<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 Addition Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Alpha Microsystems
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(Name of Registrant as Specified in Its Charter)
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Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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<PAGE> 3
PRELIMINARY
ALPHA MICROSYSTEMS
2722 SOUTH FAIRVIEW STREET
SANTA ANA, CALIFORNIA 92704
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Fellow Shareholder:
The annual meeting of shareholders (the "Annual Meeting") of Alpha
Microsystems (the "Company") will be held at Seven Hutton Centre, Santa Ana,
California 92707 on Wednesday, August 9, 2000, at 10:00 a.m., local time, for
the following purposes:
1. To elect directors of the Company;
2. To approve the Company's name change from "Alpha Microsystems" to
"NQL Inc.";
3. To approve the Company's reincorporation in Delaware as NQL Inc.,
through the merger of Alpha Microsystems, a California
corporation, with and into a wholly-owned Delaware subsidiary of
Alpha Microsystems;
4. To approve an amendment to the Company's 1998 Stock Option and
Awards Plan to increase the number of shares of Common Stock
authorized for issuance under such plan by 700,000 shares to an
aggregate of 3,200,000 shares;
5. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company and its subsidiaries for the year ending
December 31, 2000; and
6. To transact such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on June 30, 2000,
as the Record Date for the determination of shareholders who are entitled to
notice of and to vote at the Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND AND TO VOTE AT THIS MEETING IN
PERSON. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND. IN THE EVENT A
SHAREHOLDER WHO HAS RETURNED A SIGNED PROXY CARD ELECTS TO ATTEND THE MEETING
AND VOTE IN PERSON, THE SHAREHOLDER WILL BE ENTITLED TO VOTE.
By Order of the Board of Directors,
Richard E. Mahmarian, Secretary
Santa Ana, California
___________, 2000
<PAGE> 4
ALPHA MICROSYSTEMS
2722 SOUTH FAIRVIEW STREET
SANTA ANA, CALIFORNIA 92704
PROXY STATEMENT
This proxy statement and the enclosed proxy card are being mailed on or
about July __, 2000, to shareholders of record on June 30, 2000, of Alpha
Microsystems (the "Company") in connection with the solicitation by its Board of
Directors of proxies for use at the 2000 Annual Meeting of Shareholders, and at
any and all adjournments or postponements thereof (the "Annual Meeting"), notice
of which appears on the preceding page.
If a proxy card in the accompanying form is duly executed and returned,
the shares represented thereby will be voted in accordance with the instructions
contained on it. If no contrary instructions are given, the shares represented
by the proxy card will be voted FOR the Board's nominees for directors and FOR
the other proposals described herein. A shareholder giving a proxy has the power
to revoke it at any time before it is exercised. A proxy may be revoked (i) by
delivering to the Company an instrument revoking the proxy; (ii) by delivering
to the Company a duly executed proxy bearing a later date; or (iii) if the
shareholder executing the proxy is present at the Annual Meeting and votes in
person. If the proxy is not revoked, it will be voted by one or more of those
persons named thereon.
OUTSTANDING SHARES WITH VOTING RIGHTS
The Board has fixed the close of business on June 30, 2000, as the
record date (the "Record Date") for the determination of the holders of common
stock (the "Common Stock"),voting preferred stock (the "Voting Preferred Stock")
and other classes of preferred stock entitled to notice of and to vote at the
Meeting, and at any adjournment or postponement of such Meeting. As of the
Record Date there were outstanding 14,138,129 shares of Common Stock, 2,500
shares of Class A1 Cumulative, Redeemable and Exchangeable Preferred Stock,
5,500 shares of Class A2 Cumulative, Redeemable and Exchangeable Preferred
Stock, 7,000 shares of Class B1 Cumulative, Redeemable and Exchangeable
Preferred Stock, 5,000 shares of Class C1 Cumulative, Redeemable and
Exchangeable Preferred Stock, 391 shares of Class E Cumulative, Redeemable and
Exchangeable Preferred Stock and one share of Voting Preferred Stock. Each share
of outstanding Common Stock is entitled to one vote as to all proposals. Each
share outstanding stock of Classes A1, A2, B1, C1 and E of Cumulative,
Redeemable and Exchangeable Preferred Stock is entitled to one vote only as to
Proposal 2 to reincorporate the Company in Delaware. Each share of Voting
Preferred Stock is, as to all proposals, entitled to cast an aggregate number of
votes equal to the number of votes that a holder of the shares of Common Stock
issuable upon exercise of the then unexercised portion of associated Warrants
held by such holder would be entitled to vote. As of the Record Date, the
outstanding share of Voting Preferred Stock was entitled to 8,816,446 votes.
The holders of record of a majority of the votes entitled to be cast in
each class is necessary to provide a quorum for the meeting. Abstentions and
"broker non-votes" are counted for purposes of determining whether the quorum
requirement is satisfied.
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PROPOSAL 1
ELECTION OF DIRECTORS
The directors of the Company are elected annually and serve until the
next Annual Meeting of Shareholders or until their successors are elected and
qualified. The Bylaws of the Company provide that the authorized number of
directors of the Company shall be not less than five nor more than nine, with
the exact number as determined by resolution of the Board of Directors. The
Board of Directors has established the number of directors as seven.
On August 7, 1998, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with ING Equity Partners II, L.P., now
known as Hampshire Equity Partners II, L.P. ("Hampshire"). As part of the
transaction, the Company agreed to nominate for election to the Board of
Directors a total of three individuals designated by Hampshire. Benjamin P.
Giess, Tracey L. Rudd and Sam Yau have been designated by Hampshire for
nomination to the Board. There are no other arrangements or understandings
between any director, director nominee or executive officer and any other person
pursuant to which he has been or will be selected as a director and/or executive
officer of the Company. There are no family relationships between any director,
director nominee or executive officer and any other director, director nominee
or executive officer of the Company.
The Board of Directors has nominated the individuals named in the table
below to serve as members of the Board of Directors of the Company, and, if the
enclosed proxy card is duly executed and returned, it will be voted in favor of
those individuals, unless otherwise specified. Management has been informed that
all nominees are willing to serve as directors, but if any of them should be
unable to serve, or will not serve, as a director, the proxy holders will vote
for the election of such other person or persons as they, in the exercise of
their discretionary authority, may choose. The Board of Directors has no reason
to believe that any nominee will be unable or unwilling to serve.
INFORMATION CONCERNING NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
Director
Since
<S> <C>
BENJAMIN P. GIESS, 37, has been employed by Hampshire Equity Partners II, L.P. 1998
(formerly known as ING Equity Partners) and its predecessors and
affiliates since 1992 and currently serves as a Partner responsible for
originating, structuring and managing equity and debt investments. From
1991 to 1992, Mr. Giess worked in the Corporate Finance Group of ING
Capital. From 1990 to 1991, Mr. Giess was employed by the Corporate
Finance Group of General Electric Capital Corporation. Mr. Giess serves
as a director of Matthews Studio Equipment Group, a single source
provider of production equipment to the entertainment industry. In
addition, Mr. Giess serves on the board of several privately held
companies.
</TABLE>
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<TABLE>
<S> <C>
ROCKELL N. HANKIN, 53, is chief executive of Hankin & Co. (founded June 1986) and 1997
its affiliate Hankin Investment Banking. The firms provide management
consulting and investment banking services. Mr. Hankin also serves as
Vice-Chairman of the Board of Semtech Corporation (NMS), a manufacturer
of electronic components, and Sparta, Inc., a systems analysis and
engineering company serving primarily the military services and the
department of defense. Previously, Mr. Hankin was Chairman of the Board
of House of Fabrics (Nasdaq), a national retail chain, before it merged
with FabriCenters of America. In addition, Mr. Hankin serves or has
served on the Boards of several other companies..
RICHARD E. MAHMARIAN, 63, has served as the Secretary of the Company since 1995
_________ 19[99]. Mr. Mahmarian is currently President of REM
Associates, a private investment and consulting service company. He is
also currently the Managing Member of R.E. Mahmarian Enterprises, LLC, a
private computer services company. He was Chairman of the Board,
President, and Chief Executive Officer of Verification Systems
International, Incorporated, which designs, engineers and manufactures
bar code and two-dimensional symbology quality assurance instruments from
1997-1998. Prior to its sale in 1996, Mr. Mahmarian was Vice Chairman of
the Board and Executive Vice President of RJS, Inc., a manufacturer of
bar code printers, verification scanners, software, and consumable
products. Mr. Mahmarian had been a principal of RJS, Inc. since 1987,
when it was purchased in a leveraged buyout. Prior to joining RJS, Inc.,
he held various management positions for Bell & Howell Company, Northrop
Corporation and NCR Corporation.
CLARKE E. REYNOLDS, 79, served as Chairman of the Board of Directors of the 1989
Company from 1991-1998, as Chief Executive Officer of the Company from
January 1991 to August 1991, as President from November 1990 to May 1991,
as Vice Chairman of the Board from October 1990 to May 1991, and as Chief
Operating Officer of the Company from November 1990 to May 1991. Mr.
Reynolds was previously employed by NCR Corporation for over 47 years,
during which time he held a variety of sales and marketing and general
management positions including Vice President Pacific Region, Managing
Director and Chairman of the Board NCR United Kingdom, Vice President NCR
Europe and Vice President Executive Office.
TRACEY L. RUDD, 45, Ms. Rudd has been employed by Hampshire Equity Partners II, New
New Nominee L.P. (formerly known as ING Equity Partners) and its Nominee
predecessors and affiliates since 1990 and currently serves as a
Managing Partner responsible for originating, structuring and managing
equity and debt investments. From 1987 to 1990, she was employed by
Merrill Lynch, and from 1980 to 1987 she worked for Continental Bank.
Ms. Rudd serves on the Board of several privately held companies.
</TABLE>
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<TABLE>
<S> <C>
DOUGLAS J. TULLIO, 57, appointed Chairman of the Board of Directors in July, 1991
1998, has served as President and Chief Executive Officer since May
1991. Mr. Tullio joined the Company in January 1990 and served as
Executive Vice President of the Company and President of the Company's
subsidiaries, Rexon Business Machines and AMS Computers. (In April 1990,
these subsidiaries were merged into the Company.) From 1984 to 1989, he
worked for General Automation, Inc., in the positions of President and
member of the Board of Directors, Executive Vice President, Vice
President, General Manager and Vice President of Sales and Marketing.
SAM YAU, 51, has served as a director of the Company since 1998. Mr. Yau was 1998
Chief Executive Officer of National Education Corporation from May 1995
to May 1997. From 1993 through 1995 he was Chief Operating Officer of
Advacare, a medical services company.
</TABLE>
With respect to Proposal 1, directors are elected by a plurality of the
affirmative votes cast. Thus abstentions and "broker non-votes" have no effect
on the election of directors. If one or more shareholders gives notice at the
Annual Meeting prior to the voting of their intention to cumulate their votes in
the election of directors, all shareholders entitled to vote shall have the
right to so cumulate their votes and to give one candidate, who has been
nominated prior to voting, a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which his or her shares are
entitled, or to distribute such votes among two or more such candidates on the
same principle in such proportions as each shareholder may determine. The
enclosed form of proxy includes authority to cumulate votes, in the discretion
of the proxies named thereon, and each of them, for the election of directors
and thereby to distribute, in such proportion as the proxies see fit, the votes
represented by the proxy card among the nominees named herein or any substitute
person or persons nominated by the Board of Directors for election to the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS TO THE
BOARD.
BOARD COMMITTEES
The Company has Audit and Compensation Committees, as well as a
Nominating Committee.
The Audit Committee is currently composed of Messrs. Benjamin P. Giess,
Rockell N. Hankin and Sam Yau. Its functions include recommending to the Board
of Directors the engagement and discharge of the independent auditors, reviewing
the performance of the independent auditors, reviewing the independent auditors'
fees and reviewing the adequacy of the Company's system of internal accounting
controls. The Company's Board of Directors has adopted a written charter for the
Audit Committee. A copy of that charter is attached to this Proxy Statement as
Appendix I. The Audit Committee consists entirely of independent members.
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The Compensation Committee is currently composed of Messrs. Carlos D. De
Mattos, Benjamin P. Giess, Richard E. Mahmarian and Clarke E. Reynolds. Its
functions include making recommendations with respect to compensation of
officers and employees of the Company, reviewing annually the compensation
structure of the Company and administration of the Company's stock incentive
award plan and the Company's incentive and non-qualified stock option plans.
The Nominating Committee is currently composed of Messrs. Carlos D. De
Mattos, Benjamin P. Giess, Rockell N. Hankin and Clarke E. Reynolds and
considers nominees for Director recommended by the shareholders. Shareholders
may submit nominees for Directors to the Nominating Committee by giving written
notice to the Company's Secretary not later than 90 days in advance of a meeting
of the shareholders or, if later, the tenth day following the first public
announcement of the date of such meeting. Each such notice must include the
information required by Article II, Section 15(b) of the Company's Bylaws.
MEETINGS OF BOARD AND COMMITTEES
During 1999, there were fourteen meetings of the Board of Directors of
the Company, and the Board acted twice by unanimous written consent. During
1999, the Audit Committee met once, the Compensation Committee met four times
and acted twice by unanimous written consent, and the Nominating Committee did
not meet.
PROPOSAL 2
APPROVE CHANGING THE COMPANY'S NAME TO "NQL INC."
The Company's Board of Directors has unanimously approved, and
recommends to the Company's stockholders, the adoption of an amendment to the
Company's Articles of Incorporation, changing the name of the Company from
"Alpha Microsystems" to "NQL Inc." The Board of Directors believes that the name
"NQL Inc." better reflects the Internet focus of the Company and will enable it
to better market and sell its Internet related products and services that are
based on its Network Query Language ("NQL"). A copy of the proposed amendment to
the Company's Articles of Incorporation is attached to this Proxy Statement as
Exhibit A. If this Proposal 2 is approved by the shareholders, this amendment to
the Company's Articles of Incorporation will be filed only if Proposal 3 is not
approved by the shareholders or if, for any reason, the Board of Directors
determines that it is not in the best interests of the Company and its
shareholders to reincorporate in Delaware. Otherwise, the Company will be
reincorporated in Delaware under the name "NQL Inc."
The approval of the Company's name change (Proposal 2) requires the
affirmative votes of the holders of a majority of the securities present or
represented and entitled to vote. Abstentions on such proposals have the effect
of a "no" votes, but "broker non-votes" are not counted for purposes of
determining whether the proposal has been approved.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF CHANGING THE COMPANY'S
NAME TO "NQL INC."
PROPOSAL 3
APPROVE REINCORPORATION OF THE COMPANY IN DELAWARE AND
RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS AND TO CHANGE
THE NAME OF THE COMPANY TO "NQL INC."
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware and to change the
name of the Company to "NQL Inc." 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 in Delaware, along with certain measures the Board intends to
concurrently adopt which are designed to make hostile takeovers of the Company
more difficult, 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. The Board also believes that reincorporation in Delaware 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
independent decisions in good faith on behalf of the Company. Finally,
reincorporation in Delaware will allow the Company the increased flexibility and
predictability afforded by Delaware law.
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.
PREDICTABILITY 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
California law.
HOSTILE TAKEOVERS. The Company intends as part of the reincorporation to
adopt certain measures which 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
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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 a 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 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 of Directors 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 the
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so.
