONS
1.1 MERGER. Dot Hill New York shall be merged with and into Dot Hill
Delaware (the "MERGER"), and Dot Hill Delaware shall be the surviving
corporation (the "SURVIVING CORPORATION") effective at 10:00 a.m. (Pacific
Daylight Time) on , 2000 (the "EFFECTIVE TIME").
1.2 NAME CHANGE. At the Effective Time, the name of Dot Hill Delaware
shall be "Dot Hill Systems Corp."
1.3 SUCCESSION. At the Effective Time, Dot Hill Delaware shall continue
its corporate existence under the laws of the State of Delaware, and the
separate existence and corporate organization of Dot Hill New York, except
insofar as it may be continued by operation of law, shall be terminated and
ceased.
1.4 TRANSFER OF ASSETS AND LIABILITIES. At the Effective Time, the rights,
privileges, powers and franchises, both of a public as well as of a private
nature, of each of the Constituent Corporations shall be vested in and possessed
by the Surviving Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred
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to and vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest, shall be
thereafter the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; PROVIDED, HOWEVER, that the
liabilities of the Constituent Corporations and of their shareholders, directors
and officers shall not be affected and all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and any claim existing or action or proceeding pending by or against
either of the Constituent Corporations may be prosecuted to judgment as if the
Merger had not taken place except as they may be modified with the consent of
such creditors and all debts, liabilities and duties of or upon each of the
Constituent Corporations shall attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
1.5 COMMON STOCK OF DOT HILL NEW YORK AND DOT HILL DELAWARE. At the
Effective Time, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their respective shareholders, (i) each
share of Common Stock of Dot Hill New York issued and outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Common Stock of Dot Hill Delaware; and (ii) each share of
Common Stock of Dot Hill Delaware issued and outstanding immediately prior
thereto shall be canceled and returned to the status of authorized but unissued
shares.
1.6 STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock of Dot Hill New York shall be deemed for all purposes to evidence
ownership of and to represent the shares of Dot Hill Delaware into which the
shares of Dot Hill New York represented by such certificates have been converted
as herein provided and shall be so registered on the books and records of the
Surviving Corporation or its transfer agents. The registered owner of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or its transfer agent, have and be entitled to exercise
any voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of Dot Hill Delaware evidenced by such
outstanding certificate as above provided.
1.7 OPTIONS OF DOT HILL NEW YORK. At the Effective Time, the Surviving
Corporation will assume and continue all of Dot Hill New York's stock option
plans in existence at the Effective Time, including without limitation all
options outstanding under such stock option plans and any other outstanding
options shall be converted into options of Dot Hill Delaware, such that an
option for one (1) share of Dot Hill New York shall be converted into an option
for (1) share of Dot Hill Delaware, with no change in the exercise price of the
Dot Hill Delaware option. No other changes in the terms and conditions of such
options will occur. Effective at the Effective Time, Dot Hill Delaware hereby
assumes the outstanding and unexercised portions of such options and the
obligations of Dot Hill New York with respect thereto.
1.8 WARRANTS. At the Effective Time, the Surviving Corporation will assume
and continue warrants, if any, of Dot Hill New York and the outstanding and
unexercised portions of all warrants, including without limitation all warrants
to purchase shares of Common Stock outstanding and any other outstanding
warrants, if any, shall be converted into warrants of Dot Hill Delaware, such
that a warrant for one (1) share of Dot Hill New York shall be converted into a
warrant for one (1) share of Dot Hill Delaware, with no change in the exercise
price of the Dot Hill Delaware warrant. No other changes in the terms and
conditions of such warrants will occur. Effective on the Effective Date, Dot
Hill Delaware hereby assumes the outstanding and unexercised portions of such
warrants and the obligations of Dot Hill New York with respect thereto.
1.9 EMPLOYEE BENEFIT PLANS. At the Effective Time, the Surviving
Corporation shall assume all obligations of Dot Hill New York under any and all
employee benefit plans in effect as of the Effective
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Time with respect to which employee rights or accrued benefits are outstanding
as of such time, including but not limited to the Dot Hill New York's 401(k)
Plans; PROVIDED, HOWEVER, that one share of Common Stock of Dot Hill Delaware
shall be substituted for each share of Common Stock of Dot Hill New York (if
any) thereunder. At the Effective Time, the Surviving Corporation shall adopt
and continue in effect all such employee benefit plans upon the same terms and
conditions as were in effect immediately prior to the Merger and shall reserve
that number of shares of Dot Hill Delaware Common Stock with respect to each
such employee benefit plan as is equal to the number of shares of Dot Hill New
York Common Stock, if any, so reserved at the Effective Time.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Dot Hill Delaware in effect at the Effective Time
shall continue to be the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
2.2 DIRECTORS. The directors of Dot Hill New York immediately preceding
the Effective Time shall become the directors of the Surviving Corporation at
and after the Effective Time to serve until the expiration of their terms and
until their successors are elected and qualified.
