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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
GateField Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY
GATEFIELD CORPORATION
47100 Bayside Parkway, Fremont, California 94538
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 13, 1999
TO THE STOCKHOLDERS OF GATEFIELD CORPORATION:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the
"Annual Meeting") of Gatefield Corporation, a Delaware corporation (the
"Company"), will be held on Tuesday, April 13, 1999 at 1:00 p.m. local time
at 47100 Bayside Parkway, Fremont, California 94538 for the following:
1. To elect one Class II director to hold office until the 2002 Annual
Meeting of Stockholders pursuant to the classified board provisions of
the Company's Amended and Restated Certificate of Incorporation (the
"Certificate"). In addition, in accordance with Section 2115 of the
California General Corporation Law the Company is permitting the
stockholders of the Company (the "Stockholders") to vote to elect all
five current directors until the next annual meeting. Accordingly,
there will be two separate votes regarding the election of directors.
2. To approve the Company's 1999 Stock Option Plan, under which plan
3,000,000 shares of Common Stock shall be authorized for issuance.
3. To approve the Company's 1999 Employee Stock Purchase Plan, under which
plan 1,000,000 shares of Common Stock shall be authorized for issuance.
4. To approve an amendment to the Company's Certificate to increase the
authorized number of shares of Common Stock from 65,000,000 to
120,000,000 shares and to increase the authorized number of shares of
Preferred Stock from 2,000,000 to 10,000,000 shares.
5. To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on February 19,
1999 as the record date for the determination of Stockholders entitled to
notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
[FACSIMILE SIGNATURE]
MICHAEL J. KUCHA
Secretary
2.
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FREMONT, CALIFORNIA
MARCH 9, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU
HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
3.
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GATEFIELD CORPORATION
47100 Bayside Parkway
Fremont, CA 94538
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 13, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of GateField Corporation, a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders to be held on April 13, 1999 at
1:00 p.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at
47100 Bayside Parkway, Fremont, California 94538. The Company intends to
mail this proxy statement and accompanying proxy card on or about March 9,
1999, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy
statement, the accompanying proxy card and any additional information
furnished to Stockholders. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of Common Stock beneficially owned by others to forward to
such beneficial owners. The Company may reimburse persons representing
beneficial owners of Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by
mail may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of the Company or, at the
Company's request, Beacon Hill Partners, Inc. No additional compensation
will be paid to directors, officers or other regular employees for such
services, but Beacon Hill Partners, Inc. would be paid its customary fee,
estimated to be about $6,500, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock and Preferred Stock at the close
of business on February 19, 1999 will be entitled to notice of and to vote at
the Annual Meeting. At the close of business on February 19, 1999, the
Company had outstanding and entitled to vote (i) 41,456,399 shares of Common
Stock, (ii) 18,003 shares of Series B Preferred Stock (the "Series B Stock")
(convertible into 82,498 shares of Common Stock) and (iii) 300,000 shares of
Series C Preferred Stock (the "Series C Stock") (convertible into 2,000,000
shares of Common Stock) (collectively, the "Preferred Stock").
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon. Each holder of
record of Preferred Stock on such date will be entitled to the number of
votes equal to the number of whole shares of Common Stock into which the
shares of Preferred Stock held by such holder are then convertible. However,
as discussed below, in connection with the election of directors of the
Company pursuant to Proposal 1, Stockholders will be permitted to exercise
cumulative voting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 4, which will
require (i) the affirmative vote of the holders of shares representing at
least a majority of the votes represented by the holders of Common Stock,
voting as a separate class, (ii) the affirmative vote of the holders of
shares representing at least a majority of the votes represented by the
holders of Preferred Stock, voting as a separate class on an as-converted
basis, and (iii) the affirmative vote of the holders of shares representing
at least a majority of the votes represented by the holders of Common Stock
and Preferred Stock, voting together as a single class on an as-converted
basis, present in person or represented by proxy and entitled to vote at the
Annual Meeting, broker non-votes are counted
4.
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towards a quorum, but are not counted for any purpose in determining whether
a matter has been approved. With respect to Proposal 4, broker non-votes will
have the same effect as negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office,
47100 Bayside Parkway, Fremont, California 94538, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a Stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 Annual
Meeting of Stockholders pursuant to Rule 14a-8, of the Securities and
Exchange Commission is November 10, 1999. Unless a Stockholder who wishes to
bring a matter before the Stockholders at the Company's 2000 Annual Meeting
notifies the Company of such matter prior to January 24, 2000, management
will have discretionary authority to vote all shares for which it has proxies
in opposition to such matter.