DIRECTOR LIABILITY: ABILITY TO ATTRACT AND RETAIN DIRECTORS. In 1986,
Delaware amended its corporate law to allow corporations to limit the personal
monetary liability of its directors for their conduct as directors under certain
circumstances. The directors have elected to adopt such a provision in the
Delaware certificate and bylaws. It should be noted that Delaware law does not
permit a Delaware corporation to limit or eliminate the liability of its
directors for intentional misconduct, bad faith conduct or any transaction from
which the director derives an improper personal benefit or for violations of
federal laws. The Board of Directors believes that Delaware incorporation will
enhance the Company's ability to recruit and retain directors in the future,
however, the shareholders should be aware that such a provision inures to the
benefit of the directors, and the interest of the Board of Directors in
recommending the reincorporation may therefore be in conflict with the interests
of the shareholders. See " Limitation of Liability and Indemnification" for a
more complete discussion of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. Nonetheless, the Board of Directors believes that the protection
from liability for directors is somewhat greater under the Delaware law than
under the California law and therefore that the Company's objectives in adopting
this type of provision can be better achieved by reincorporation in Delaware.
RIGHTS OF SHAREHOLDERS. The interests of the Board of Directors of the
Company, management and affiliated shareholders in voting on the reincorporation
proposal may not be the
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same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California 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 California and
Delaware law as they affect shareholders begins on page __ of this Proxy
Statement.
METHOD OF REINCORPORATION. The proposed reincorporation and change of
name 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 B to
this Proxy Statement. Upon the effective date of the merger, NQL Inc. will be
the name of the Delaware Company. 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.
On the effective date of the proposed reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one share
of Common Stock of the Delaware Company, each outstanding share of Class A1
Cumulative, Redeemable and Exchangeable Preferred Stock of the Company, will
automatically convert into one share of Class A1 Cumulative, Redeemable and
Exchangeable Preferred Stock of the Delaware Company, each outstanding share of
Class A2 Cumulative, Redeemable and Exchangeable Preferred Stock of the Company
will automatically convert into one share of Class A2 Cumulative, Redeemable and
Exchangeable Preferred Stock of the Delaware Company, each outstanding share of
Class B1 Cumulative, Redeemable and Exchangeable Preferred Stock of the Company
will automatically convert into one share of Class B1 Cumulative, Redeemable and
Exchangeable Preferred Stock of the Delaware Company, each outstanding share of
Class C1 Cumulative, Redeemable and Exchangeable Preferred Stock of the Company
will automatically convert into one share of Class C1 Cumulative, Redeemable and
Exchangeable Preferred Stock of the Delaware Company, each outstanding share of
Class E Cumulative, Redeemable and Exchangeable Preferred Stock of the Company
will automatically convert into one share of Class E Cumulative, Redeemable and
Exchangeable Preferred Stock of the Delaware Company and each outstanding share
of Voting Preferred Stock of the Company will automatically convert into one
share of Voting Preferred Stock of the Company, and shareholders of the Company
will automatically become shareholders of the Delaware Company. On the effective
date of the reincorporation, the number of outstanding shares of Common Stock of
the Delaware Company will be equal to the number of shares of Common Stock of
the Company outstanding immediately prior to the effective date of the
reincorporation and the number of outstanding shares of each class of Preferred
Stock of the Delaware Company will be equal to the number of shares of such
Preferred Stock of the Company outstanding immediately prior to the effective
date of the reincorporation. In addition, each outstanding option or right 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 1993 Employee Stock
Option Plan, the Employee Stock Purchase Plan, the Stock Incentive Award Plan
and the 1998 Stock Option and Award Plan will be adopted and continued by the
Delaware Company following the reincorporation. Shareholders should recognize
that
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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; this will be accomplished at the time of the next transfer by the
shareholder. Certificates for shares in the Company will automatically represent
an equal number of shares in the Delaware Company upon completion of the merger.
If approved by the shareholders, it is anticipated that the
reincorporation would be completed as soon thereafter as practicable. However,
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 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
shares of each class of the Company's Stock.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by
the corporate law of California, the Company's state of incorporation, and by
the Company's Articles of Incorporation, as amended (the "California Articles")
and the Company's Restated bylaws, as amended (the "California Bylaws"), which
have been adopted pursuant to California law. The California Articles and
California 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 2722 South Fairview Street, Santa Ana, California
92704, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, 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
Delaware, rather than California law (however, see "Application of California
Law After Reincorporation"). The California Articles and California 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 Exhibits C and D
respectively to this Proxy Statement. Accordingly, the differences among these
documents and between Delaware and California law are relevant to your decision
whether to approve the reincorporation proposal.
In particular, it should be noted that the Delaware Certificate provides
for a classified Board. If the reincorporation proposal is adopted, the
directors of the Delaware Company will, in effect, become the directors of the
Company. Because the Board of the Delaware Company is classified into three
classes, the terms of Mr. Hankin and Ms. Rudd as Class III directors will not
expire for three years, and the terms of Mr. Giess and Mr. Tullio as Class II
directors will not expire for two years. Mr. Mahmarian's, Mr. Reynolds' and Mr.
Yau's terms as Class I directors will expire in one year.
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A number of significant differences between California 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 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 CALIFORNIA
----- -------- ----------
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Indemnification of Directors Delaware law permits somewhat California law permits
and Officers (see page __). broader indemnification and indemnification under certain
could result in limitations
indemnification of directors
and officers in circumstances
where California law would
not permit indemnification.
Cumulative Voting for Directors Cumulative voting not Cumulative voting is
(see page __). available under Delaware law mandatory upon notice given
because not provided in the by a shareholder at a
Delaware Certificate. shareholders' meeting at
which directors are to be
elected. California law
permits NASDAQ National
Market System ("NASDAQ")
corporations with over 800
equity security holders to
eliminate cumulative voting.
The California Articles do
not include such a provision.
Classified Board of Directors Delaware Certificate divides California Articles do not
(see page __). the Board of Directors into provide for classes of
three classes. Directors directors.
will serve for three years,
with one class being elected
each year.
Removal of Directors by Removal only for cause by Removal with or without cause
Shareholders (see page __). affirmative vote of a by affirmative vote of a
majority of the outstanding majority of the outstanding
shares. shares, provided that shares
voting against
removal could
not elect such
director under
cumulative
voting.
Filling Board Vacancies (see Delaware law provides for the California law permits (a) any
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C> <C>
page __). Delaware Court of Chancery to holder of 5% or more
order an election to fill of the corporation's voting
vacancies or newly created stock ("Voting Stock") or
directorships upon the (b) the superior court of the
application of the holders of appropriate county to call a
10% of the outstanding shares special meeting of
having a right to vote for shareholders to elect the
such directors if, at the entire board if, after
time of filing such vacancies filling any vacancy, the
or directorships, the directors then in office who
directors then in office have been elected by the
constitute less than a shareholders constitute less
majority of the entire board than a majority of the
as constituted immediately directors then in office.
prior to any increase.
Who may Call Special The Board of Directors, the The Board of Directors, the
Shareholder Meeting (see page Chairman of the Board or the Chairman of the Board, the
__). President. President, or holders of 10%
of the shares entitled to
vote at the special meeting.
Action by Written Consent of Action by written consent not Action by written consent
Shareholders in Lieu of a permitted by the Delaware permitted by California
Shareholder Vote at a Certificate. All shareholder Articles.
Shareholder Meeting (see page action must take place by a
__). shareholder vote at a meeting
of shareholders.
Tender Offer Statute (see page Restricts hostile two-step No comparable statue.
__). takeovers.
Amendment of Certificate (see Amendment of any provisions Amendment of any provisions
page __). of the Delaware Certificate of the California Articles
(except anti-takeover requires approval by a
provisions) requires approval majority of the Voting Stock
by a majority of the Voting of the Company.
Stock of the Delaware
Company, amendment of
anti-takeover provisions
requires approval of 80% of
the Voting Stock of the
Company.
Loans to Officers and Directors Board of Directors may Loans must be approved or
(see page __). authorize if expected to ratified by a majority of the
benefit the Company. outstanding shares.
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C> <C>
Class Vote for Reorganizations Generally not required unless A reorganization transaction
(see page __). a reorganization adversely must generally be approved by
affects a specific class of a majority vote of each class
shares. of shares outstanding.
Right of Shareholders to Permitted for any purpose Permitted for any purpose
Inspect Shareholder List (see reasonably related to such reasonably related to such
page __). shareholder's interest as a shareholder's interest as a
shareholder. shareholder. Also, an
absolute right to 5%
shareholders and certain 1%
shareholders.
Appraisal Rights (see Generally available if Available in certain
page __). shareholders receive cash in circumstances if the holders
exchange for the shares and in of 5% of the class assert
certain other circumstances. such rights.
Dividends (see page __). Paid from surplus (including Generally limited to the
paid-in and earned surplus or greater of (i) retained
net profits). earnings or (ii) an amount
which would leave the Company
with assets of 125% of liabilities
and current assets of 100% of
current liabilities.
Other Responsive legislature and
larger body of corporate case
law in Delaware provides more
predictable corporate legal
environment in Delaware.
</TABLE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATIONS ON DIRECTOR LIABILITY
Both California and Delaware permit a corporation to limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of certain duties as a director. The California and Delaware
laws adopt a self-governance approach by enabling a corporation to take
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
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<PAGE> 16
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest; and (g) liability for improper distributions, loans
or guarantees.
The Delaware Certificate also eliminates the liability of directors to
the fullest extent permissible under Delaware law, as such law exists currently
or as it may be amended in the future. Under Delaware law, such provision may
not eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with the Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care
in managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors to the
Company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The California Bylaws and Delaware Bylaws relating to indemnification
similarly require that the Company and the Delaware Company, respectively,
indemnify its directors and officers
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<PAGE> 17
to the fullest extent permitted by the respective state law, provided, that the
Company and the Delaware Company may modify the extent of such indemnification
by individual contracts with its directors and executive officers, and,
provided, further, that the Delaware Company will not be required to indemnify
any director or officer in connection with a proceeding initiated by such person
unless the proceeding was authorized by the Board of Directors. The California
Bylaws permit the Company to provide indemnification to its other officers,
employees and agents as set forth in California law. The Delaware Bylaws provide
indemnification only to directors, officers and anyone serving at the request of
the Company as a director, officer, employee or agent of another corporation.
California and Delaware have similar laws respecting indemnification by
a corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states, as well as
the California and Delaware Bylaws.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines such person
is entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by California law providing the requisite
standard of conduct is met, as determined by (1) a majority vote of a
disinterested quorum of the directors, (2) independent legal counsel (if a
quorum of independent directors is not obtainable), (3) a majority vote of a
quorum of the shareholders (excluding shares owned by the indemnified party) or
(4) the court handling the action.
Delaware law generally permits indemnification of expenses incurred in
the defense or settlement of a derivative or third-party action, provided there
is a determination (1) by a majority of the disinterested directors, even though
less than a quorum (2) by a committee of such directors designated by a majority
vote of such directors, even though less than a quorum, (3) by independent legal
counsel, regardless of whether a disinterested quorum of directors exists or (4)
by a majority vote of a quorum of the shareholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or (in contrast to California law as described above) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation.
California law requires indemnification when the individual has
successfully defended the action on the merits as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise, but only for directors and officers.
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<PAGE> 18
Both California law and the California Bylaws permit (as opposed to the
Delaware Bylaws, which require) the Company to advance expenses related to any
proceeding contingent on such persons' commitment to repay any advances unless
it is determined ultimately that such persons are entitled to be indemnified.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by the California
statute. The California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors and officers within the limits established by law and
public policy, pursuant to an express contract, bylaw provision, shareholder
vote, vote of disinterested directors or otherwise, any or all of which could
provide indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the Company made prior to the proposed reincorporation. Nevertheless, the
Board of Directors has recognized in considering this reincorporation proposal
that the individual directors have a personal interest in obtaining the
application of Delaware law to such indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is actually indemnified in circumstances where indemnification would
not be available under California law, would result in expense to the Company
which the Company would not incur if the Company were not reincorporated. The
Board of Directors believes, however, that the overall effect of reincorporation
is to provide a corporate legal environment that enhances the Company's ability
to attract and retain high quality outside directors and thus benefits the
interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened
litigation to which any of its directors is a party in which the rights of the
Company or its shareholders would be affected if the Company currently were
subject to the provisions of Delaware law rather than California law.
INDEMNIFICATION AGREEMENTS
The Delaware Company intends to enter into indemnification agreements
with certain of its directors and officers. The indemnification agreements,
among other things, require the Delaware Company to indemnify such officers and
directors to the fullest extent permitted by Delaware law, and to advance to
such directors all related expenses, subject to reimbursement if
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<PAGE> 19
it is subsequently determined that indemnification is not permitted. The
Delaware Company is also required to indemnify and to advance all expenses
incurred by directors and officers seeking to enforce their rights under the
indemnification agreements.
Although the indemnification agreements offer substantially the same
scope of coverage afforded by provisions in the Delaware Certificate and
Delaware Bylaws, they provide greater assurance to officers and directors that
indemnification will be available, because, as a contract, they cannot be
modified unilaterally in the future by the Board of Directors of the Delaware
Company or by the stockholders to eliminate the rights that they provide, an
action that may be possible with respect to the relevant provisions of the
Delaware Bylaws, at least as to prospective elimination of such rights. If the
reincorporation is approved, the Company intends to enter into new
indemnification agreements with its officers and directors to replace those
indemnification agreements entered into under the California Articles and
California law.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS
California law allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the board of
directors. California law further provides that, in the case of a variable
board, the maximum number of directors may not exceed two times the minimum
number minus one. The California Bylaws provide for a Board of Directors that
may vary between five and nine members, inclusive, and the Board of Directors
has fixed the exact number of directors at seven. California law also requires
that any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
three cannot be adopted if votes cast against its adoption are equal to more
than 16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the vote of a majority of the outstanding shares to change the range of
the Company's variable Board of Directors; provided, any amendment reducing the
minimum number of directors to less than five (5) cannot be adopted if votes
cast against are equal to more than 16 2/3% of the outstanding shares entitled
to vote.
Delaware law permits a board of directors to change the authorized
number of directors by amendment to the bylaws unless the number of directors is
fixed in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
number of directors shall be no less than five (5) and no more than nine (9)
directors. The Delaware Bylaws provide that the exact number of directors is to
be determined by resolution of the Board of Directors.
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<PAGE> 20
CLASSIFICATION OF THE BOARD OF DIRECTORS AND CERTAIN OTHER RELATED MATTERS
Under California law, California corporations meeting certain
qualifications may amend their articles of incorporation to provide for a
classified board, but for corporations not so qualified directors must be
elected annually and a classified board is not permitted. The California
Articles and California Bylaws now provide that all directors are to be elected
annually for a term of one year. Delaware law permits, but does not require,
provisions in a certificate of incorporation or bylaws that provide for a
classified board of directors. To enhance continuity and stability of the Board
of Directors and the policies formulated by the Board, the Delaware Certificate
provides for classification of the Board of Directors (the "Classified Board
Provision"). The Classified Board Provision provides that directors will be
classified into three classes, as nearly equal in number as possible. Class I
would hold office initially for a term expiring at the 2001 annual meeting of
stockholders; Class II would hold office initially for a term expiring at the
2002 annual meeting of stockholders; and Class III would hold office initially
for a term expiring at the 2003 annual meeting of stockholders. At each annual
meeting of stockholders following this initial classification and election, the
successors to the class of directors whose terms expire at that meeting would be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election and until their successors have been duly
elected and qualified.
Under Delaware law, directors chosen to fill vacancies on a classified
board shall hold office until the next election of the class for which such
directors shall have been chosen, and until their successors are duly elected
and qualified. Delaware law also provides that, unless the certificate of
incorporation provides otherwise, directors serving on a classified board of
directors may be removed only for cause. The Delaware Certificate will not
provide otherwise.
The Classified Board Provision will significantly extend the time
required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Delaware Company. Currently, a change
in control of the Board of Directors of the Company can be made by stockholders
holding a plurality of the votes cast at a single annual meeting of
stockholders. If the stockholders approve the Reincorporation, it will take at
least two annual meetings of stockholders for even a majority of stockholders to
make a change in control of the Board of Directors, because only a minority of
the directors will be elected at each meeting.