2.3 OFFICERS. The officers of Dot Hill New York immediately preceding the
Effective Time shall become the officers of the Surviving Corporation at and
after the Effective Time to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Dot Hill New York such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
action, as shall be appropriate or necessary in order to vest or perfect in or
to conform of record or otherwise, in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Dot Hill New York and otherwise
to carry out the purposes of this Merger Agreement, and the officers and
directors of the Surviving Corporation are fully authorized in the name and on
behalf of Dot Hill New York or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the shareholders of
Dot Hill New York, this Merger Agreement may be amended in any manner (except
that, after the approval of the Merger Agreement by the shareholders of Dot Hill
New York, the principal terms may not be amended without the further approval of
the shareholders of Dot Hill New York) as may be determined in the judgment of
the respective Board of Directors of Dot Hill Delaware and Dot Hill New York to
be necessary, desirable, or expedient in order to clarify the intention of the
parties hereto or to effect or facilitate the purpose and intent of this Merger
Agreement.
3.3 CONDITIONS TO MERGER. The obligation of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the shareholders of Dot Hill New
York in accordance with applicable provisions of the General Corporation Law of
the State of New York; and
(b) Dot Hill New York, as sole stockholder of Dot Hill Delaware, shall have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware; and
(c) any and all consents, permits, authorizations, approvals, and orders
deemed in the sole discretion of Dot Hill New York to be material to
consummation of the Merger shall have been obtained.
A-3
<PAGE>
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Time, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either Dot Hill New York or Dot Hill Delaware, or both,
notwithstanding the approval of this Merger Agreement by the shareholders of Dot
Hill New York or Dot Hill Delaware or the prior filing of this Merger Agreement
with the Secretary of State of the State of Delaware, or the consummation of the
Merger may be deferred for a reasonable period of time if, in the opinion of the
respective Boards of Directors of Dot Hill New York and Dot Hill Delaware, such
action would be in the best interest of such corporations. In the event of
termination of this Merger Agreement, this Merger Agreement shall become void
and of no effect and there shall be no liability on the part of either
Constituent Corporation or its respective Board of Directors or shareholders
with respect thereto, except that Dot Hill New York shall pay all expenses
incurred in connection with the Merger or in respect of this Merger Agreement or
relating thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Merger Agreement, having first been fully approved
by the respective Board of Directors of Dot Hill New York and Dot Hill Delaware,
is hereby executed on behalf of each said corporation and attested by their
respective officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
DOT HILL SYSTEMS CORP.
a New York corporation
By:
-----------------------------------------
James L. Lambert
President and Co-Chief Executive Officer
By:
-----------------------------------------
Philip Black
Executive Vice President and
Co-Chief Executive Officer
ATTEST:
- -------------------------------------------
Mark A. Mays
Secretary
DOT HILL SYSTEMS CORP. (DELAWARE)
a Delaware Corporation
By:
-----------------------------------------
James L. Lambert
President and Co-Chief Executive Officer
By:
-----------------------------------------
Philip Black
Executive Vice President and
Co-Chief Executive Officer
ATTEST:
- -------------------------------------------
Mark A. Mays
Secretary
</TABLE>
A-4
<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
DOT HILL SYSTEMS CORP. (DELAWARE)
The undersigned, a natural person (the "Sole Incorporator"), for the purpose
of organizing a corporation to conduct the business and promote the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is DOT HILL SYSTEMS CORP. (DELAWARE).
II.
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, State of
Delaware 19901, and the name of the registered agent of the corporation in the
State of Delaware at such address is United Corporate Services, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is one hundred ten
million (110,000,000) shares. One hundred million (100,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($.001). Ten
million (10,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the powers
of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
B-1
<PAGE>
2. Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the adoption and filing of this
Certificate of Incorporation, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the adoption and
filing of this Certificate of Incorporation, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At each succeeding annual meeting of stockholders, directors shall
be elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of Preferred Stock,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors, shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by the stockholders, except as otherwise provided
by law, be filled only by the affirmative vote of a majority of the directors
then in office, even though less than a quorum of the Board of Directors, and
not by the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
If at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the DGCL.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least a
majority of the voting power of all of the then-outstanding shares of the voting
stock of the corporation entitled to vote. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide.
3. Following the effective date of the merger of this corporation with Dot
Hill Systems Corp., a New York corporation, no action shall be taken by the
stockholders of this corporation except at an annual or special meeting of
stockholders called in accordance with the Bylaws.
4. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
B-2
<PAGE>
VI.
A. The liability of the directors and officers for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least a majority of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal this Certificate of Incorporation.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
<TABLE>
<S> <C>
NAME MAILING ADDRESS
Thomas A. Coll Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
</TABLE>
IN WITNESS WHEREOF, this Certificate has been subscribed this of
, 2000 by the undersigned who affirms that the statements made
herein are true and correct.