5.
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PROPOSAL 1
ELECTION OF DIRECTORS
With respect to the election of directors, the Board has divided the
nominees into two slates, one for election in accordance with the Delaware
General Corporation Law ("Delaware Law") and the Company's Certificate and
the other for election in accordance with the California General Corporation
Law ("California Law"). All holders of record of Common Stock and Preferred
Stock at the close of business on February 19, 1999 will be entitled to vote
on each slate. Each holder of Preferred Stock will be entitled to vote on an
as-if converted basis as described above.
In connection with the vote on the first slate (the "First Slate"),
each holder of record of Common Stock and Preferred Stock on February 19,
1999 will be entitled to vote for one director whose terms of office expires
in 1999 (the "Class II Nominee") to hold office until the 2002 annual meeting
of Stockholders. Further, in connection with the First Slate, each holder of
Common Stock and Preferred Stock will be entitled to one vote for each share
of Common Stock held and each whole share of Common Stock issuable upon
conversion of each share of Preferred Stock held.
In connection with the vote on the second slate (the "Second Slate"),
Stockholders will be voting to elect all five current directors to hold
office until the next annual meeting of Stockholders. Further in connection
with the Second Slate, each holder of Common Stock will be entitled to five
votes for each share held.
The slates are as follows:
<TABLE>
<CAPTION>
NOMINEE FOR A THREE-YEAR TERM NOMINEES FOR A ONE-YEAR TERM
EXPIRING AT THE 2002 EXPIRING AT THE 2000
ANNUAL MEETING ANNUAL MEETING
- - ----------------------------- ----------------------------
<S> <C>
Michael J. Kucha Michael J. Kucha
David J. Dunn
Horst G. Sandfort
Timothy Saxe
Jonathan S. Huberman
</TABLE>
Should the elections yield different results, the Company plans to seek
guidance from a court of law regarding which state's law the Company must
apply in its corporate governance matters.
FIRST SLATE: ELECTION OF DIRECTORS PURSUANT TO DELAWARE LAW
The Company's Certificate and By-laws provide that the Board shall be
divided into three classes, each class consisting, as nearly as possible, of
one-third of the total number of directors, with each class having a
three-year term. Vacancies on the Board may be filled only by persons elected
by a majority of the remaining directors. A director elected by the Board to
fill a vacancy (including a vacancy created by an increase in the size of the
Board) shall serve for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's successor
is elected and qualified.
The Board is presently composed of five members, two of whom are Class I
directors (with terms expiring at the 2001 annual meeting), one of whom is a
Class II director (with a term expiring at the 1999 Annual Meeting) and two
of whom are Class III directors (with terms expiring at the 2000 annual
meeting). Prior to the 1999 Annual Meeting, the Board intends to reallocate a
number of its members to different classes from those to which they are
currently designated. As a result of these changes, Stockholders will have
the opportunity at the 1999 Annual Meeting to vote on the election of Michael
J. Kucha, as the Class II Nominee. The information presented herein gives
effect to these changes. The Class II Nominee is currently a director of the
Company who was previously elected by the Board of Directors. If elected at
the 1999 Annual Meeting, the Class II Nominee would serve until the 2002
annual meeting of Stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
6.
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Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for
the election of the two Class II Nominee. In the event that the nominee
should be unavailable for election as a result of an unexpected occurrence,
such shares will be voted for the election of such substitute nominee as
management may propose. The person nominated for election has agreed to serve
if elected, and management has no reason to believe that such nominee will be
unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE CLASS II NOMINEE
SECOND SLATE: ELECTION OF DIRECTORS PURSUANT TO CALIFORNIA LAW
Under Section 2115 of the California Law ("Section 2115"), certain
corporations not organized under California law which have significant
contacts with California and which are not otherwise exempt from Section 2115
are subject to a number of key provisions of the California Law. Because the
Company had significant contacts with California during the period specified
in Section 2115, the Company believes that it is currently subject to Section
2115. Accordingly, the Company is complying with certain provisions of the
California Law, including Section 301, regarding the election of directors.
Section 301 does not permit the Company to have a classified Board.