Because of the additional time required to change control of the Board
of Directors, the Classified Board Provision will tend to perpetuate present
management. Without the ability to obtain immediate control of the Board of
Directors, a takeover bidder will not be able to take action to remove other
impediments to its acquisition of the Delaware Company. Because the Classified
Board Provision will increase the amount of time required for a takeover bidder
to obtain control of the Delaware Company without the cooperation of the Board
of Directors, even if the takeover bidder were to acquire a majority of the
Delaware Company's outstanding stock, it will tend to discourage certain tender
offers, perhaps including some tender offers that stockholders may feel would be
in their best interests. The Classified Board Provision will also make it more
difficult for the stockholders to change the composition of the Board of
Directors even if the stockholders believe such a change would be desirable.
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<PAGE> 21
The Classified Board Provision is designed to assure continuity and
stability in the Board of Directors' leadership and policies. While management
has not experienced any problems with such continuity in the past, it wishes to
ensure that this experience will continue. The Board of Directors also believes
that the Classified Board Provision will assist the Board of Directors in
protecting the interests of the Delaware Company's stockholders in the event of
an unsolicited offer for the Delaware Company.
This Classified Board Provision is intended to encourage persons seeking
to acquire control of the Delaware Company, including through proxy fights or
hostile takeovers, to initiate such efforts through negotiations with the Board
of Directors. The Board of Directors believes that the Classified Board
Provision will help give the Board of Directors the time necessary to evaluate
unsolicited offers, as well as appropriate alternatives, in a manner which
assures fair treatment of the Delaware Company's stockholders. The Classified
Board Provision is also intended to increase the bargaining leverage of the
Board of Directors, on behalf of the Delaware Company's stockholders, in any
negotiations concerning a potential change of control of the Delaware Company.
The Classified Board Provision will, however, make more difficult or discourage
a proxy contest or the assumption of control by a substantial stockholder and
thus could increase the likelihood that incumbent directors will retain their
positions. The Classified Board Provision could also have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Delaware Company even though such attempt might be
beneficial to the Delaware Company's stockholders.
The Delaware Certificate contains certain provisions that could be
characterized as specific "anti-takeover" provisions. The Delaware Certificate
permits the Delaware Company to issue "blank check" preferred stock, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors, without stockholder approval. The Delaware Certificate
currently authorizes the issuance of 5,000,000 shares of preferred stock. The
authorized and available preferred stock could be issued by the Delaware Company
and used to discourage a change in the control of the Delaware Company.
The Classified Board Provision is permitted by Delaware law and is
consistent with the rules of NASDAQ on which the Delaware Company's Common Stock
will be traded. The Classified Board Provision is not being implemented as the
result of any specific efforts of which the Delaware Company is aware to obtain
control of the Delaware Company.
The Classified Board Provision described herein is set forth in Exhibit
C to this Proxy Statement. The preceding description of the Classified Board
Provision is qualified in its entirety by reference to Exhibit C.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, under non-cumulative voting, the holder or
holders
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<PAGE> 22
of a majority of the shares entitled to vote in an election of directors will be
able to elect all the directors of the Company.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its articles of incorporation or bylaws, to eliminate cumulative voting when the
Company's shares are listed on a national stock exchange or traded on NASDAQ and
are held by at least 800 equity security holders. The California Articles do not
include such a provision.
Cumulative voting is not available under Delaware law unless so provided
in the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
The elimination of cumulative voting could deter investors from
acquiring a minority block in the Company with a view toward obtaining a board
seat and influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company, which some
shareholders might deem favorable.
REMOVAL OF DIRECTORS
Under California law, a director may be removed with or without cause by
the affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. Under Delaware law, unless the board is classified or
cumulative voting is permitted, a director can be removed from office during his
term by shareholders with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors. Since the Delaware
Certificate provides for a classified board, the Delaware Bylaws provide that
the Company's directors may be removed from office only for cause by the
affirmative vote of the holders of a majority of shares then entitled to vote at
the election of directors. The term "cause" with respect to the removal of
directors is not defined in the Delaware General Corporation Law and its meaning
has not been precisely delineated by the Delaware courts.
FILLING BOARD VACANCIES
Under California law, if, after the filling of any vacancy by the
directors of a corporation, the directors then in office who have been elected
by the corporation's shareholders constitute less than a majority of the
directors then in office, then: (i) any holder of more than 5% of the
corporation's Voting Stock may call a special meeting of shareholders, or (ii)
the superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation. Delaware
law provides that if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire board of directors as constituted immediately prior to any increase,
the Delaware Court of Chancery may, upon application of any shareholder or
shareholders holding at least 10% of the total number of shares at the time
outstanding having the right to vote for such
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<PAGE> 23
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 office.
The proposed Delaware Bylaws provide that vacancies shall be filled by
the affirmative vote of a majority of directors then in office, even if such
directors comprise less than a quorum of the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 40,000,000 authorized
shares of Common Stock, no par value, of which 14,138,129 shares were issued and
outstanding as of June 30, 2000, and 5,000,000 authorized shares of Preferred
Stock, no par value, of which 2,500 shares of Class A1 Cumulative, Redeemable
and Exchangeable Preferred Stock, 5,500 shares of Class A2 Cumulative,
Redeemable and Exchangeable Preferred Stock, 7,000 shares of Class B1
Cumulative, Redeemable and Exchangeable Preferred Stock, 5,000 shares of Class
C1 Cumulative, Redeemable and Exchangeable Preferred Stock, 391 shares of Class
E Cumulative, Redeemable and Exchangeable Preferred Stock and one share of
Voting Preferred Stock were issued and outstanding as of June 30, 2000.
Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of Common Stock, Class A1 Cumulative,
Redeemable and Exchangeable Preferred Stock, Class A2 Cumulative, Redeemable and
Exchangeable Preferred Stock, Class B1 Cumulative, Redeemable and Exchangeable
Preferred Stock, Class C1 Cumulative, Redeemable and Exchangeable Preferred
Stock, Class E Cumulative, Redeemable and Exchangeable Preferred Stock and
Voting Preferred Stock that the Company had outstanding immediately prior to the
reincorporation.
The capitalization of the Delaware Company is identical to the
capitalization of the Company with the addition of a per share par value, with
authorized capital stock of 40,000,000 shares of Common Stock, $.001 par value
and 5,000,000 shares of Preferred Stock, $.001 par value, consistent with
maintaining adequate capitalization for the current needs of the Company. The
Delaware Company's authorized but unissued shares of Common Stock and Preferred
Stock will be available for future issuance.
Under the Delaware Certificate, as under the California Articles, 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 of Directors may authorize the issuance of Preferred Stock for
the purpose of adopting shareholder rights plans or in connection with various
corporate transactions, including corporate partnering arrangements. 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. See "Anti-Takeover Measures."
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<PAGE> 24
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and Bylaws
provide that such a meeting may be called only by the Board of Directors, the
Chairman of the Board of Directors or the President, and not by any other person
or persons.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholders' meeting. Both California and Delaware
law permits a corporation to eliminate the ability of stockholders to act by
written consent in its charter. The Delaware Certificate, unlike the California
Articles, prohibits shareholders from acting by written consent in lieu of a
meeting.
Elimination of shareholder power to act by written consent 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 shareholder power to act by written
consent may deter hostile takeover attempts because of the lengthened
shareholder approval process. Without the ability to act by written consent, a
holder or group of holders controlling a majority in interest of the Delaware
Company's capital stock will not be able to amend the Delaware Bylaws or remove
directors pursuant to a written consent. Any such holder or group of holders
would have to wait until a shareholders' meeting is held to take any such
action. The Board of Directors believes this provision, like the other
provisions to be included in the Delaware Certificate and Delaware Bylaws, will
enhance the Board of Directors' opportunity to fully consider and effectively
negotiate in the context of a takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date stated in the proxy
statement released in connection with the previous year's annual meeting.
The Delaware Bylaws, similar to the California Bylaws, provide that, in
order for director nominations or shareholder proposals to be properly brought
before the annual meeting, the shareholder must have delivered timely notice to
the Secretary of the corporation. To be timely under the Delaware Bylaws, notice
must be delivered not less than 70 nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting. If the date of the annual
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meeting has been advanced by more than 20 days or delayed by more than 70 days
from such anniversary date, the Delaware Bylaws provide that notice must be
given not more than 90 days nor less than 70 days prior to the annual meeting or
within the 10 days following the day on which public announcement of the meeting
is made. These notice requirements help ensure that shareholders are aware of
all proposals to be voted on at the annual meeting and have the opportunity to
consider each proposal in advance of the annual meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the elimination of the
right of shareholders to call special shareholders' meetings which is described
above. In addition, certain types of "poison pill" defenses (such as shareholder
rights plans) discussed below have been upheld by Delaware courts, while
California courts have yet to decide on the validity of such defenses, thus
rendering their effectiveness in California less certain.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (but not California) have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult. Under Section 203 of the Delaware
General Corporation Law ("Section 203"), certain "business combinations" by
Delaware corporations with "interested stockholders" are subject to a three-year
moratorium unless specified conditions are met. Under Section 1203 of the
California General Corporation Law, certain business combinations with a
majority shareholder are subject to specified conditions, but there is no
equivalent provision to Section 203, which addresses business combinations with
a significant but not majority shareholder.
Section 203 prohibits a Delaware corporation from engaging in a
"business combination" with an "interested shareholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested
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stockholder (except for transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date on which such stockholder becomes
an interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested stockholder, the board approves
the business combination and it is also approved at a stockholder meeting by
sixty-six and two-thirds percent (66 2/3%) of the voting stock not owned by the
interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on the NASDAQ Stock Market or (iii) held of record by
more than 2,000 stockholders. Since the Delaware Company will have a class of
voting stock authorized for quotation on NASDAQ, Section 203 will be immediately
applicable to the Delaware Company following the Reincorporation. A Delaware
corporation may elect not to be governed by Section 203 by a provision in its
original certificate of incorporation or an amendment thereto or to the bylaws,
which amendment must be approved by majority stockholder vote and may not be
further amended by the board of directors. The Delaware Company does not intend
to elect not to be governed by Section 203.
The constitutionality of Section 203 is challenged from time to time in
lawsuits arising out of ongoing takeover disputes, and it is not yet clear
whether and to what extent its constitutionality will be upheld by the courts.
Although the United States District Court for the District of Delaware has
consistently upheld the constitutionality of Section 203, the Delaware Supreme
Court has not yet considered the issue. The Company believes that so long as the
constitutionality of Section 203 is upheld, Section 203 will encourage any
potential acquiror to negotiate with the Company's Board of Directors. Section
203 also has the effect of limiting the ability of a potential Delaware acquiror
to make a two-tiered bid for the Delaware Company in which all stockholders
would not be treated equally. Shareholders should note that the application of
Section 203 to the Delaware Company will confer upon the Board the power to
reject a proposed business combination, even though a potential acquiror may be
offering a substantial premium for the Delaware Company's shares over the
then-current market price (assuming the stock is then publicly traded). Section
203 should also discourage certain potential acquirors unwilling to comply with
its provisions.
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ANTI-TAKEOVER MEASURES
There can be no assurance that the Board of Directors would not adopt
any anti-takeover measures available under Delaware law (some of which may not
require shareholder approval). Moreover, the availability of such measures under
Delaware law, whether or not implemented, may have the effect of discouraging a
future takeover attempt which a majority of the Delaware Company's shareholders
may deem to be in their best interests or in which shareholders may receive a
premium for their shares over then current market prices. As a result,
shareholders who might desire to participate in such transactions may not have
the opportunity to do so. Shareholders should recognize that, if adopted, the
effect of such measures, along with the possibility of discouraging takeover
attempts, may be to limit in certain respects the rights of shareholders of the
Delaware Company compared with the rights of shareholders of the Company.
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 (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board of
Directors to fully consider the proposed takeover attempt and actively negotiate
its terms are in the best interests of the Company and its shareholders.
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 California 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 of the
Delaware Company (the "Delaware Common Stock") and preferred stock of the
Delaware Company (the "Delaware Preferred Stock") could (within the limits
imposed by applicable law) be issued in one or more transactions, or Delaware
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 Delaware
Common Stock and Delaware 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 Delaware Preferred Stock remain to be fixed by the Delaware Board of
Directors. Accordingly, if the Delaware Board of Directors so authorizes, the
holders of Delaware Preferred Stock may be entitled to vote 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 Delaware Common Stock of the Delaware Company under certain
circumstances or have other terms which might
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<PAGE> 28
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 of Directors. 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.
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 the
Delaware Preferred Stock or Delaware Common Stock of the Delaware Company,
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 shareholder approval of a specific issuance would be a
detriment to the Delaware Company and its shareholders. 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 shareholders.
AMENDMENT OF CERTIFICATE
The California Articles provide that the provisions thereof may be
amended by the affirmative vote of a simple majority of the holders of the
outstanding Voting Stock of the Company. The Delaware Certificate provides that
all provisions thereof other than certain anti-takeover provisions (i.e., the
classified board, elimination of the ability to act by written consent and
limitation on ability to call special meetings of stockholders) may be amended
by the affirmative vote of 80% of the voting power of the Voting Stock of the
Delaware Company.
AMENDMENT OF BYLAWS
The California Bylaws provide that the provisions can be amended by the
affirmative vote of the holders of a majority of the voting power of the Voting
Stock of the Company. The Delaware Certificate provides that the Delaware Bylaws
may be amended by the affirmative vote of 80% of the voting power of the Voting
Stock of the Company.
OTHER STATE LAW DIFFERENCES
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
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CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally does
not require class voting for such transactions, except in certain situations
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of a California corporation's
Common Stock receive nonredeemable Common Stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its Common Stock, unless all of the holders of its Common Stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters'
rights. Although Delaware law does not parallel California law in this respect,
under some circumstances Section 203 does provide similar protection against
coercive two-tiered bids for a corporation in which the stockholders are not
treated equally. See "Significant Changes Caused By Reincorporation --
Shareholder Approval of Certain Business Combinations".
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's Voting
Stock or shareholders holding 1% or more of such shares who have filed a
Schedule 14B with the SEC. Delaware law provides no such absolute right of
shareholder inspection. However, both California and Delaware law permit any
shareholder of record to inspect the shareholder list for any purpose reasonably
related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a
corporation participating in certain mergers and reorganizations may be entitled
to receive cash in the amount of the "fair value" (Delaware) or "fair market
value" (California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed
on a national securities exchange or on the OTC margin stock list, generally do
not have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the reincorporation
proposal.
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Under Delaware law appraisal rights are not available to shareholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
HOLDING COMPANY REORGANIZATION
A new Section 251(g) has been added to the Delaware General Corporation
Law permitting a Delaware corporation to reorganize as a holding company without
stockholder approval. The reorganization contemplated by the statute is
accomplished by merging the subject corporation with or into a direct or
indirect wholly owned subsidiary of the corporation and converting the stock of
the corporation into stock of another direct or indirect wholly owned subsidiary
of the corporation, which would be the new holding company. The statute
eliminates the requirement for a stockholder vote on such a merger but contains
several provisions designed to ensure that the rights of stockholders are not
changed by or as a result of the merger, except and to the extent that such
rights could be changed without such a stockholder approval under existing law.