<TABLE>
<S> <C>
---------------------------------
THOMAS A. COLL
Sole Incorporator
</TABLE>
B-3
<PAGE>
EXHIBIT C
BYLAWS
OF
DOT HILL SYSTEMS CORP. (DELAWARE)
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation
C-1
<PAGE>
Law ("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf
any such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 5. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90(th)) day nor earlier than the
close of business on the one hundred twentieth (120(th)) day prior to the first
anniversary of the mailing date of the preceding year's annual meeting proxy
statement; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is advanced more than thirty (30) days prior to or delayed by more than
thirty (30) days after the anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier than the
close of business on the one hundred twentieth (120(th)) day prior to such
annual meeting and not later than the close of business on the later of the
ninetieth (90(th)) day prior to such annual meeting or the tenth (10(th)) day
following the day on which public announcement of the date of such meeting is
first made. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth: (A) as to
each person whom the stockholder proposed to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 ACT") and
Rule 14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (C) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, (ii) the
class and number of shares of the corporation which are owned beneficially and
of record by such stockholder and such beneficial owner, and (iii) whether
either such stockholder or beneficial owner intends to deliver a proxy statement
and form of proxy to holders of, in the case of the proposal, at least the
percentage of the corporation's voting shares required under applicable law to
carry the proposal or, in the case of a nomination or nominations, a sufficient
number of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "SOLICITATION NOTICE").
(c) Notwithstanding anything in the second sentence of Section 5(b) of these
Bylaws to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the corporation at least one hundred
(100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10(th)) day following the day on which such public
announcement is first made by the corporation.
C-2
<PAGE>
(d) Only such persons who are nominated in accordance with the procedures
set forth in this Section 5 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 5. Except as otherwise provided by law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the case may
be, in accordance with the procedures set forth in these Bylaws and, if any
proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors,
(ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), or (iv) stockholder(s) holding twenty percent (20%) or more of the
outstanding shares of the voting stock of the corporation entitled to vote.
(b) If a special meeting is properly called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within one
hundred (100) days after the receipt of the request, the person or persons
properly requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the corporation's notice of meeting (i) by or at the direction of
the Board of Directors or (ii) by any stockholder of the corporation who is a
stockholder of record at the time of giving notice provided for in these Bylaws
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 6(c). In the event the corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the corporation's notice of meeting, if the stockholder's notice required by
Section 5(b) of these Bylaws shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the close of
business on the one hundred twentieth (120th) day
C-3
<PAGE>
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware
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<PAGE>
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. Following the effective date of the
merger of this corporation with Dot Hill Systems Corp., a New York corporation,
no action shall be taken by the stockholders except at an annual or special
meeting of stockholders called in accordance with these Bylaws and no action
shall be taken by the stockholders by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the Vice
Chairman, or, if a Vice Chairman has not been appointed or is absent, a Chief
Executive Officer, or, if all Chief Executive Officers are absent, a chairman of
the meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The Secretary, or,
in his absence, an Assistant Secretary directed to do so by a Chief Executive
Officer, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the Board of Directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws, or in the manner provided in Section 18 of
these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the adoption
and filing of the Certificate of Incorporation providing for a classified Board
of Directors, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the adoption and filing of the
Certificate of Incorporation providing for a classified Board of Directors, the
term of office of the Class III directors shall expire and Class III directors
shall be elected for a full term of three years. At the third annual meeting of
stockholders following the adoption and filing of the Certificate of
Incorporation providing for a classified Board of Directors, the term of office
of the Class I directors shall expire and Class I directors shall be elected for
a full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 18 in the case of the
death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the DGCL.
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SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL.
(a) Neither the Board of Directors nor any individual director may be
removed without cause.
(b) Subject to any limitation imposed by law, any individual director or
directors may be removed with cause by the affirmative vote of a majority of the
voting power of the corporation entitled to vote at an election of directors.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of Directors and publicized among all directors. No
formal notice shall be required for regular meetings of the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, a Chief Executive Officer or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special meetings
of the Board of Directors shall be orally or in writing, by telephone, including
a voice messaging system or other system or technology designed to record and
communicate messages, facsimile, telegraph or telex, or by electronic mail or
other electronic means, during normal business hours, at least twenty-four
(24) hours before the date and time of the meeting, or sent in writing to each
director by first class mail, charges prepaid, at least three (3) days before
the date of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of the
Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is present,
all questions and business shall be determined by the affirmative vote of a
majority of the directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) COMMITTEES. The Board of Directors may, from time to time, appoint such
committees as may be permitted by law. Such committees appointed by the Board of
Directors shall consist of one (1) or more members of the Board of Directors and
shall have such powers and perform such duties as may be prescribed by the
resolution or resolutions creating such committees.
(b) TERM. Each member of a committee of the Board of Directors shall serve a
term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsection (a) of
this Bylaw, may at any time increase or decrease the number of members of a
committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(c) MEETINGS. Unless the Board of Directors shall otherwise provide, regular
meetings of any committee appointed pursuant to this Section 25 shall be held at
such times and places as are determined by the Board of Directors, or by any
such committee, and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be given thereafter.
Special meetings of any such committee may be held at any place which has been
determined from time to time by
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such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the Vice Chairman, or, if the Vice Chairman is absent, a Chief Executive
Officer (if a director), or if all Chief Executive Officers are absent, the
President (if a director), or if the President is absent, the most senior Vice
President (if a director), or, in the absence of any such person, a chairman of
the meeting chosen by a majority of the directors present, shall preside over
the meeting. The Secretary, or in his absence, any Assistant Secretary directed
to do so by a Chief Executive Officer, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, one or two Chief Executive Officers, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer
and the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board of
Directors and until their successors shall have been duly elected and qualified,
unless sooner removed. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, when present, or the Vice Chairman of the Board if the Chairman is
not present, shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman or Vice Chairman, as the case may be, of the Board of
Directors shall perform other duties commonly incident to his or her office and
shall also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER(S). The Chief Executive Officer(s)
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors, unless the Chairman or Vice Chairman of the Board of
Directors has been appointed and is present. The Chief Executive Officer(s)
shall have general supervision, direction and control of the business and
officers of the corporation, and shall perform other duties commonly incident to
his office and such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no Chief Executive
Officer(s), then the
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Board of Directors shall designate a Chief Executive Officer(s) pursuant to
paragraph (a) of this Section 28.