Thus, the resulting holding company must be a Delaware corporation and
have the same certificate of incorporation (except for provisions that could
have been amended or deleted without stockholder approval), bylaws, and
directors that the corporation had prior to the reorganization. The corporation
or its successor must, as a result of the reorganization, become a direct or
indirect wholly owned subsidiary of the holding company and must retain the same
certificate of incorporation and bylaws that the corporation had prior to the
reorganization (except that the capitalization may be reduced and except for the
addition of the provision described in the next sentence). To ensure that the
voting rights of the stockholders of the corporation are not changed or evaded
as a result of the reorganization, the statute requires that the certificate of
incorporation of the corporation provide that any extraordinary transactions
involving the corporation be approved by the stockholders of the holding company
by the same vote required of the stockholders of the corporation under the
General Corporation Law and/or by the corporation's certificate of
incorporation. To ensure that any restrictions on stockholders of the
corporation imposed by Section 203 or any exemption from such restrictions,
remains unaffected by a holding company reorganization, the statute further
provides that the provisions of Section 203 will apply to persons who are
stockholders of the holding company immediately after the effectiveness of a
holding company reorganization to the same extent that they applied to
stockholders of the corporation immediately prior to the reorganization. In
order for no stockholder vote to be required, a holding company reorganization
must be tax-free for federal income tax purposes to stockholders of the
corporation. Appraisal rights are not available to stockholders in a merger that
qualifies as a holding company reorganization.
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FAIRNESS OPINION REQUIREMENT
California law also provides that, except in certain circumstances, when
a tender offer or a proposal for a reorganization or for a sale of assets is
made by an interested party (generally a controlling or managing party of the
target corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to the
shareholders. This fairness opinion requirement does not apply to a corporation
which does not have shares held of record by at least 100 persons, or to a
transaction which has been qualified under California state securities laws.
Furthermore, if a tender of shares or vote is sought pursuant to an interested
party's proposal and a later proposal is made by another party at least ten days
prior to the date of acceptance of the interested party proposal, the
shareholders must be informed of the later offer and be afforded a reasonable
opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered
shares. Delaware law has no comparable provision, and the stockholders of the
Delaware Company might, therefore, be deprived of an opportunity to consider
such other proposal.
VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal
rights when a corporation acquires another business through the issuance of its
stock, whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to
shareholders, such as redemptions, are limited to the greater of (i) retained
earnings or (ii) an amount which would leave the corporation with assets
(excluding certain intangible assets) equal to at least 125% of its liabilities
(excluding certain deferred items) and current assets equal to at least 100%
(or, in certain circumstances, 125%) of its current liabilities. Delaware law
allows the payment of dividends and redemption of stock out of surplus
(including paid-in and earned surplus) or out of net profits for the current and
immediately preceding fiscal years. The Company has never paid cash dividends
and has no present plans to do so.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Delaware Company's shares are traded in the NASDAQ and are held by
fewer than 800 equity security holders, as of its most recent annual meeting of
shareholders, then the Delaware Company would become subject to certain
provisions of California law regardless of its state of incorporation. The
Company does not currently meet all of the above requirements.
Because the Company's Common Stock is traded in the NASDAQ and the
Company's shares are held by at least 800 equity security holders, as of its
most recent annual meeting of
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shareholders, California law will not initially apply to the Delaware Company if
the reincorporation is approved. The Delaware Company would not be subject to
California law as long as it continued to not satisfy at least one of the above
stated requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
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.
A successful IRS challenge to the reorganization status of the proposed
reincorporation (in consequence of a failure to satisfy the "continuity of
interest" requirement or otherwise as a result of events or transactions
occurring before or after the effective date of the reincorporation) would
result in a shareholder recognizing gain or loss with respect to each share of
the Company's Common Stock exchanged in the proposed reincorporation equal to
the difference between the shareholder's basis in such share and the fair market
value, as of the time of exchange therefor. In such event, a shareholder's
aggregate basis in the shares of Company's Common Stock received in the exchange
would equal their fair market value on such date, and the shareholder's holding
period for such Common Stock would begin on the date of such exchange.
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 PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
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The affirmative vote of a majority of each class of the Company's stock
is needed for approval of this proposal (Proposal 3) to reincorporate the
Company in Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF REINCORPORATION OF THE
COMPANY IN DELAWARE AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS.
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE COMPANY'S 1998 STOCK OPTION AND AWARDS PLAN
GENERAL
The Company's 1998 Stock Option and Award Plan (the "1998 Plan") was
adopted by the Board of Directors in August 1998, and approved by the
shareholders in October 1998. The 1998 Plan provides for the grants of (i)
qualified incentive stock options ("ISOs") which meet the requirements of
Section 422 of the Code; (ii) stock options not so qualified ("NQSOs"); (iii)
deferred stock in which delivery of Common Stock occurs upon expiration of a
deferral period; (iv) restricted stock, in which Common Stock is granted to
participants subject to restrictions on transferability and other restrictions,
which lapse over time; (v) performance shares, consisting of a right to receive
Common Stock subject to restrictions based upon the attainment of specified
performance criteria; and (vi) stock appreciation rights, whether in conjunction
with the grant of stock options or independent of such grant, or stock
appreciation rights that are only exercisable in the event of a change in
control of the Company (as defined in the 1998 Plan) or upon other events
(collectively, items (iii) through (vi) are referred to herein as "Awards").
Only _________ options (plus any shares that might in the future be returned as
a result of cancellations or expiration of options) currently remain available
for grant under the 1998 Plan, and only _________ options remain available under
the Company's 1993 Employee Stock Option Plan.
In June 2000, the Board determined that the number of shares available
for grant as options was not sufficient to enable the Company to attract and
retain management and other personnel necessary to effect the Company's service
expansion plans or to incentivize existing and future personnel and maintain
ownership percentages represented by options held by certain members of existing
management so as to sufficiently align the interests of management with that of
the shareholders.
Consequently, the Board determined that it was in the interests of the
Company and its shareholders to increase the number of shares authorized for
issuance under the 1998 Plan from 2,500,000 to 3,200,000, an increase of 700,000
shares. At the June 7, 2000 Board meeting, the Board approved the amendment to
the 1998 Plan, subject to shareholder approval. The shareholders are now being
requested in this Proposal 3 to approve the amendment to the 1998 Plan.
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The essential features of the 1998 Plan are outlined below. Copies of
the 1998 Plan are available upon request to the Secretary of the Company.
THE 1998 PLAN
Purpose. The purpose of the 1998 Plan is (a) to advance the interests of
the Company and its shareholders by improving the Company's ability to attract
and retain highly qualified personnel and to provide an incentive to others
whose job performance affects the Company, including Nonemployee Directors of
the Company, (b) to align Nonemployee Directors' personal interests more closely
with those of the shareholders of the Company, (c) to promote ownership by
Nonemployee Directors of a greater proprietary interest in the Company, and to
facilitate management of the Company's cashflow.
Eligibility. The Administrator has the authority under the 1998 Plan,
among other things, to (i) select the employees of the Company, any subsidiary,
a parent corporation or the Manager who shall be eligible under the 1998 Plan;
(ii) determine the form of awards, or combinations thereof, and whether such
awards are to operate on a tandem basis or in conjunction with other awards;
(iii) determine the number of shares of Common Stock or rights covered by an
award; and (iv) determine the terms and conditions of any awards granted under
the 1998 Plan. ISOs may be granted to the officers and key employees of the
Company and its subsidiaries. NQSOs and Awards may be granted to the directors,
officers, key employees and agents and consultants of the Company and its
subsidiaries.
The 1998 Plan provides that in lieu of director fees, each Nonemployee
Director will receive NQSO's for services subsequent to October 1, 1998. Each
Nonemployee Director serving as of the date this Plan was approved by the
shareholders was automatically granted on such date as compensation for his
future services as a Director a Non-Qualified Stock Option (the "Initial Grant")
to purchase the number of shares of Common Stock provided by the terms of the
1998 Plan, exercisable one third immediately, and additional one third on each
of the first and second anniversaries of the grant (provided the Director
continues to serve as a Director), and continuing to be exercisable for ten (10)
years after the date of grant, provided that the Director continues to serve as
a Director of the Company, or as set forth in the 1998 Plan should he cease to
be a Director. New Nonemployee Directors shall receive Initial Grants on the
terms provided in the 1998 Plan upon their first election or appointment to the
Board unless there are any changes in accounting requirements which would result
in such grants having a material adverse impact on the Company's results of
operations, in which case their Initial Grants shall be on the terms for
Subsequent Grants as stated below.
Under the 1998 Plan, each Nonemployee Director then serving will receive
on the third anniversary of his or her Initial Grant and each anniversary
thereafter ("Subsequent Grants") an automatic grant of an NQSO to purchase a
number of shares calculated as follows: (i) $30,000 (the amount such Director
would otherwise have been paid for his services during such period) shall be
multiplied by 3 (a multiplier chosen to reflect that the Director will have to
purchase such shares); (ii) the product of (i) shall be divided by the Fair
Market Value of a share of Common Stock on the date of grant, which quotient
shall be the number of shares for which the Option is granted. The purchase
price of each share under such Non-Qualified Stock Option shall equal the Fair
Market Value of a share of Common Stock on the date of such grant. Each
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Subsequent Grant to Nonemployee Directors in lieu of compensation shall be
exercisable immediately, and shall continue to be exercisable for ten (10) years
after the date of grant, provided that the Director continues to serve as a
Director of the Company, or as set forth in the 1998 Plan should cease to be a
Director.
Administration of the 1998 Plan. The 1998 Plan is administered by the
Board of Directors, or by a Committee appointed by the Board of Directors (the
"Administrator").
Shares Subject to the 1998 Plan. The 1998 Plan, as amended, provides
that a total of 3,200,000 shares will be reserved and available for issuance
under the 1998 Plan.
There is no limit to the amount of Stock Options that may be granted to
any individual. If an option granted under the 1998 Plan expires or terminates,
or an Award is forfeited, the shares subject to any unexercised portion of such
option or Award will again become available for the issuance of further options
or Award under the 1998 Plan.
Terms of Options. Options granted under the 1998 Plan will become
exercisable in accordance with the terms of the grant made by the Administrator.
Each Award will be subject to the terms and restrictions of the Award made by
the Administrator. The Administrator has discretionary authority to select
participants from among eligible persons and to determine at the time an option
or Award is granted when and in what increments shares covered by the option may
be purchased and, in the case of options, whether it is intended to be an ISO or
a NQSO; provided, however, that certain restrictions applicable to ISOs are
mandatory, including a requirement that ISOs not be issued for less than 100% of
the then Fair Market Value of the Common Stock (110% in the case of a grantee
who holds more than 10% of the outstanding Common Stock) and a maximum term of
ten (10) years (five (5) years in the case of a grantee who holds more than 10%
of the outstanding Common Stock).
Under current law, ISOs may not be granted to any director of the
Company who is not also an employee or to directors, officers and other
employees of entities unrelated to the Company.
Each option must terminate no more than ten (10) years from the date it
is granted (or five (5) years in the case of ISOs granted to an employee who is
deemed to own in excess of 10% of the combined voting power of the Company's
outstanding equity stock). Options may be granted on terms providing for
exercise either in whole or in any part at any time or times during their
respective terms, or only in specified percentages at stated time periods or
intervals during the term of the option.
The exercise price of any option granted under the 1998 Plan is payable
in full in cash or its equivalent (including the withholding of shares) as
determined by the Administrator. The Company may make loans available to option
holders to exercise options evidenced by a promissory note executed by the
optionholder and secured by a pledge of Common Stock with Fair Market Value at
least equal to the principal of the promissory note unless otherwise determined
by the Administrator.
Adjustment Provisions. The 1998 Plan is subject to anti-dilution
provisions for stock splits, stock dividends and similar events. In the event of
a corporate transaction or event which
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<PAGE> 36
affects the Common Stock, such that the Committee determines that an adjustment
is appropriate in order to prevent dilution or enlargement of each Participant's
rights under the 1998 Plan, the Committee may then make an adjustment in the
number and/or kind of securities issuable under the 1998 Plan in a manner that
is proportionate to the change to the Common Stock and otherwise equitable in
the number and kind of shares of Common Stock remaining available for issuance
under the 1998 Plan.
Amendment and Termination. The Board of Directors may from time to time
revise or amend the 1998 Plan, and may suspend or discontinue it at any time.
However, no such revision or amendment may impair the rights of any participant
under any outstanding Award without his consent or may, without shareholder
approval increase the number of shares subject to the 1998 Plan or decrease the
exercise price of a stock option to less than 100% of Fair Market Value on the
date of grant (with the exception of adjustments resulting from changes in
capitalization), materially modify the class of participants eligible to receive
options or Award under the 1998 Plan, materially increase the benefits accruing
to participation under the 1998 Plan or extend the maximum option term under the
1998 Plan.
Tax Consequences. The following is a brief summary of the United States
federal income tax consequences of transactions under the 1998 Plan based on
federal securities tax laws in effect as of this date. This summary is not
intended to be exhaustive and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or other country in which an optionee may reside. This summary does not
purport to be complete. The Company advises all optionees to consult their own
tax advisors concerning tax implications of options grants and exercises, and
the disposition of shares acquired upon such exercise, under the 1998 Plan.
Options granted under the 1998 Plan may be either "incentive stock
options", as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1998 Plan is an incentive stock option,
under U.S. tax laws the optionee will recognize no income upon grant of the
incentive stock option and generally incur no tax liability upon its exercise
(provided certain employment requirements are met), although the exercise may
give rise to alternative minimum tax. The Company will not be allowed a
deduction for federal income tax purposes as a result of the exercise of an
incentive stock option regardless of the applicability of the alternative
minimum tax. Upon the sale or exchange of the shares at least two years after
grant of the option and one year after transfer of the shares to the optionee
(and satisfaction of certain employment requirements), any gain will be treated
as long-term capital gain under U.S. tax laws (measured by the proceeds of any
sale over the amount paid for the shares). If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
the Fair Market Value of the stock at the date of the option exercise or the
sale price of the stock. The Company will generally be entitled to a deduction
in the same amount as the ordinary income recognized by the optionee, provided
that the compensation is an ordinary and necessary business expense and is
reasonable and the deduction limitations of Section 162(m) do not apply. Any
gain recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized under U.S. tax laws as
long-term capital gain if the sale occurs more than one year after exercise of
the option or as
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<PAGE> 37
short-term capital gain if the sale is made earlier. Generally, the current tax
rate on net capital gain (net long-term capital gain minus short-term capital
loss) under current U.S. tax laws is capped at 20% for shares held more than one
year. Capital losses are allowed under U.S. tax laws in full against capital
gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will generally not
recognize any taxable income under U.S. tax laws at the time he or she is
granted a nonstatutory option. However, upon its exercise, under U.S. tax laws
the optionee will generally recognize ordinary income for tax purposes measured
by the excess of the then Fair Market Value of the shares over the exercise
price. In certain circumstances, for example, where the shares are subject to a
substantial risk of forfeiture when acquired, the date of taxation may be
deferred unless the optionee files an election with the Internal Revenue Service
under Section 83(b) of the Code. The income recognized by an optionee who is
also an employee of the Company will be subject to employment tax and
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. The Company will generally be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee, provided that
the compensation is an ordinary and necessary business expense and is reasonable
and the deduction limitations of Section 162(m) do not apply. Upon resale of
such shares by the optionee, any difference between the sales price and the
exercise price, to the extent not recognized as ordinary income as provided
above, will be treated under U.S. tax laws as capital gain or loss, and will
qualify for long-term capital gain or loss treatment if the shares have been
held for more than one year.
REQUIRED VOTE
The adoption of the Amendment to the 1998 Stock Option and Award Plan
(Proposal 4) requires the affirmative votes of the holders of a majority of the
securities present or represented and entitled to vote. Abstentions on such
proposals have the effect of "no" votes, but "broker non-votes" are not counted
for purposes of determining whether the proposal has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
1998 STOCK OPTION AND AWARD PLAN.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Ernst & Young LLP
("Ernst & Young"), certified public accountants, as independent auditors of the
Company for the year ending December 31, 2000.
Arthur Young & Company, the predecessor to Ernst & Young, began serving
the Company in 1981. Ernst & Young has no direct financial interest or any
material indirect financial interest in the Company or its subsidiaries, and has
had no connection with the Company or its subsidiaries in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
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<PAGE> 38
The Company anticipates that a representative of Ernst & Young will be
present at the Annual Meeting. Such representative will have an opportunity to
make a statement, if such representative desires to do so, and will be available
to respond to appropriate questions.
The approval of the auditors (Proposal 5) requires the vote of a
majority of the shares represented and voting; thus neither abstentions nor
"broker non-votes" are counted in determining whether this proposal has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE APPOINTMENT OF
ERNST & YOUNG AS INDEPENDENT AUDITORS OF THE COMPANY AND ITS SUBSIDIARIES FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2000.
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<PAGE> 39
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table contains certain information as of June 30, 2000, as
to each director, each individual included in the Summary Compensation Table,
all officers and directors as a group and each person who, to the knowledge of
the Company, was the beneficial owner of 5% or more of the outstanding voting
securities. Persons named in the following table have sole voting and investment
powers with respect to all shares shown as beneficially owned by them, subject
to community property laws where applicable, and other information contained in
the footnotes to the table. Information with respect to beneficial ownership is
based on the Company's records and data supplied to the Company by its
shareholders.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership(1) of Class
------------------------ ----------------------- --------
<S> <C> <C> <C>
Voting Preferred Stock Hampshire Equity Partners II, L.P. 1(2) 100.0
Common Stock Hampshire Equity Partners II, L.P. 10,059,674(2) 43.4
Common Stock Carlos D. De Mattos 95,028 *
Common Stock John T. DeVito 41,819 *
Common Stock Jeffrey J. Dunnigan 15,086 *
Common Stock Benjamin P. Giess 10,142,974(2)(3) 43.8
Common Stock John F. Glade 204,200(4) 1.4
Common Stock Rockell N. Hankin 178,875 1.3
Common Stock Richard E. Mahmarian 210,375 1.5
Common Stock Dennis E. Michael 71,759 *
Common Stock Clarke E. Reynolds 194,875 1.4
Common Stock Douglas J. Tullio 660,106 4.5
Common Stock Sam Yau 87,272 *
Common Stock All directors and officers as a 11,683,083(5) 45.3(6)
group (11 persons)
</TABLE>
------------------
* Does not exceed 1% of the outstanding shares of the voting securities of
the Company.
(1) Includes shares issuable upon exercise of options and warrants which are
presently exercisable or will become exercisable on or before June 23,
2000, in the following amounts: Hampshire Equity Partners II, L.P.:
9,064,274; De Mattos: 91,428; Dunnigan, 5,000; Giess(3): 9,064,274; Hankin:
134,542; Mahmarian: 142,042; Michael, 70,000; Reynolds: 132,042; Tullio:
593,737; Yau: 87,272; and by all officers and directors as a group:
10,350,337
(2) Hampshire Equity Partners II, L.P.'s (formerly known as ING Equity Partners
II, L.P) ownership of one (1) share of Voting Preferred Stock entitles it
to cast votes equivalent to the number of shares it has the right to
acquire pursuant to outstanding warrants which as of June 30, 2000 is
8,816,446 shares of Common Stock. Additionally, ING owns 2,500 shares of
Class A1 Preferred Stock, 5,500 shares of Class A2 Preferred Stock, 7,000
shares of Class B1 Preferred Stock, 5,000 shares of Class C1 Preferred
Stock, and 391 shares of Class E Preferred Stock. The address of Hampshire
Equity Partners II, L.P. is 520 Madison Avenue, New York, New York
10022-4213.
(3) Mr. Giess claims beneficial ownership of 83,300 of these shares. Mr. Giess
disclaims beneficial ownership of the remaining 10,059,674 of these shares
which are held by Hampshire Equity Partners II, L.P. and described in
footnote (2) as well as shares for which he has been granted options as a
director. Mr. Giess is prohibited from realizing any direct benefit from
the option shares and holds the option shares for the benefit of Hampshire
Equity Partners II, L.P. Mr. Giess is an executive officer of Lexington
Equity Partners II, Inc., which is the general partner of Lexington Equity
Partners II, L.P.; however, the Company has been advised that Mr. Giess
does not exercise sole or shared voting or dispositive power with respect
to the share of Voting Preferred Stock, the Preferred Stock or the
outstanding warrants held by Hampshire Equity Partners II, L.P. described
in footnote (2). The address of Mr. Giess is 520 Madison Avenue, New York,
New York 10022-4213.
(4) Includes 156,200 shares held in a revocable trust of which Mr. Glade and
his wife, Alana L. Glade, are sole trustees. Mr. and Mrs. Glade, acting
jointly, have the power to vote and dispose of such shares.
(5) This amount includes the 10,059,674 shares beneficially owned by Hampshire
Equity Partners II, L.P. of which Mr. Giess disclaims beneficial ownership
(see footnote (3)).
(6) This percentage includes the 10,059,674 shares beneficially owned by
Hampshire Equity Partners II, L.P. of which Mr. Giess disclaims beneficial
ownership. This percentage would be 10.3 percent if those 10,059,674 shares
were not included as shares beneficially owned by all directors and
officers as a group.
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<PAGE> 40
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Company's executive
officers earning in excess of $100,000 during the year ended December 31, 1999,
compensation allocated or paid on or before ___________, 2000, for services in
all capacities with the Company and its subsidiaries during the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation All Other
------------------- Compensation
------------
Other Annual Securities
Name and Compensation Underlying
Principal Position Year Salary($) Bonus($) ($) Options/(#)(1)
------------------ ---- --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Douglas J. Tullio President, CEO and 1999 336,667 90,000 ** 100,000
Chairman of the Board of Directors 1998* 290,001 110,000 ** 436,237
FY98 267,310 100,000 ** 100,000
Jeffrey J. Dunnigan(2) 1999 137,852 -- ** --
Vice President Finance and CFO and 1998* 122,091 39,600 ** 75,000
Secretary FY98
John F. Glade(3) 1999 131,171 -- ** --
Vice President, Engineering and 1998* 120,016 15,000 ** 20,000
Manufacturing FY98 120,016 5,000 **
Dennis E. Michael 1999 122,674 22,000 ** 20,000
Vice President of Marketing 1998* 99,532 31,500 ** 30,000
FY98 92,092 20,000 ** 50,000
John T. DeVito(4) 1999 120,000 58,428 ** 20,000
President, Professional Services 1998*
FY98
</TABLE>
* Historically the Company's fiscal year ended in February. In December
1998, the Company adopted a calendar fiscal year. Information for 1998
reflects the period from January 1, 1998, through December 31, 1998 and
includes the Transition Period from February 23, 1998, to December 31,
1998. Information for FY 1998 reflects the Company's prior fiscal year
period from February 24, 1997 to February 22, 1998.
** Aggregate amount does not exceed 10% of the total of annual salary and
bonus reported for the named executive officer.
(1) All options were granted under the 1993 Alpha Microsystems Employee
Stock Option Plan and the 1998 Stock Option and Awards Plan.
(2) Mr. Dunnigan resigned as Vice President, Chief Financial Officer,
effective November 12, 1999. Mr. Dunnigan's employment with the Company
did not commence until late in fiscal 1998, and his total compensation
in fiscal 1998 was less than $100,000.
(3) Mr. Glade resigned as Vice President, engineering and Manufacturing, on
January 31, 2000, concurrent with the sale to R.E. Mahmarian
Enterprises, LLC.
(4) Mr. DeVito's employment with the Company did not commence until late in
fiscal 1998, and his total compensation in fiscal 1998 was less than
$100,000.
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<PAGE> 41
STOCK OPTION GRANTS
The following table provides information on stock options granted under
the 1998 Alpha Microsystems Employee Stock Option Plan to the executive officers
named in the Summary Compensation Table.
OPTION/SAR IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------------- -------------------
PERCENT OF
TOTAL
OPTIONS/SARS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES IN EXERCISE MARKET
UNDERLYING YEAR ENDED OF BASE PRICE
OPTIONS/SARS DECEMBER 31, PRICE ON DATE EXPIRATION
NAME GRANTED(#) 1998 ($/SH) OF GRANT DATE 5%($) 10%($)
---- ------------ ------------ -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas J. Tullio 50,000 10% $5.6875 $5.6875 2/22/2009 $179,000 $453,000
Chairman,
President and CEO
Jeffrey J. Dunnigan 50,000 10% $5.6875 $5.6875 2/22/2009 $179,000 $453,000
John F. Glade 20,000 4% $5.6875 $5.6875 2/22/2009 $ 71,600 $181,000
Dennis E. Michael 30,000 6% $5.6875 $5.6875 2/22/2009 $107,400 $271,800
John T. DeVito 40,000 8% $5.6875 $5.6875 2/22/2009 $143,200 $362,400
</TABLE>
YEAR END VALUES OF OUTSTANDING STOCK OPTIONS
The following table provides information with respect to the executive
officers named in the Summary Compensation Table concerning unexercised stock
options held as of the end of the Company's year ended December 31, 1999.
-----------------------------------
(1) All options were granted under the 1998 Stock Option and Award Plan. All
options granted became exercisable as follows: 25% on each anniversary
date of the grant beginning February 23, 2000. In the event that
employment of the optionee shall be terminated, otherwise than by reason
of death or permanent disability or misconduct, the option and all
rights terminate three months from the date of termination of
employment.
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<PAGE> 42
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES
OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
ON 1999(#) AT DECEMBER 31, 1999
EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Tullio -- -- 540,998 190,239 $1,287,776 $389,725
Jeffrey J. Dunnigan 31,250 $96,694 -- -- -- --
John F. Glade -- -- 27,500 20,000 $ 64,766 --
Dennis E. Michael -- -- 62,500 67,500 $ 172,344 $116,719
John T. DeVito -- -- 25,000 115,000 $ 48,438 $145,313
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for acting as a member of the Board of Directors or any committee
thereof. Outside directors do not receive cash compensation for acting as a
member of the Board of Directors or any committee thereof; however, each outside
director has agreed to accept his director fees in the form of stock options
pursuant to nonemployee director provisions under the 1998 Stock Option and
Awards Plan. In addition, directors are reimbursed for their reasonable travel
expenses incurred for attendance at such meetings.
EMPLOYMENT AGREEMENTS AND GUARANTEED SEVERANCE PAYMENTS
The Company entered into an Amended and Restated Employment Agreement
effective September 1, 1998 with Mr. Tullio as a condition to the Initial
Closing of the ING Securities Purchase Agreement dated August 7, 1998. Such
employment agreement is for a term of four years and establishes an annual base
salary for Mr. Tullio of $300,000, to be adjusted on each anniversary date to be
an amount greater than the average salary but less than the maximum salary for
chief executive officers of comparable companies. Additionally, the agreement
provides that Mr. Tullio shall be considered for a bonus at the end of each
fiscal year in the form of cash, stock options, stock grants or other non-cash
compensation of up to 40% of his base salary based upon performance and in the
sole discretion of the Board. Pursuant to such employment agreement, if Mr.
Tullio's agreement terminates prior to the end of the term as a result of his
death or disability, he or his estate shall be entitled to continuing payment of
his base salary then in effect for 365 days following his termination, or
through the last day of the term of the agreement if earlier. Further, if the
Company terminates Mr. Tullio's employment other than for cause, he shall be
entitled to receive an amount equal to his base salary for the immediately
preceding fiscal year plus the average of his bonus compensation over the
Company's two immediately preceding fiscal years. If Mr. Tullio's employment
terminates, voluntarily or involuntarily, as a result of a "change in control"
of the Company during the term of his employment, he shall be entitled to a lump
sum severance payment equal to his base salary for the Company's immediately
preceding eighteen months plus the average of his bonus compensation over the
Company's two immediately preceding fiscal years, and to the extent not
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<PAGE> 43
prohibited by the terms of the applicable plan and applicable law, all of his
stock options shall become fully vested and be exercisable on a cashless
exercise basis. The term "change in control" means any of the following: (a)
merger or consolidation of the Company; (b) sale of all or substantially all of
the assets of the Company; or (c) sale of more than 50% of the outstanding
Common Stock of the Company by any person or persons. In the event of Mr.
Tullio's termination, under certain circumstances the Company is also obligated
to continue to provide medical and dental benefits for periods ranging from 12
to 18 months.
The Company has also entered into an Employment Agreement effective
September 1, 1998 with Mr. DeVito. Such employment agreement is for a term of
four years and establishes an annual base salary for Mr. DeVito of $120,000, to
be adjusted on each anniversary date to be an amount greater than the average
salary but less than the maximum salary for vice presidents of professional
service groups of comparable companies. Additionally, the agreement provides
that Mr. DeVito shall be considered for a bonus at the end of each fiscal year
in the form of cash, stock options, stock grants or other non-cash compensation
of up to 6% of the net operating profit of the Professional Services division,
which shall in no case exceed 100% of his base salary, and shall be based on the
performance of the Professional Services division and determined in the sole
discretion of the Board. Pursuant to such employment agreement, if Mr. DeVito's
agreement terminates prior to the end of the term as a result of his death or
disability, he or his estate shall be entitled to continuing payment of his base
salary then in effect for 365 days following his termination, or through the
last day of the term of the agreement if earlier. Further, if the Company
terminates Mr. DeVito's employment other than for cause, he shall be entitled to
receive an amount equal to his base salary for the immediately preceding fiscal
year plus the average of his bonus compensation over the Company's two
immediately preceding fiscal years. If Mr. DeVito's employment terminates,
voluntarily or involuntarily, as a result of a "change in control" of the
Company during the term of his employment, he shall be entitled to monthly
severance payments for twelve (12) months following the effective date of such
termination equal to his base salary for the Company's immediately preceding
fiscal year plus the average of his bonus compensation over the Company's two
immediately preceding fiscal years, and to the extent not prohibited by the
terms of the applicable plan and applicable law, all of his stock options shall
become fully vested and be exercisable on a cashless exercise basis. The term
"change in control" means any of the following: (a) merger or consolidation of
the Company; (b) sale of all or substantially all of the assets of the Company;
or (c) sale of more than 50% of the outstanding Common Stock of the Company by
any person or persons.
The Company has also entered into an Employment Agreement effective
November 26, 1999 with Mr. Riiska. The agreement is not for any specified term
as either party may terminate the employment relationship at any time in
accordance with the terms of the agreement. Such employment agreement
establishes an annual base salary for Mr. Riiska of $160,004, to be adjusted
from time to time in the discretion of the Board. Additionally, the agreement
provides that Mr. Riiska shall be considered for a bonus at the end of each
fiscal year of up to 30% of his base salary based upon performance of the
Company and in the sole discretion of the Board. Pursuant to such employment
agreement, under certain circumstances, if Mr. Riiska is terminated, voluntarily
or involuntarily, as a result of a "change in control" of the Company during the
term of his employment, he shall be entitled to monthly severance payments for
twelve (12) months following the effective date of such termination equal to his
base salary for the Company's immediately preceding fiscal year, and to the
extent not prohibited by the terms
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<PAGE> 44
of the applicable plan and applicable law, all of his stock options shall become
fully vested. The term "change in control" means any of the following: (a)
merger or consolidation of the Company; (b) sale of all or substantially all of
the assets of the Company; or (c) sale of more than 50% of the outstanding
Common Stock of the Company by any person or persons. The severance payments are
based upon the base salary paid to Mr. Riiska during the previous fiscal year
(excluding any non-cash compensation).