(d) DUTIES OF PRESIDENT. The President shall assist the Chief Executive
Officer(s) with the performance of the duties prescribed in paragraph (c) of
this Section 28, and shall perform such duties commonly incident thereto and
shall also perform such other duties and have such other powers, as the Board of
Directors or a Chief Executive Officer shall designate from time to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or a Chief Executive
Officer shall designate from time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall cause to have recorded all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall cause notice to be given in conformity with these Bylaws of all
meetings of the stockholders and of all meetings of the Board of Directors and
any committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time. A Chief Executive
Officer may direct any Assistant Secretary to assume and perform the duties of
the Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or a Chief Executive Officer shall designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or a
Chief Executive Officer. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or a Chief Executive Officer shall
designate from time to time. A Chief Executive Officer may direct the Treasurer
or any Assistant Treasurer, or the Controller or any Assistant Controller to
assume and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or a Chief Executive
Officer shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chief Executive Officer(s) or
to the Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time (excluding the director who is also the officer
subject to such removal, as the case may be), or by the unanimous written
consent of the
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directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, a Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or a Chief
Executive Officer, the President or any Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
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and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix, in advance, a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall, subject to
applicable law, not be more than sixty (60) nor less than ten (10) days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, a Chief
Executive Officer, the President or any Vice President, or such other person as
may be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and
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attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its
directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; PROVIDED, HOWEVER,that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, PROVIDED, FURTHER, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL, or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).
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(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its other officers, employees and other agents as set forth
in the DGCL or any other applicable law. The Board of Directors shall have the
power to delegate the determination of whether indemnification shall be given to
any such person (except executive officers) to such officers or other persons as
the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express contract,
all rights to indemnification and advances to directors and executive officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or executive officer. Any right to indemnification or advances
granted by this Section 43 to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL or any other applicable law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an
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advancement of expenses hereunder, the burden of proving that the director or
executive officer is not entitled to be indemnified, or to such advancement of
expenses, under this Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any applicable statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law, or by any
other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any other
applicable law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each director and executive officer to the full extent
not prohibited by any applicable portion of this Section 43 that shall not have
been invalidated, or by any other applicable law. If this Section 43 shall be
invalid due to the application of the indemnification provisions of another
jurisdiction, then the corporation shall indemnify each director and executive
officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall include,
without limitation, the investigation, preparation, prosecution, defense,
settlement, arbitration and appeal of, and the giving of testimony in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section 43 with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation
as, respectively, a director, executive officer, officer, employee, trustee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
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(5) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to
be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws,
notice is required to be given to any stockholder, it shall be given in writing,
timely and duly deposited in the United States mail, postage prepaid, and
addressed to his last known post office address as shown by the stock record of
the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director may
be given by the method stated in subsection (a), or by overnight delivery
service, facsimile, telex or telegram, except that such notice other than one
which is delivered personally shall be sent to such address as such director
shall have filed in writing with the Secretary, or, in the absence of such
filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by overnight
delivery service, as above provided, shall be deemed to have been given as at
the time of mailing, and all notices given by facsimile, telex or telegram shall
be deemed to have been given as of the sending time recorded at time of
transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which
any stockholder may exercise any option or right, or enjoy any privilege or
benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.Whenever notice is
required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the DGCL,
the certificate shall state, if such is the fact and
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if notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required
to be given, under any provision of law or the Certificate of Incorporation or
Bylaws of the corporation, to any stockholder to whom (i) notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a twelve-month period, have been mailed addressed to such person at his
address as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such person
shall have the same force and effect as if such notice had been duly given. If
any such person shall deliver to the corporation a written notice setting forth
his then current address, the requirement that notice be given to such person
shall be reinstated. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the DGCL,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least a majority of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws pursuant to Sections 22 and 23 of these Bylaws.
ARTICLE XIV
LOANS TO OFFICERS AND DIRECTORS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
SECTION 47. LOANS TO DIRECTORS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any Director, who is not an
officer or employee of the corporation or of its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation and provided such loan,
guarantee or assistance is approved by the affirmative vote of at least a
majority of the voting power of all of the then outstanding shares of the voting
stock of the corporation entitled to vote. The loan, guarantee or other
assistance may be with or without interest and may be unsecured, or secured in
such a manner as the Board of Directors, and a majority of voting shares
entitled to vote (as provided in this Section 47), shall approve, including
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit, or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
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PRELIMINARY COPY
DOT HILL SYSTEMS CORP.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2000
The undersigned hereby appoints Philip Black and James L. Lambert, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Dot Hill Systems Corp. which
the undersigned may be entitled to vote at the Annual Meeting of Shareholders of
Dot Hill Systems Corp. to be held at the offices of the Company located at 6305
El Camino Real, Carlsbad, California 92009 on Monday, May 8, 2000 at 9:00 a.m.