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its
directors and certain key officers which provide such individuals with
contractual indemnification rights. Such indemnification agreements apply
retroactively as well as prospectively to any actions taken by the indemnified
parties while serving as officers or directors of the Company. Such
indemnification agreements also provide that the Company shall indemnify such
persons to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the indemnification agreement,
the Company's Articles of Incorporation, the Company's Bylaws or by statute.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee for the year ended December 31,
1999 was composed of Messrs. Mahmarian, Reynolds, Giess and De Mattos. Mr.
Mahmarian serves as Chairman of the Compensation Committee and as the Company's
Secretary.
On January 31, 2000, the Company completed the sale of assets associated
with its managed services division and computer hardware manufacturing division
to R.E. Mahmarian Enterprises, LLC for consideration of approximately $3.2
million, consisting primarily of liabilities that were assumed by R.E. Mahmarian
Enterprises. The Company also received a ten percent contingent interest in
gross cash and noncash proceeds that may be received by R.E. Mahmarian
Enterprises upon the occurrence of certain liquidity events involving R.E.
Mahmarian Enterprises. R.E. Mahmarian Enterprises is owned by Richard E.
Mahmarian. This transaction was approved by a special committee of the Company's
Board of Directors and the Company received an opinion from its investment
bankers that the consideration received in the transaction was financially fair.
The assets sold included certain accounts receivable, prepaid expenses, other
current and non-current assets, inventories, fixed assets, information
technology service contracts and capitalized software development costs. The
Company also agreed to (1) grant R.E. Mahmarian Enterprises the right to use the
name "Alpha Microsystems" and associated logos, marks and trade dress, (2)
transfer the rights to the trade names, logos and trademarks associated with
divisions that were sold, and (3) enter into a five-year license agreement
providing the right to internally use the Company's NQL Solutions technology.
Additionally, the Company agreed to sublease a portion of its Santa Ana,
California facility to R.E. Mahmarian Enterprises at the same rent as is paid by
the Company.
On March 15, 2000, pursuant to an amendment to the asset purchase
agreement for the above described transaction, R.E. Mahmarian Enterprises
assumed the remaining outstanding accounts payable of the Company's managed
services and computer hardware manufacturing divisions and agreed to pay the
Company $500,000 in cash in exchange for the remaining
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<PAGE> 45
accounts receivable of those two divisions. The terms of this amendment were
negotiated by management of the Company and approved by the Board of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is responsible for setting the salaries of executive officers and
administering the policies and programs that govern annual compensation and
administers employee stock option and award programs.
The Company operates in a highly competitive and rapidly changing high
technology industry. The goal of the Compensation Committee with respect to the
Chief Executive Officer (the "CEO") and other executive officers is to provide
compensation sufficient to attract, motivate and retain executives of
outstanding ability. Recognizing the necessity for continually adjusting to the
rapidly evolving marketplace, the Compensation Committee seeks to set
compensation policies that promote the Company's flexibility to respond to
changes in its business environment.
BASE SALARY. The Compensation Committee historically established the
base salary of the CEO and other executive officers based primarily upon a
review of readily available salary surveys of similarly sized companies in the
Company's industry segment. The Compensation Committee annually evaluates the
performance of and determines adjustments to base salary of the CEO and the
Company's other executive officers based upon a mix of the achievement of the
corporate goals, individual performance and contributions and comparisons with
other similarly sized companies in the Company's industry segment. During the
last year, the CEO's annual base salary was set by contract at $336,667, subject
to increases by the Board of Directors.
BONUSES. Bonuses for executive officers are established by the
Compensation Committee based upon achievement of corporate objectives as well as
individual performance. Target bonuses (which generally range from 10%-40% of
salary) and goals and objectives are established each year for each of the
executive officers. Individual goals and objectives are modified during the year
to reflect changes in market conditions and opportunities.
STOCK PLANS. The long term incentive element of the Company's management
compensation program is provided through the award of stock options. Amounts
awarded are discretionary with the Compensation Committee. The Company believes
that providing management with a substantial economic interest in the long-term
appreciation of the Company's Common Stock further aligns the interest of
shareholders and management. When granting stock options to executive officers
in the year ended December 31, 1999, the Compensation Committee considered each
officer's current stock and stock option holdings.
Section 162(m) of the Internal Revenue Code (the "Code"), as amended,
limits the Company to a deduction of no more than $1 million paid to certain
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 Compensation Committee believes at the present time it is unlikely
that the compensation paid to any executive officer in a taxable year which is
subject to the deduction limit will exceed $1 million. Therefore, the
Compensation
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<PAGE> 46
Committee has not yet established a policy for determining which forms of
incentive compensation awarded to executive officers will qualify as
performance-based compensation.
CEO COMPENSATION. The Compensation Committee in determining the CEO's
compensation for the year ended December 31, 1999 considered the CEO's
performance in achieving goals set by the Compensation Committee, the Company's
performance, and the position of the Company on a go-forward basis. Goals which
had been set by the Compensation Committee included (1) identifying and closing
acquisitions that would be individually profitable and that would move the
Company towards annual revenues of $50 million or more; (2) completing financing
arrangements to provide funds for future growth; (3) continuing to increase
shareholder's equity and shareholder value; (4) continuing to promote the
Company's Network Query Language ("NQL") technology; and (5) returning the
Company to profitability.
The Compensation Committee reviewed information supplied by the Economic
Research Institute for companies in similar industries at revenue levels
presently comparable to the Company and anticipated as a result of the Company's
acquisition strategy. Based upon the CEO's performance with respect to the
established objectives and the CEO's overall performance, and based upon
competitive salary information, the Compensation Committee awarded Mr. Tullio a
bonus of $90,000 for the year ended December 31, 1999, bringing his total
compensation for that year near the mean for companies with revenues similar to
the annualized revenues of the Company after taking into account growth achieved
during that year.
Mr. Tullio was granted stock options in the year ended December 31,
1999, representing the right to purchase 50,000 shares of Common Stock. As of
December 31, 1999, these grants, together with prior options granted which have
not expired, result in Mr. Tullio having the right to purchase 731,237 shares of
Common Stock (approximately 5.1% of the outstanding shares of Common Stock of
the Company), consistent with prior Board recommendation and Committee decisions
that the CEO should, in order to ensure appropriate incentive to maximize
shareholder value, have the right to purchase approximately 5% of the
outstanding shares of the Company.
The Compensation Committee is currently composed of Messrs. Carlos D. De
Mattos, Benjamin P. Giess, Richard E. Mahmarian and Clarke E. Reynolds.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit Committee")
has reviewed and discussed the audited financial statements with management and
has discussed with the independent auditors the matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standards). The Audit
Committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with the
independent accountant the independent accountant's independence. Based on the
review and discussions referred to above, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the last fiscal year for filing with
the SEC.
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<PAGE> 47
The Audit Committee is currently composed of Messrs. Benjamin P. Giess,
Rockwell N. Hankin and Sam Yau.
COMMON STOCK PERFORMANCE(1)
The following graph compares the percentage change in the Company's
cumulative total shareholder return on Common Stock over the last five-year
period with the performances of the Nasdaq Stock Market Index, the S&P Computers
(Software & Services) Index and the Media General Financial Services Industry
Group 071 (Computers, Subsystems and Peripherals over the same period. As a
result of a restructuring of its industry group classification system in 1998,
Media General Financial services no longer supports the MGFS Industry Group 071.
Accordingly, the Company has chosen to compare itself to the S&P Computers
(Software and Services) Index. The returns were calculated assuming the value of
the investment in the Company's stock and each index were $100 on January 1,
1995, and that all dividends were reinvested.
-----------------------------------------
(1) This Section, including the Stock Performance Graph, shall not be deemed
incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act
of 1933 or under the Securities Exchange Act of 1934, and shall not
otherwise be deemed filed under such Acts.
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<PAGE> 48
COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY,
INDUSTRY INDEX AND BROAD MARKET
[GRAPH TO BE INSERTED]
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<PAGE> 49
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Section 16(a)"), requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of the Company's Common Stock, to
file with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. initial reports of ownership and reports of changes in
ownership of Common Stock. Officers, directors and greater than ten-percent
(10%) shareholders are required by SEC regulations 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 year ended December 31, 1999, all such reports
required pursuant to Section 16(a) by the Company's officers, directors and
greater than ten-percent (10%) beneficial owners were timely filed..
DEADLINE FOR SUBMITTING PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Any proposal intended to be presented by a shareholder at the 2001
Annual Meeting of Shareholders must be received by the Secretary of the Company
at the Company's principal office not later than __________, 2001, in order to
be considered for inclusion in the Company's proxy statement and form of proxy
for that meeting. Pursuant to the Company's Bylaws, any shareholder wishing to
make nominations for director, or bring other business to any meeting of the
shareholders of the Company, must give written notice to the Secretary of the
Company not less than 90 days in advance of such meeting or, if later, the tenth
day following the first public announcement of the date of such meeting. The
required content of such notice is set forth in the Company's Bylaws, a copy of
which may be obtained by writing to the Secretary of the Company at the address
set forth below.
EXPENSES OF SOLICITATION
The total cost of this solicitation will be borne by the Company. In
addition to use of the mails, proxies may be solicited by officers, directors
and regular employees of the Company personally by telephone or telegraph. In
addition, the Company has retained Georgeson & Company Inc. to assist it in
connection with the Annual Meeting. The Company has agreed to pay Georgeson &
Company Inc. approximately $8,500 plus reimbursement of certain expenses. The
Company may reimburse persons holding shares in their own names or in the names
of their nominees for expenses they incur in obtaining instructions from
beneficial owners of such shares.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
meeting, but if other matters are properly presented at the meeting, the persons
named in the proxy will exercise their discretionary authority to vote on such
matters as well as other matters incident to the conduct of the meeting.
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<PAGE> 50
The Company has filed its Annual Report on Form 10-K for the year ended
December 31, 1999 and the amendment thereto with the Securities and Exchange
Commission. This report contains detailed information concerning the Company and
its operations, supplementary financial information and certain schedules which
may not be included in the Annual Report to shareholders. A COPY OF THIS REPORT
AND AMENDMENT THERETO, EXCLUDING EXHIBITS, WILL BE FURNISHED TO SHAREHOLDERS
WITHOUT CHARGE UPON WRITTEN REQUEST TO ROBERT O. RIISKA, VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, 2722 SOUTH FAIRVIEW STREET, SANTA ANA, CALIFORNIA
92704. A COPY OF ANY EXHIBIT WILL BE FURNISHED TO ANY SHAREHOLDER UPON WRITTEN
REQUEST AND PAYMENT TO THE COMPANY OF A COPYING CHARGE OF 25 CENTS PER PAGE.
REQUESTS FOR COPIES OF EXHIBITS SHOULD ALSO BE DIRECTED TO ROBERT O. RIISKA AT
THE ABOVE ADDRESS.
By Order of the Board of Directors,
Richard E. Mahmarian, Secretary
_______, 2000
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<PAGE> 51
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
The undersigned certify that:
1. They are the president and the secretary, respectively, of ALPHA
MICROSYSTEMS, a California corporation.
2. Article I of the Articles of Incorporation of this corporation is amended to
read as follows:
"The name of this corporation is NQL Inc."
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of the shareholders in accordance with Section 902,
California Corporations Code. The total number of outstanding shares of this
corporation entitled to vote on this amendment is _________. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: __________________
_____________________________________
Douglas J. Tullio, President
_____________________________________
Richard E. Mahmarian, Secretary
<PAGE> 52
EXHIBIT B
FORM OF
AGREEMENT AND PLAN OF MERGER
OF
NQL INC.
(A DELAWARE CORPORATION)
AND
ALPHA MICROSYSTEMS
(A CALIFORNIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER, dated as of _____________, 2000 (this
"Agreement") is between NQL Inc., a Delaware corporation ("NQL"), and Alpha
Microsystems, a California corporation ("AMS"). NQL and AMS are sometimes
referred to herein as the "Constituent Corporations."
R E C I T A L S :
A. NQL is a corporation duly organized and existing under the laws
of the State of Delaware and has a total authorized capital stock of 45,000,000
shares. The number of shares of Preferred Stock authorized to be issued is
5,000,000, par value $.001, of which 2,500 shares have been designated as Class
A1 Cumulative, Redeemable and Exchangeable Preferred Stock, 5,500 shares have
been designated as Class A2 Cumulative, Redeemable and Exchangeable Preferred
Stock, 7,000 shares have been designated as Class B1 Cumulative, Redeemable and
Exchangeable Preferred Stock, 5,000 shares have been designated as Class C1
Cumulative, Redeemable and Exchangeable Preferred Stock, 17,500 shares have been
designated as Class D1 Cumulative, Redeemable and Exchangeable Preferred Stock,
12,000 shares have been designated as Class E Cumulative, Redeemable and
Exchangeable Preferred Stock and 100 shares have been designated as Voting
Preferred Stock. No shares of Preferred Stock were outstanding as of the date
hereof and prior to giving effect to the transactions contemplated hereby. The
number of shares of Common Stock authorized to be issued is 40,000,000, par
value $.001. As of the date hereof, and before giving effect to the transactions
contemplated hereby, 1,000 shares of Common Stock were issued and outstanding,
all of which were held by AMS.
B. AMS is a corporation duly organized and existing under the laws
of the State of California and has an authorized capital stock of 45,000,000
shares. The number of shares of Preferred Stock authorized to be issued is
5,000,000, no par value, of which 2,500 shares have been designated as Class A1
Cumulative, Redeemable and Exchangeable Preferred Stock, 5,500 shares have been
designated as Class A2 Cumulative, Redeemable and Exchangeable Preferred Stock,
7,000 shares have been designated as Class B1 Cumulative, Redeemable and
Exchangeable Preferred Stock, 5,000 shares have been designated as Class C1
Cumulative, Redeemable and Exchangeable Preferred Stock, 17,500 shares have been
designated as Class D1 Cumulative, Redeemable and Exchangeable Preferred Stock,
12,000 shares have been designated as Class E Cumulative, Redeemable and
Exchangeable Preferred Stock and 100 shares have been designated as Voting
Preferred Stock. Of these designated shares of Preferred Stock, 2,500
<PAGE> 53
shares of Class A1 Cumulative, Redeemable and Exchangeable Preferred Stock,
5,500 shares of Class A2 Cumulative, Redeemable and Exchangeable Preferred
Stock, 7,000 shares of Class B1 Cumulative, Redeemable and Exchangeable
Preferred Stock, 5,000 shares of Class C1 Cumulative, Redeemable and
Exchangeable Preferred Stock, 391 shares of Class E Cumulative, Redeemable and
Exchangeable Preferred Stock and one share of Voting Preferred Stock are
presently outstanding. The number of shares of Common Stock authorized to be
issued is 40,000,000, no par value, of which ____________ are presently
outstanding.
C. The Board of Directors of AMS has determined that, for the
purpose of effecting the reincorporation of AMS in the State of Delaware, it is
advisable and in the best interests of AMS that AMS merge with and into NQL upon
the terms and conditions herein provided.
D. The respective Boards of Directors of NQL and AMS have approved
this Agreement and have directed that this Agreement be submitted to a vote of
their respective stockholders and executed by the undersigned officers.
E. NQL is a wholly-owned subsidiary of AMS.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, NQL and AMS hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the General Corporation Law of the State of
California, AMS shall be merged with and into NQL (the "Merger"), the separate
existence of AMS shall cease and NQL shall be, and is herein sometimes referred
to as, the "Surviving Corporation," and the name of the Surviving Corporation
shall be NQL Inc., a Delaware corporation.
1.2 FILING AND EFFECTIVENESS. The Merger shall not become effective
until the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the stockholders of AMS and the sole stockholder of NQL in
accordance with the requirements of the Delaware General Corporation Law
and the General Corporation Law of the State of California;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware
General Corporation Law shall have been filed with the Secretary of
State of the State of Delaware; and
(d) An executed counterpart of this Agreement, a Certificate
of Merger or any other document filed with the Secretary of State of the
State of Delaware pursuant to
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<PAGE> 54
section (c) above, shall have been filed with the Secretary of State of
the State of California.
The date and time when the Merger shall become effective as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of AMS shall cease and NQL, as the Surviving Corporation (i)
shall continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Date of the Merger, (ii) shall be
subject to all actions previously taken by its and AMS's Board of Directors,
(iii) shall succeed, without other transfer, to all of the assets, rights,
powers and property of AMS in the manner more fully set forth in Section 259 of
the General Corporation Law of the State of Delaware, (iv) shall continue to be
subject to all of the debts, liabilities and obligations of NQL as constituted
immediately prior to the Effective Date of the Merger, and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of AMS
in the same manner as if NQL had itself incurred them, all as more fully
provided under the applicable provisions of the General Corporation Law of the
State of Delaware and the General Corporation Law of the State of California.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
NQL as in effect immediately prior to the Effective Date of the Merger shall
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.2 BYLAWS. The Bylaws of NQL as in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of NQL
immediately prior to the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until their successors shall have been
duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 AMS COMMON SHARES AND PREFERRED SHARES. Upon the Effective Date
of the Merger, (a) each share of AMS Common Stock, no par value, issued and
outstanding immediately prior thereto shall by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such share or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation, (b) each share of AMS Class A1 Cumulative, Redeemable and
Exchangeable Preferred Stock, no par value, issued and outstanding immediately
prior thereto shall by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such share or any other person, be
converted into and exchanged for one (1) fully paid and nonassessable share of
Class A1 Cumulative, Redeemable and Exchangeable Preferred Stock of
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<PAGE> 55
the Surviving Corporation, (c) each share of AMS Class A2 Cumulative, Redeemable
and Exchangeable Preferred Stock, no par value, issued and outstanding
immediately prior thereto shall by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such share or any other person,
be converted into and exchanged for one (1) fully paid and nonassessable share
of Class A2 Cumulative, Redeemable and Exchangeable Preferred Stock of the
Surviving Corporation, (d) each share of AMS Class B1 Cumulative, Redeemable and
Exchangeable Preferred Stock, no par value, issued and outstanding immediately
prior thereto shall by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such share or any other person, be
converted into and exchanged for one (1) fully paid and nonassessable share of
Class B1 Cumulative, Redeemable and Exchangeable Preferred Stock of the
Surviving Corporation, (e) each share of AMS Class C1 Cumulative, Redeemable and
Exchangeable Preferred Stock, no par value, issued and outstanding immediately
prior thereto shall by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such share or any other person, be
converted into and exchanged for one (1) fully paid and nonassessable share of
Class C1 Cumulative, Redeemable and Exchangeable Preferred Stock of the
Surviving Corporation, (f) each share of AMS Class D Cumulative, Redeemable and
Exchangeable Preferred Stock, no par value, issued and outstanding immediately
prior thereto shall by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such share or any other person, be
converted into and exchanged for one (1) fully paid and nonassessable share of
Class D Cumulative, Redeemable and Exchangeable Preferred Stock of the Surviving
Corporation, (g) each share of AMS Class E Cumulative, Redeemable and
Exchangeable Preferred Stock, no par value, issued and outstanding immediately
prior thereto shall by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such share or any other person, be
converted into and exchanged for one (1) fully paid and nonassessable share of
Class E Cumulative, Redeemable and Exchangeable Preferred Stock of the Surviving
Corporation, and (h) each share of AMS Voting Preferred Stock, no par value,
issued and outstanding immediately prior thereto shall by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such share
or any other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Voting Preferred Stock of the Surviving Corporation.
3.2 AMS OPTIONS AND STOCK PURCHASE RIGHTS. Upon the Effective Date of
the Merger, the Surviving Corporation shall assume and continue the stock option
plans (including the 1993 Employee Stock Option Plan, the Employee Stock
Purchase Plan, and the 1998 Stock Option and Award Plan) and all other employee
benefit plans of AMS. Each outstanding and unexercised option, warrant or other
right to purchase AMS Common Stock shall become an option, warrant or right to
purchase the Surviving Corporation's Common Stock on the basis of one (1) share
of the Surviving Corporation's Common Stock for each share of AMS Common Stock
issuable pursuant to any such option, warrant or stock purchase right on the
same terms and conditions and at an exercise price per share equal to the
exercise price per share applicable to any such AMS option, warrant or stock
purchase right at the Effective Date of the Merger. There are no options or
purchase rights for Preferred Stock of AMS.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options and stock purchase rights
equal to the number of shares of AMS Common Stock so reserved immediately prior
to the Effective Date of the Merger.
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<PAGE> 56
3.3 NQL COMMON STOCK. Upon the Effective Date of the Merger, each
share of Common Stock, par value $.001 per share, of NQL issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by NQL, the holder of such shares or any other person, be canceled and returned
to the status of authorized but unissued shares.
3.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of AMS Common
Stock and AMS Preferred Stock may be asked to surrender the same for
cancellation to an exchange agent, whose name will be delivered to such holders
prior to any requested exchange (the "Exchange Agent"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
applicable class of Preferred Stock, as the case may be, into which the
surrendered shares were converted as herein provided. Until so surrendered, each
outstanding certificate theretofore representing shares of AMS Common Stock or
AMS Preferred Stock, as the case may be, shall be deemed for all purposes to
represent the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock, as the case may be, into which shares of AMS Common Stock and
AMS Preferred Stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock and
Preferred Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock and Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
AMS so converted and given in exchange therefore, unless otherwise determined by
the Board of Directors of the Surviving Corporation in compliance with
applicable laws, or other such additional legends as agreed upon by the holder
and the Surviving Corporation.
If any certificate for shares of NQL stock is to be issued in a name
other than that in which the certificate surrendered in exchange therefor is
registered, it shall be a condition of issuance thereof that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and comply with applicable
securities laws and that the person requesting such transfer pay to the Exchange
Agent any transfer or other taxes payable by reason of issuance of such new
certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of NQL that such tax
has been paid or is not payable.
IV. GENERAL
4.1 COVENANTS OF NQL. NQL covenants and agrees that it will, on or
before the Effective Date of the Merger:
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<PAGE> 57
4.1.1 Qualify to do business as a foreign corporation in the
State of California.
4.1.2 File any and all documents with the California Franchise
Tax Board necessary for the assumption by NQL of all of the franchise
tax liabilities of AMS.
4.1.3 Take such other actions as may be required by the General
Corporation Law of the State of California.
4.2 FURTHER ASSURANCES. From time to time, as and when required by
NQL or by its successors or assigns, there shall be executed and delivered on
behalf of AMS such deeds and other instruments, and there shall be taken or
caused to be taken by it such further and other actions as shall be appropriate
or necessary in order to vest or perfect in or conform of record or otherwise by
NQL the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of AMS and otherwise to
carry out the purposes of this Agreement, and the officers and directors of NQL
are fully authorized in the name and on behalf of AMS or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
4.3 ABANDONMENT. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either AMS or of NQL, or of both,
notwithstanding the approval of this Agreement by the shareholders of AMS.
4.4 AMENDMENT. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholder or shareholders of either Constituent
Corporation shall not: (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
Constituent Corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger or (3)
alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock or any Constituent Corporation.
4.5 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
such address is Corporation Service Company.
4.6 AGREEMENT. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Corporation at 2722 South
Fairview Street, Santa Ana, CA 92704, and copies thereof will be furnished to
any stockholder or shareholder of either Constituent Corporation, upon request
and without cost.
4.7 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
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<PAGE> 58
4.8 COUNTERPARTS. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Boards of Directors of NQL Inc., a Delaware corporation, and
Alpha Microsystems, a California corporation, is hereby executed on behalf of
each of such two corporations and attested by their respective officers
thereunto duly authorized.
NQL INC.,
a Delaware corporation
By:
-------------------------------------
Douglas J. Tullio
President and Chief Executive Officer
ATTEST:
---------------------------------
Richard E. Mahmarian
Secretary
ALPHA MICROSYSTEMS,
a California corporation
By:
-------------------------------------
Douglas J. Tullio
President and Chief Executive Officer
ATTEST:
---------------------------------
Richard E. Mahmarian
Secretary
[COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER]
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<PAGE> 59
EXHIBIT C
FORM OF
CERTIFICATE OF INCORPORATION
OF
NQL INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
FIRST. The name of the corporation is NQL Inc. (the "Corporation").
SECOND. The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle, 19805. The name of its registered agent at such address is Corporation
Service Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. (a) The total number of shares of stock which the Corporation
shall have authority to issue is 45 million (45,000,000), consisting of 40
million (40,000,000) shares of Common Stock, par value $.001 per share ("Common
Stock") and five million shares (5,000,000) of Preferred Stock, par value $.001
per share ("Preferred Stock").
(b) Shares of Preferred Stock may be issued in one or more series, from
time to time, with each such series to consist of such number of shares and to
have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors of the Corporation (the "Board of
Directors"), and the Board of Directors is hereby expressly vested with
authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions.
Subject to the rights of any holder(s) of any then outstanding share(s)
of any series of Preferred Stock, the authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
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(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(viii) Any other relative rights, preferences and limitations of that
series.
FIFTH. The Incorporator of the Corporation is RL&F Service Corp., 10th
Floor, One Rodney Square, 10th and King Streets, Wilmington, DE 19801.
SIXTH. Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
SEVENTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, alter, amend and repeal the Bylaws of the Corporation,
subject to the power of the stockholders (including any holders of any then
outstanding shares of any series of Preferred Stock) of the Corporation to alter
or repeal any bylaw whether adopted by them or otherwise; provided, however,
that the affirmative vote of 80% of the voting power of the capital stock of the
Corporation entitled to vote thereon shall be required for stockholders to
adopt, amend, alter or repeal any provision of the Bylaws.
EIGHTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
NINTH. (a) From and after the effective time of the merger (the
"Merger") between the Corporation and Alpha Microsystems, a California
corporation, pursuant to the Agreement and Plan of Merger, dated ________ __,
2000, between the Corporation and Alpha Microsystems, a California corporation,
no action that is required or permitted to be taken by the stockholders of
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the Corporation at any annual or special meeting of stockholders may be effected
by written consent of stockholders in lieu of a meeting of stockholders.
(b) Special meetings of stockholders may be called only by the Board of
Directors, the Chairman of the Board of Directors or the President, and may not
be called by any other person or persons.
TENTH. (a) Except as otherwise provided for or fixed by or pursuant to
the provisions of Article FOURTH of this Certificate of Incorporation or any
resolution or resolutions of the Board of Directors providing for the issuance
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the Board of Directors shall consist of not fewer than five (5)
nor more than nine (9) directors, the exact number of directors within such
limits to be determined solely by the Board of Directors in the manner set forth
in the Bylaws of the Corporation. The directors, other than those who may be
elected by the holders of Preferred Stock or any other class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
pursuant to the terms of this Certificate of Incorporation or any resolution or
resolutions providing for the issuance of such class or series of stock adopted
by the Board of Directors, shall be divided into three classes, as nearly equal
in number as possible. The initial Class I Directors shall be those persons
named as such in Article ELEVENTH of this Certificate of Incorporation, who
shall serve for a term expiring at the first annual meeting of stockholders of
the Corporation following the effective time of the Merger; the initial Class II
Directors shall be those person named as such in Article ELEVENTH of this
Certificate of Incorporation, who shall serve for a term expiring at the second
annual meeting of stockholders following the effective time of the Merger; and
the initial Class III Directors shall be those persons named as such in Article
ELEVENTH of this Certificate of Incorporation, who shall serve for a term
expiring at the third annual meeting of stockholders following the effective
time of the Merger. Each director in each such class shall hold office until his
or her successor is duly elected and qualified. At each annual meeting of
stockholders beginning with the first annual meeting of stockholders following
the filing of this Certificate of Incorporation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders to be held in the third
year following the year of their election, with each director in each such class
to hold office until his or her successor is duly elected and qualified.
ELEVENTH. The powers of the Incorporator shall terminate upon the filing
of this Certificate of Incorporation with the Secretary of State of the State of
Delaware. The names, mailing addresses and classes of the persons who are to
serve as the initial directors of the Corporation until their successors are
duly elected and qualified, are:
Clarke E. Reynolds c/o AlphaServ.com, Inc.
(Class I) 2722 South Fairview St.
Santa Ana, CA 92704
Richard E. Mahmarian c/o AlphaServ.com, Inc.
(Class I) 2722 South Fairview St.
Santa Ana, CA 92704
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Sam Yau c/o AlphaServ.com, Inc.
(Class I) 2722 South Fairview St.
Santa Ana, CA 92704
Douglas J. Tullio c/o AlphaServ.com, Inc.
(Class II) 2722 South Fairview St.
Santa Ana, CA 92704
Benjamin P. Giess c/o AlphaServ.com, Inc.
(Class II) 2722 South Fairview St.
Santa Ana, CA 92704
Rockell N. Hankin c/o AlphaServ.com, Inc.
(Class III) 2722 South Fairview St.
Santa Ana, CA 92704
Tracey L. Rudd c/o AlphaServ.com, Inc.
(Class III) 2722 South Fairview St.
Santa Ana, CA 92704
TWELFTH. Subject to the rights of any holder(s) of any share(s) of any
series of Preferred Stock to prevent the creation of a new series of Preferred
Stock or the alteration of the rights of any existing series of Preferred Stock,
the Corporation reserves the right at any time, and from time to time, to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article; provided, however, that the affirmative vote of 80% of the voting power
of the capital stock of the Corporation entitled to vote thereon shall be
required to amend, alter or repeal, or adopt any provision inconsistent with,
whether by amendment, merger or otherwise, the provisions of Articles SEVENTH,
EIGHTH, NINTH, TENTH or TWELFTH.
The undersigned Incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed on _______ ____, 2000.
RL&F Service Corp.
By: ___________________________________
Incorporator
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EXHIBIT D
FORM OF
BY-LAWS
OF
NQL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
--------------------------------------------------------------------------------
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is Corporation
Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation
may be kept at the Corporation's principal executive office or at such other
locations outside the State of Delaware as may from time to time be designated
by the Board of Directors.
SECTION 1.4. FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS.
(A) An annual meeting of stockholders shall be held for the
election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
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(B) (1) 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 (a) pursuant to the Corporation's notice of
meeting delivered pursuant to Section 2.3 of these By-laws, (b)
by or at the direction of the Chairman of the Board or the Board
of Directors or (c) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complied with the notice
procedures set forth in clauses (2) and (3) of this paragraph (B)
of this By-law and who was a stockholder of record at the time
such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (B)(1) of this By-law, the stockholder
must have given timely notice thereof in writing to the Secretary
of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than
seventy days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is
advanced by more than twenty days, or delayed by more than
seventy days, from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than
the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes 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 "Exchange 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 the proponent intends
or is part of a group which intends to solicit proxies from other
stockholders in support of such nomination or proposal. 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.
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(3) Notwithstanding anything in the second sentence of
paragraph (B)(2) of this By-law 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 eighty days prior to the first
anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-law 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 day
following the day on which such public announcement is first made
by the Corporation.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, or by
the Chairman of the Board, or by the President, but such special meetings may
not be called by any other person or persons. Business transacted at any special
meeting of stockholders shall be limited to the purpose or purposes stated in
the notice.