(local time), and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4, 5, 6 AND 7, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
- -------------------------DETACH HERE-------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two directors, to hold office until the 2003 Annual Meeting
of Stockholders.
| | FOR all nominees listed below (except | | WITHHOLD AUTHORITY to vote
as marked to the contrary below). for all nominees listed
below.
NOMINEES: Philip Black and Norman R. Farquhar.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
_______________________________________________________________________________
_______________________________________________________________________________
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4, 5, 6 AND 7.
PROPOSAL 2: To approve the Company's 2000 Amended and Restated Equity
Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To approve the Company's 2000 Amended and Restated Employee
Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: To approve the Company's 2000 Non-Employee Directors' Purchase
Plan.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
PROPOSAL 5: To approve an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the
authorized number of shares of Common Stock from 40,000,000 to
100,000,000 shares and the authorized number of shares of
Preferred Stock from 5,000,000 to 10,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 6: To approve a change in the Company's state of incorporation from
New York to Delaware.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 7: To ratify selection of Deloitte & Touche LLP as independent
auditors of the Company for its fiscal year ending D
ecember 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
Dated _________________ ___________________________________________
___________________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREON. IF THE STOCK IS REGISTERED IN THE
NAMES OF TWO OR MORE PERSONS, EACH SHOULD
SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD
THEIR TITLES. IF SIGNER IS A CORPORATION,
PLEASE GIVE FULL CORPORATE NAME AND HAVE A
DULY AUTHORIZED OFFICER SIGN, STATING TITLE.
IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE>
DOT HILL SYSTEMS CORP.
2000 AMENDED AND RESTATED EQUITY INCENTIVE PLAN
Adopted March 9, 2000
Approved By Stockholders _______________, 2000
Termination Date: March 8, 2010
1. PURPOSES.
(a) AMENDMENT AND RESTATEMENT OF FORMER PLAN. This Plan hereby amends
and restates the Company's 1995 Incentive Program, as Amended and Restated (the
"FORMER PLAN"), and the stock options granted under the Former Plan shall be
governed by the provisions of this Plan; PROVIDED, HOWEVER, that (i) to the
extent necessary to preserve the tax treatment of "incentive stock options" (as
defined by the Code) previously granted under the Former Plan, this Plan shall
not amend or modify said outstanding "incentive stock options," and (ii)
outstanding stock options granted under the Former Plan shall receive the same
benefits, subject to clause (i) of this proviso, but not the disadvantages (if
any) under this Plan.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses, (iv) rights to acquire restricted stock, and (v)
stock appreciation rights.
(d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
1.
<PAGE>
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means DOT HILL SYSTEMS CORP., a New York corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services. A person shall not be deemed to be a "Consultant"
solely by reason of the performance of services as a Director and/or the payment
of compensation in relation thereto.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have been interrupted or terminated by reason of a change in the
capacity in which the Participant renders service to the Company or an Affiliate
as an Employee, Consultant or Director or a change in the entity for which the
Participant renders such service. For example, a change in status from an
Employee of the Company to a Consultant or Director of the Company or an
Affiliate will not constitute an interruption or termination of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted or terminated in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer(s) and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Service as a Director and/or the payment of compensation in relation
thereto in and of itself shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange, such as the New York Stock Exchange, or traded on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common
Stock shall be the closing sales
2.
<PAGE>
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in THE WALL STREET JOURNAL or such other source
as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
3.
<PAGE>
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this DOT HILL SYSTEM CORP. 2000 Amended and Restated
Equity Incentive Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus, a right to acquire restricted stock, or a stock
appreciation right.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
4.
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(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award, or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate four million three
hundred ninety-two thousand five hundred (4,392,500) shares of Common Stock,
plus an annual increase to be added on the day of each Annual Stockholders'
Meeting beginning with the Annual Stockholders' Meeting in 2001, equal to the
lesser of (i) 2% of the Company's outstanding shares on each such date (rounded
to the nearest whole share and calculated on a fully diluted basis, that is
assuming the exercise of all outstanding stock options and warrants to purchase
Common Stock), (ii) 1,000,000 shares, or (iii) an amount determined by the
Board.
5.
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(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. Shares subject to stock appreciation rights exercised in accordance
with the Plan shall not be available for subsequent issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
If the Company reacquires unvested stock issued under this Plan, the reacquired
shares of Common Stock will again become available for reissuance under the Plan
for awards other than Incentive Stock Options.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options and/or stock appreciation rights
covering more than one million (1,000,000) shares of Common Stock during any
calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("FORM S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (E.G.,
on a Form S-3 Registration Statement), or (B) does not require registration
under the Securities Act in order to comply with the requirements of the
Securities Act, if applicable, and (ii) that such grant complies with the
securities laws of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and
advisors only if (i) they are natural persons; (ii) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's parent; and (iii) the services
6.
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are not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder, or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of
7.
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the Common Stock's "par value," as defined in the Delaware General Corporation
Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be compounded at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the
8.
<PAGE>
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in subsection 6(a), or (ii) the expiration of a period of three (3)
months after the termination of the Optionholder's Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death, or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "RE-LOAD OPTION") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless
9.