SECTION 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Certificate of Incorporation or
these By-laws, the written notice of any meeting shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
SECTION 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such 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 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 2.5. QUORUM. Except as otherwise provided by law, the
Certificate of Incorporation or these By-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present and entitled to vote may, by majority vote, adjourn the meeting from
time to time in the manner provided in Section 2.4 of these By-laws until a
quorum shall attend. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided,
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however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
SECTION 2.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in his
absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 2.7. VOTING; PROXIES. Except as otherwise provided by the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the Corporation. Voting
at meetings of stockholders need not be by written ballot; provided, however,
that any election for directors must be by ballot if demanded by any stockholder
at the meeting before the election has begun. At all meetings of stockholders
for the election of directors a plurality of the votes cast shall be sufficient
to elect directors. All other elections and questions shall, unless otherwise
provided by law, the Certificate of Incorporation or these By-laws, be decided
by the vote of the holders of shares of stock having a majority of the votes
which could be cast by the holders of all shares of stock outstanding and
entitled to vote thereon.
SECTION 2.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. 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, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
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: (1)in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting and (2)in the case
of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (1)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 and (2)the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or
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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 2.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and 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 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 so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 2.10. INSPECTION OF BOOKS AND RECORDS BY STOCKHOLDERS. Any
stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in the state of Delaware or at its
principal executive office.
SECTION 2.11. NO ACTION BY CONSENT OF STOCKHOLDERS. No action that is
required to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting.
SECTION 2.12. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders 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 appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined
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by the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
SECTION 2.13. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
The Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated by the Board of Directors
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware. The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these By-laws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these By-laws required to be exercised or done by the
stockholders.
SECTION 3.2. NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of not less than five (5) nor more than nine (9) members, the exact
number to be determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders.
SECTION 3.3. ELECTION; RESIGNATION; REMOVAL. At each annual meeting of
stockholders beginning with the first annual meeting of stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
to be held in the third year following the year of their election, with each
director in each such class to hold office until his or her successor is duly
elected and qualified or until his earlier death, resignation or removal. Any
director, or the entire Board of Directors, may be removed only for cause, by
the affirmative vote of the holders of a majority of shares then entitled to
vote at the election of directors. Any director may resign at any time upon
written notice to the Corporation. Such resignation shall be effective upon
receipt unless the notice specifies a later time for that resignation to become
effective.
SECTION 3.4. VACANCIES. Any newly created directorship resulting from an
increase in the authorized number of directors or any vacancy occurring in the
Board of Directors by reason of death, resignation, retirement,
disqualification, removal from office or any other cause may be
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filled by the affirmative vote of the remaining members of the Board of
Directors, though less than a quorum of the Board of Directors, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. No decrease in the number of
directors constituting the whole Board shall shorten the term of any incumbent
director. In the event that a vacating director was designated by a particular
stockholder pursuant to the rights of such stockholder, the Board shall appoint
another director who is designated by such stockholder to fill any such vacancy.
SECTION 3.5. ANNUAL MEETING. The annual meeting for each newly elected
Board of Directors shall be held without notice other than this By-law
immediately after, and at the same place as, the annual meeting of stockholders
for the purpose of organization, any desired election of officers, and the
transaction of any other proper business. In the event the annual meeting of any
newly elected Board of Directors shall not be held immediately after, and at the
same place as, the annual meeting of stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided in Section 3.7 of these By-laws.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, the President, any Vice
President, the Secretary, or by any two members of the Board of Directors.
Notice of the time and place of a special meeting of the Board of Directors
shall be delivered by the person or persons calling the meeting personally, by
facsimile or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally, or by
telephone, or by telegraph, or by facsimile, it shall be delivered personally,
or by telephone, or to the telegraph company, or by facsimile at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or purposes of the special meeting, or the
place of the special meeting if the meeting is to be held at the principal
executive office of the Corporation.
SECTION 3.8. TELEPHONIC MEETINGS PERMITTED. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof 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 pursuant to this
By-law shall constitute presence in person at such meeting.
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SECTION 3.9. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all
meetings of the Board of Directors a majority of the whole Board of Directors
shall constitute a quorum for the transaction of business. Except in cases in
which the Certificate of Incorporation or these By-laws otherwise provide, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. A majority of the directors
present, whether or not a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given to the directors who
were not present at the time of the adjournment in the manner specified in
Section 3.7 of these By-laws.
SECTION 3.10. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 3.11. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws, 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 such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
SECTION 3.12. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 3.12 shall not be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
SECTION 3.13. APPROVAL OF 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, guaranty or assistance may
reasonably be expected to benefit the Corporation. The loan, guaranty 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 this
By-law contained shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the Corporation at common law or under any statutes.
SECTION 3.14. INSPECTION OF BOOKS AND RECORDS BY DIRECTORS. Any director
shall have the right to examine the Corporation's stock ledger, a list of its
stockholders and its other books and records for a purpose reasonably related to
his position as a director.
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ARTICLE IV
COMMITTEES
SECTION 4.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. 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. In the absence or disqualification of a
member of the 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 place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
SECTION 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these By-laws.
ARTICLE V
OFFICERS
SECTION 5.1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary, and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these By-laws. Any number of offices may
be held by the same person. The compensation of all officers shall be fixed by
the Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his also being a director of the Corporation.
SECTION 5.2. ELECTION OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 5.3 or Section 5.5 of these By-laws, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board of Directors,
subject to the rights, if any, of an officer under any contract of employment.
SECTION 5.3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business of
the Corporation may require, each of whom shall hold office for such period,
have such authority, and perform such
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duties as are provided in these By-laws or as the Board of Directors may from
time to time determine.
SECTION 5.4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors at any regular
or special meeting of the Board, or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
SECTION 5.5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these By-laws for regular appointments to that
office.
SECTION 5.6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the Board of Directors or as may be prescribed by
these By-laws. If there is no President, then the Chairman of the Board shall
also be the chief executive officer of the Corporation and shall have the powers
and duties prescribed in Section 5.7 of these By-laws.
SECTION 5.7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the Corporation. He shall preside at all meetings of the shareholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of President of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these By-laws.
SECTION 5.8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these By-laws, the President or the Chairman of the Board.
SECTION 5.9. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office of the Corporation or such other place as the
Board of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and
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shareholders. The minutes shall show the time and place of each meeting, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law or
by these By-laws. He shall keep the seal of the Corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by these By-laws.
SECTION 5.10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares.
The Chief Financial Officer shall deposit all moneys and other valuables
in the name and to the credit of the Corporation with such depositories as may
be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these By-laws.
SECTION 5.11. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any director, or to any other person who it may
select.
ARTICLE VI
STOCK
SECTION 6.1. CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation certifying the number of shares owned
by him in the Corporation. Any of or all the signatures on the certificate may
be a facsimile. 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 by the Corporation with the same
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effect as if he were such officer, transfer agent, or registrar at the date of
issue. If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, 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 shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, 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.
SECTION 6.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 6.3. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6.4. 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 to hold
liable for calls and assessments a person registered on its books as the owner
of shares 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 the State of Delaware.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation or of a
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partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person. Notwithstanding the preceding sentence, the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
SECTION 7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article VII or otherwise.
SECTION 7.3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article VII is not paid in full within sixty days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
SECTION 7.4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VII shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 7.5. OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
SECTION 7.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 8.2. SEAL. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
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SECTION 8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person 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. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1)the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2)the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3)the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof,
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
SECTION 8.5. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the Corporation, subject to the provisions of the Certificate of
Incorporation, as amended, if any, may be declared by the Board of Directors at
any regular or special meeting, pursuant to law. Dividends may be paid in cash,
in property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation, as amended.
SECTION 8.6. 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 purposes as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 8.7. EXECUTION OF CORPORATE INSTRUMENTS. All checks, drafts, or
other orders for payment of money, notes, or other evidences of indebtedness,
issued in the name of or payable to the Corporation, shall be signed or endorsed
by such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Directors.
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SECTION 8.8. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Directors, except as otherwise provided in these By-laws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the Corporation, and this
authority may be general or confined to specific instances; and, unless so
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 8.9. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the President, or any Vice President, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the Corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the Corporation. The authority granted to these officers
to vote or represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
SECTION 8.10. AMENDMENT OF BY-LAWS. These By-laws may be altered or
repealed, and new By-laws made, by the Board of Directors, but the stockholders
may make additional By-laws and may alter and repeal any By-laws whether adopted
by them or otherwise.
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APPENDIX I
AUDIT COMMITTEE CHARTER
I. ORGANIZATION
There shall be a committee of the Board of Directors ("Board") for ALPHA
MICROSYSTEMS, a California corporation ("Corporation"), to be known as the Audit
Committee ("Committee"). The Committee shall be composed of directors who are
independent of the management of the Corporation and are free of any
relationship that, in the opinion of the Board, would interfere with their
exercise of independent judgment as a Committee member.
The Committee shall be comprised of three (3) or more directors as determined by
the Board. All members of the Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise. Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by the Corporation or an outside
consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a chair is elected by the full Board, the members
of the Committee may designate a chair by majority vote of the full Committee
membership.
II. PURPOSE
The Committee shall provide assistance to the directors in fulfilling their
responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the
Corporation, and the quality and integrity of the financial reports of the
Corporation. It shall be the responsibility of the Committee to maintain free
and open means of communication between the directors, the independent auditors,
and the financial management of the Corporation. Consistent with this function,
the Committee should encourage continuous improvement of, and should foster
adherence to, the Corporation's policies, procedures and practices at all
levels.
In carrying out its responsibilities, the Committee believes its policies and
procedures should remain flexible in order to best react to changing conditions
and to ensure to the directors and shareholders that the corporate accounting
and reporting practices of the Corporation are in accordance with all
requirements and are of the highest quality.
The Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system.
- Review and appraise the audit efforts of the Corporation's independent
accountants and financial management of the corporation.
APPENDIX I
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- Provide an open avenue of communication among the independent
accountants, financial and senior management, and the Board.
The Committee will primarily fulfill these responsibilities by carrying out the
activities enumerated in Section IV of this Charter.
III. MEETINGS
The Committee shall meet at least four (4) times annually, or more frequently as
circumstances dictate. As part of its responsibility to foster open
communication, the Committee should meet at least annually with management, and
the independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believe should be discussed
privately. In addition, the Committee or its chair should meet with the
independent accountants and management annually to review the Corporation's
financials in accordance with Section IV(3) below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review and update this Charter periodically, and at least annually, as
conditions dictate.
2. Review the Corporation's annual financial statements and any reports or
other financial information submitted to any governmental body, or the
public, including any certification, report, opinion, or review rendered
by the independent accountants.
3. Review with financial management and the independent accountants, the
Annual Report on Form 10-K prior to its filing or prior to the release
of earnings. The chairman of the Committee may represent the entire
Committee for purposes of this review.
INDEPENDENT ACCOUNTANTS
4. Recommend to the Board the selection of the independent accountants,
considering independence and effectiveness and approve the fees and
other compensation to be paid to the independent accountants. On an
annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with the
Corporation to determine the accountants independence. The Committee
shall be responsible for obtaining a formal written statement from the
independent accountants delineating all relationships between the
accountants and the Corporation consistent with Independence Standards
Board Standard 1.
5. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
APPENDIX I
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6. Periodically consult with the independent accountants out of the
presence of financial management about internal controls and the
fullness and accuracy of the Corporation's financial statements.
FINANCIAL REPORTING PROCESSES
7. In consultation with the independent accountants and the financial
management, review the integrity of the Corporation's financial
reporting processes, both internal and external.
8. Consider the independent accountants judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
9. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants, or financial management.
PROCESS IMPROVEMENT
10. Establish regular and separate systems of reporting to the Committee by
each of financial management, and the independent accountants regarding
any significant judgments made in financial management's preparation of
the financial statements and the view of each as to appropriateness of
such judgments.
11. Following completion of the annual audit, review separately with each of
financial management, and the independent accountants, any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
12. Review any significant disagreement among financial management and the
independent accountants in connection with the preparation of the
financial statements.
13. Review with the independent accountants and financial management the
extent to which changes or improvements in financial or accounting
practices, as approved by the Committee, have been implemented; provided
such review shall be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Committee.
COMPLIANCE
14. Review activities, organizational structure, and qualifications of
financial management of the corporation.
15. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board
deem necessary or appropriate.
APPENDIX I
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No. 1: Election of Benjamin P. Giess, Rockell N. Hankin, Richard E.
Mahmarian, Clarke E. Reynolds, Tracey L. Rudd, Douglas J. Tullio and Sam
Yau to serve until the next annual meeting.
FOR ALL nominees (with exceptions noted) [ ]
WITHHOLD authority for all nominees [ ]
(To withhold authority to vote for any nominee, write the name(s) of that
nominee(s) on the space provided below)
--------------------------------------------------------------------------------
No. 2: Approval of the proposed amendment to the Company's Articles of
Incorporation, changing the name of the Company from "Alpha
Microsystems" to "NQL Inc."
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
No. 3: Approval of the proposed reincorporation of the Company in Delaware as
NQL Inc., through the merger of Alpha Microsystems, a California
corporation, with and into a wholly-owned Delaware subsidiary of Alpha
Microsystems.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
No. 4: Approval of the proposed amendment to the Company's 1998 Stock Option
and Awards Plan to increase the number of shares of Common Stock
authorized for issuance under such plan by 700,000 shares to an
aggregate of 3,200,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
No. 5: Approval of the appointment by the Board of Directors of Ernst & Young
as independent auditors of the Company and its subsidiaries for the year
ending December 31, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SIGNATURE(S) OF SHAREHOLDER(S) ________________________________________
DATED: ____________________, 2000. Please sign exactly as your name(s) appears
on this Proxy. If signing as executor, administrator, trustee, guardian,
attorney or for a corporation, please give full title as such. For joint
accounts or co-fiduciaries, all joint owners or co-fiduciaries should sign.
<PAGE> 82
Preliminary Copy -- For the
information of the Securities
and Exchange Commission only.
ALPHA MICROSYSTEMS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF ALPHA MICROSYSTEMS FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder(s) of Alpha Microsystems (the "Company")
hereby appoints Douglas J. Tullio, Richard E. Mahmarian, or either of them,
proxies, each with full power of substitution, for and in the name of the
undersigned at the annual meeting of shareholders of the Company to be held on
Wednesday, August 9, 2000, at Seven Hutton Centre, Santa Ana, California 92707,
at 10:00 a.m. local time and at any and all adjournments or postponements
thereof (the "Annual Meeting"), to vote all shares of the capital stock of the
Company held by the undersigned as if the undersigned were present and voting
the shares.
Such proxies are directed to vote as specified on the reverse side or,
if no specification is made, FOR election of the directors named on the reverse
side and in the Company's proxy statement (a copy of which the undersigned
hereby acknowledges receiving), FOR approval of the proposal to amend the
Company's Articles of Incorporation, to change the Company's name from "Alpha
Microsystems" to "NQL Inc.", FOR approval of the proposal to reincorporate the
Company in Delaware as NQL Inc., through the merger of Alpha Microsystems, a
California corporation, with and into a wholly-owned Delaware subsidiary of
Alpha Microsystems, FOR approval of the proposal to amend the Company's 1998
Stock Option and Awards Plan to increase the number of shares of Common Stock
authorized for issuance under such plan by 700,000 shares to an aggregate of
3,200,000 shares, FOR approval of the appointment by the Board of Directors of
Ernst & Young LLP as independent auditors of the Company and its subsidiaries
for the fiscal year ending December 31, 2000, and to vote in accordance with
their discretion on such other matters that may properly come before the
meeting. Such authority includes the right, in the discretion of the proxies,
and each of them, to cumulate votes for the election of directors and thereby to
distribute, in such proportion as the proxies see fit, the votes represented by
the proxy among the seven nominees named on the reverse side or any substitute
person or persons nominated by the Board of Directors for election to the Board.
To vote in accordance with the Board of Directors' recommendations, merely sign
on the reverse side; no boxes need to be checked.
CONTINUED AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE