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otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option
or a Nonstatutory Stock Option, as the Board may designate at the time of the
grant of the original Option; PROVIDED, HOWEVER, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on the exercisability of Incentive
Stock Options described in subsection 9(d) and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
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(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; PROVIDED, HOWEVER, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
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(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "TANDEM RIGHT" means a stock
appreciation right granted appurtenant to an Option which is subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains with the following exceptions: The Tandem Right shall require the
holder to elect between the exercise of the underlying Option for shares of
Common Stock and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable on the
exercised the Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the Option surrender) in an amount up to the excess of (A) the Fair
Market Value (on the date of the Option surrender) of the number of shares of
Common Stock covered by that portion of the surrendered Option in which the
Optionholder is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT RIGHTS. A "CONCURRENT RIGHT" means a
stock appreciation right granted appurtenant to an Option which applies to all
or a portion of the shares of Common Stock subject to the underlying Option and
which is subject to the same terms and conditions applicable to the particular
Option grant to which it pertains with the following exceptions: A Concurrent
Right shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of the exercise
of the Concurrent Right) in an amount equal to such portion as determined by the
Board at the time of the grant of the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Concurrent Right) of the vested shares
of Common Stock purchased under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT RIGHTS. An "INDEPENDENT RIGHT" means
a stock appreciation right granted independently of any Option but which is
subject to the same terms and conditions applicable to a Nonstatutory Stock
Option with the following exceptions: An Independent Right shall be denominated
in share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of (a)
the aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Independent Right.
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(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights
appurtenant to Incentive Stock Options may be granted only to Employees. The
"Section 162(m) Limitation" provided in subsection 5(c) and any authority to
reprice Options shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c) regarding the "Section 162(m)
Limitation," no limitation shall exist on the aggregate amount of cash payments
that the Company may make under the Plan in connection with the exercise of a
stock appreciation right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; PROVIDED, HOWEVER, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to the time at which a Stock Award may first be exercised or the time
during which a Stock Award or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Stock Award stating the time at
which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
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(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of
the Company or an Affiliate, and any applicable provisions of the corporate law
of the state in which the Company or the Affiliate is incorporated, as the case
may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act, or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, PROVIDED, HOWEVER, that no
shares of Common Stock are
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withheld with a value exceeding the minimum amount of tax required to be
withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
50% of the Company's outstanding voting power of the surviving entity (or its
parent) following the consolidation, merger or reorganization or (iii) any
transaction (or series of related transactions involving a person or entity, or
a group of affiliated persons or entities) in which in excess of fifty percent
(50%) of the Company's outstanding voting power is transferred, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c)) for those outstanding under the
Plan. In the event any surviving corporation or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
15.
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12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been
16.
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approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan, without
regard to such state's conflict of laws rules.
17.
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DOT HILL SYSTEMS CORP.
2000 AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 9, 2000
APPROVED BY STOCKHOLDERS ON ____________, 2000
EFFECTIVE DATE: _____________, 2000
TERMINATION DATE: MARCH 8, 2010
1. PURPOSE.
(a) The purpose of this 2000 Amended and Restated Employee Stock
Purchase Plan (the "PLAN") is to provide a means by which employees of DOT HILL
SYSTEMS CORP., a New York corporation (the "COMPANY"), and its Affiliates, as
defined in subparagraph 1(c), which are designated as provided in subparagraph
2(b), may be given an opportunity to purchase stock of the Company.
(b) This Plan hereby amends and restates the Company's 1997 Employee
Stock Purchase Plan (the "FORMER PLAN"), and the stock awards granted under the
Former Plan shall be governed by the provisions of this Plan; PROVIDED, HOWEVER,
that (i) to the extent necessary to preserve the tax treatment of the stock
awards granted under the Former Plan, as provided under the Code (defined below
in subparagraph 1(c)), this Plan shall not amend or modify said outstanding
stock awards grants; and (ii) outstanding stock awards granted under the Former
Plan shall receive the same benefits, subject to clause (i) of this proviso, but
not the disadvantages (if any) under this Plan.
(c) The word "AFFILIATE" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "CODE").
(d) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(e) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "BOARD") unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
1.
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(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of
each offering of such rights (which need not be
identical).
(2) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the
Plan.
(3) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules
and regulations for its administration. The Board, in
the exercise of this power, may correct any defect,
omission or inconsistency in the Plan, in a manner
and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(4) To amend the Plan as provided in paragraph 13.
(5) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient
to promote the best interests of the Company and its
Affiliates.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "COMMITTEE"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(d) Any interpretation of the Plan by the Board of any decision made by
it under the Plan shall be final and binding on all persons.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate of seven hundred fifty thousand
(750,000) shares of the Company's common stock (the "COMMON STOCK") plus an
annual increase to be added on the day of each Annual Stockholders' Meeting
beginning with the Annual Stockholders' Meeting in 2001, equal to the lesser of
(i) 100,000 shares, or (ii) an amount determined by the Board. If any right
granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
2.
<PAGE>
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "OFFERING") on a date or dates (the "OFFERING
DATE(S)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The provisions of separate
Offerings need not be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee is in
the employ of the Company and has been in the employ of the Company or any
Affiliate for such continuous period preceding such grant as the Board or the
Committee may require, but in no event shall the required period of continuous
employment be greater than two (2) years. In addition, unless otherwise
determined by the Board or the Committee and set forth in the terms of the
applicable Offering, no employee of the Company or any Affiliate shall be
eligible to be granted rights under the Plan, unless, on the Offering Date, such
employee's customary employment with the Company or such Affiliate is for at
least twenty (20) hours per week and at least three (3) months per calendar
year.
(b) Each person who, during the course of an Offering, first becomes an
eligible employee of the Company or designated Affiliate shall not then be
eligible to be granted rights under such Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such
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employee may purchase under all outstanding rights and options shall be treated
as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, PROVIDED, HOWEVER, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"PURCHASE DATE(S)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock effected in accordance with such Offering.
(b) In connection with each Offering made under this Plan, the Board or
the Committee shall specify a maximum number of shares which may be purchased by
any employee as well as a maximum aggregate number of shares which may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering which contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(1) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date;
or
(2) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.
4.
<PAGE>
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides; PROVIDED,
HOWEVER, that an eligible employee shall be entitled to participate in no more
than one (1) Offering at any time. Each such agreement shall authorize payroll
deductions of up to the maximum percentage specified by the Board or the
Committee of such employee's Earnings during the Offering. "EARNINGS" is defined
as an employee's regular salary or wages (including amounts thereof elected to
be deferred by the employee, that would otherwise have been paid, under any cash
or deferred arrangement established by the Company), which shall include
commissions and overtime pay, but shall exclude bonuses, incentive pay, profit
sharing, other remuneration paid directly to the employee, the cost of employee
benefits paid for by the Company or an Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Company or
an Affiliate under any employee benefit plan, and similar items of compensation.
The payroll deductions made for each participant shall be credited to an account
for such participant under the Plan and shall be deposited with the general
funds of the Company or an Affiliate. A participant may reduce (including to
zero) or increase such payroll deductions after the beginning of any Offering
only as provided for in the Offering. A participant may not make additional
payments into his or her account.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan. A reduction of payroll
deductions to zero shall not, by itself, constitute a withdrawal from an
Offering.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable, and,
except as provided in paragraph 14, shall be exercisable only by the person
to whom such rights are granted.
5.
<PAGE>
8. EXERCISE.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares on the final Purchase Date of
an Offering shall be distributed to the participant after such final Purchase
Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT") and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and in such compliance, except that
the Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from the
Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to
the maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be exercised
and all payroll deductions accumulated during the Offering (reduced to the
extent, if any, such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the
6.
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participant's stockholdings acquired upon exercise of rights under the Plan are
recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization, in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminates.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for rights
under the Plan;
(2) Modify the provisions as to eligibility for
participation in the Plan (to the extent such
modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan
treatment under Section 423 of the Code or to comply
with the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended
("RULE 16b-3")); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan
to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to
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be provided under the provisions of the Code and the regulations promulgated
thereunder relating to employee stock purchase plans and/or to bring the Plan
and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted or except as necessary to
comply with any laws or governmental regulation.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to him of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
as expressly provided in the Plan or with the consent of the person to whom such
rights were granted or except as necessary to comply with any laws or
governmental regulation.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date that the Plan is adopted by
the Board, but no rights granted under the Plan shall be exercised unless and
until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
8.
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17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
9.
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DOT HILL SYSTEMS CORP.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted March 9, 2000
Approved By Stockholders _______________, 2000
Effective Date: _______________, 2000
Termination Date: March 8, 2010
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted pursuant to subsection 6(b)
of the Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of
the Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means DOT HILL SYSTEMS CORP., a New York corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such
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services. A person shall not be deemed a "Consultant" solely by reason of the
performance of services as a Director and/or the payment of compensation in
relation thereto.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company as a Non-Employee Director is not interrupted or terminated. The
Optionholder's Continuous Service shall not be deemed to have been interrupted
or terminated by reason of a change in the capacity in which the Optionholder
renders service to the Company or an Affiliate of the Company. For example, a
change in status from a Non-Employee Director to an Employee or Consultant will
not constitute an interruption or termination of Continuous Service. The Board,
in its sole discretion, may determine whether Continuous Service shall be
considered interrupted or terminated in the case of any leave of absence
approved by the Board, including sick leave, military leave or any other
personal leave.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Service as a Director and/or payment of compensation in relation
thereto, in and of itself, shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange, such as the New York Stock Exchange, or traded on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INITIAL GRANT" means an Option granted pursuant to section 6(a) of
the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an "incentive stock option" within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
2.
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(r) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(u) "PLAN" means this DOT HILL SYSTEMS CORP. 2000 Non-Employee
Directors' Stock Option Plan.
(v) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent
not specified in the Plan.
(ii) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company that are not in conflict with the provisions of the Plan.
(c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
3.
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4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate five hundred
thousand (500,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Options shall automatically be granted under the Plan to Non-Employee
Directors in accordance with Section 6.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each
person who, following the Company's 2000 Annual Meeting, is duly elected or
appointed by the Board of Directors or stockholders of the Company to serve as a
Non-Employee Director and who, for at least one (1) year preceding such election
or appointment has at no time served as a Non-Employee Director, shall,
effective as of the effective date of such election or appointment,
automatically be granted an option to purchase fifty thousand (50,000) shares of
Common Stock on the terms and conditions set forth in this Plan. Termination of
a Director's status as an Employee shall not result in an Initial Grant to such
Director pursuant to this Subsection 6(a).
(b) ANNUAL GRANTS. Without any further action of the Board, each person
who, immediately following each Annual Meeting commencing with the 2000 Annual
Meeting, is a Non-Employee Director and who has been a Non-Employee Director for
at least four (4) months prior to such Annual Meeting shall, effective as of the
date of such Annual Meeting, automatically be granted an option to purchase ten
thousand (10,000) shares of Common Stock on the terms and conditions set forth
in this Plan.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
4.
<PAGE>
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of the following methods:
(i) By cash or check.
(ii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that the Optionholder has held for
the period required to avoid a charge to the Company's reported earnings
(generally six months) or that the Optionholder did not acquire, directly or
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes shall include delivery to
the Company of the Optionholder's attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
the Optionholder may not exercise the Option by tender to the Company of Common
Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
(iii) Provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the receipt
of cash (or check) by the Company or the receipt of irrevocable instructions to
pay the aggregate exercise price to the Company from the sales proceeds.
(iv) Pursuant to the following deferred payment provisions:
(1) One hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or upon termination of your Continuous Service.
(2) Interest shall be compounded annually and shall
be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
5.
<PAGE>
(3) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.
(4) The Optionholder must, as a part of his or her
written notice of exercise, give notice of the election of this payment
alternative and must tender to the Company a promissory note and a security
agreement covering the purchased shares of Common Stock, both in form and
substance satisfactory to the Company, or such other or additional documentation
as the Company may request.
(d) TRANSFERABILITY. An Option is transferable by will or by the laws
of descent and distribution. Subject to this Subsection 7(d), an Option also is
transferable (i) by instrument to an inter vivos or testamentary trust, in a
form accepted by the Company, in which the Option is to be passed to
beneficiaries upon the death of the trustor (settlor), and (ii) by gift, in a
form accepted by the Company, to a member of the "immediate family" of the
Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e). An Option shall
be exercisable during the lifetime of the Optionholder only by the Optionholder
and a permitted transferee as provided herein. However, the Optionholder may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option. Any transfer by an
Optionholder or permitted transferee as provided under this Subsection 7(d),
shall be subject to (i) the Company's obligation, if any, to execute and file
with the Securities and Exchange Commission a Registration Statement on Form S-8
or such appendices or amendments to the Company's Registration Statement on Form
S-8 currently on file as may be necessary or appropriate for the Company's
compliance thereof, and (ii) any rules and regulations, restrictions or
limitations on the rights of transfer promulgated under the Exchange Act or
Securities Act.
(e) EXERCISE SCHEDULE. The Option shall be exercisable as the shares of
Common Stock subject to the Option vest.
(f) VESTING SCHEDULE. Options shall vest as follows:
(i) Initial Grants shall vest (become exercisable) over a
period of four (4) years with twelve thousand five hundred (12,500) of the
shares of Common Stock subject to each Initial Grant vesting as of twelve (12)
months after the date of the grant thereof, and an additional one thousand
forty-one (1,041) of the shares of Common Stock subject to such Initial Grant
vesting each month thereafter over the three (3) year period following such
initial twelve (12) months (with one thousand sixty-five (1,065) shares vesting
as of the 36th such month).
(ii) Annual Grants shall vest over a period of four (4) years
with two hundred eight (208) of the shares of Common Stock subject to each
Annual Grant vesting every month after the date of grant for the 47 month period
following such date of grant, and thereafter two hundred twenty-four (224)
shares vesting as of the 48th month after the date of grant.
(g) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder
6.
<PAGE>
may exercise his or her Option (to the extent that the Optionholder was
entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months
following the termination of the Optionholder's Continuous Service (or such
longer or shorter prior specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(h) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(i) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement), or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(j) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death, or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death (or such longer or shorter period specified in the
Option Agreement), or (2) the expiration of the term of such Option as set forth
in the Option Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the
7.
<PAGE>
Options; PROVIDED, HOWEVER, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Option or any
stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise
of such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any right
to continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of
the Company or an Affiliate, and any applicable provisions of the corporate law
of the state in which the Company or the Affiliate is incorporated, as the case
may be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act, or
(iv) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or
8.
<PAGE>
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, PROVIDED, HOWEVER, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
50% of the Company's outstanding voting power of the surviving entity (or its
parent) following the consolidation, merger or reorganization, or (iii) any
transaction (or series of related transactions involving a person or entity, or
a group of affiliated persons or entities) in which in excess of fifty percent
(50%) of the Company's outstanding voting power is transferred, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options (and, if applicable, the time during
which such Options may be exercised) shall be accelerated in full, and the
Options shall terminate if not exercised (if applicable) at or prior to
9.
<PAGE>
such event. With respect to any other Options outstanding under the Plan, such
Options shall terminate if not exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder, and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; PROVIDED, HOWEVER, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder, and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
Anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date that the Plan is adopted by
the Board, but no Option shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
10.
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15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
11.