Accordingly, in connection with the "Second Slate" each Stockholder will be
voting to elect all five current directors to hold office until the next
annual meeting of Stockholders. Each director to be elected will hold office
until the next annual meeting of Stockholders and until his successor is
elected and has qualified, or until such director's earlier death,
resignation or removal. Each nominee is currently a director of the Company,
three directors having been elected by the Stockholders, and two directors,
Michael J. Kucha and Timothy Saxe, having been elected by the Board.
Under Section 2115, Stockholders are permitted to exercise cumulative
voting rights. Under cumulative voting, each holder of Common Stock will be
entitled to five votes for each share held. Each Stockholder may give one
candidate, who has been nominated prior to voting, all the votes such
Stockholder is entitled to cast or may distribute such votes among as many
such candidates as such Stockholder chooses. (However, no Stockholder will be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and at least one Stockholder has given notice
at the meeting, prior to the voting, of his or her intention to cumulate
votes). Unless the proxyholders are otherwise instructed, Stockholders, by
means of the accompanying proxy, will grant the proxyholders discretionary
authority to cumulate votes.
Shares represented by executed proxies will be voted, if authority to do
so is not withheld, for the election of the five nominees enumerated above.
In the event that any nominee should be unavailable for election as a result
of an unexpected occurrence, such shares will be voted for the election of
such substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to
believe that any nominee will be unable to serve.
Pursuant to the Second Slate, the five candidates receiving the highest
number of affirmative votes cast at the meeting will be elected directors of
the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NOMINEE
7.
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Set forth below is biographical information for all the nominees for
director of the Company.
INFORMATION CONCERNING THE NOMINEES
DAVID J. DUNN
DAVID J. DUNN, age 67, has been a director of the Company since December
1997. Mr. Dunn has been Managing Partner of Idanta Partners, Ltd. ("Idanta"),
a venture capital firm, since 1971. Mr. Dunn was elected a director of the
Company pursuant to an agreement with Idanta. Idanta is a principal
stockholder of the Company. See "Security Ownership of Certain Beneficial
Owners and Management." Since 1980, Mr. Dunn has also served as the Chairman
of the Board of Directors of Iomega Corporation, a manufacturer of personal
storage solutions such as disk and tape drives.
HORST G. SANDFORT
HORST G. SANDFORT, age 56, has been a director of the Company since
1995. Mr. Sandfort has served as President and CEO of Intellon Corporation, a
developer of powerline communications integrated circuits, since June 1997.
From September 1995 to June 1997, he was the President of the GateField
division of the Company. From 1991 to September 1995, he was the Executive
Vice President for Geographic Markets at LSI Logic Corporation, a developer
of application specific integrated circuits and application specific standard
products, where he was responsible for sales, marketing and engineering in
Asia, Canada, Europe and the United States. Mr. Sandfort is a member of the
Company's Audit, Compensation and Nominating Committees.
JONATHAN S. HUBERMAN
JONATHAN S. HUBERMAN, age 33, has been a director of the Company since
December 1997. He has been associated with Idanta since 1995, and currently
is a General Partner. Mr. Huberman was elected a director of the Company
pursuant to an agreement with Idanta. Idanta is a principal stockholder of
the Company. See "Security Ownership of Certain Beneficial Owners and
Management." From 1992 to 1995, Mr. Huberman was a Management Consultant with
the Boston Consulting Group, a management consulting company. Previously, he
was a Marketing Manager at Cray Research, Inc., a manufacturer of
super-computers. Mr. Huberman is currently a member of the Board of Directors
of HyperParallel, Inc., Boxer Cross Corporation and Cosmederm Technologies,
Inc. Mr. Huberman is a member of the Company's Audit, Compensation and
Nominating Committees.
TIMOTHY SAXE
TIMOTHY SAXE, age 42, has been a director of the Company since February
8, 1999. He has been President and Chief Operating Officer of the Company
since July 23, 1998 and Chief Executive Officer of the Company since February
8, 1999. From 1993 to 1997, Dr. Saxe was Vice President of Engineering of the
GateField division of the Company.
MICHAEL J. KUCHA
MICHAEL J. KUCHA, age 57, has been a director of the Company since July
1998. He has been a Senior Associate of Idanta since April 1998. From June
1996 to April 1998, he was a private investor, investing for his own account.
From January 1996 to May 1996, Mr. Kucha was also President and Chief
Executive Officer of ERISS Corporation, an information services company. From
October 1990 to June 1996, he was President of Melvin C. Dill Co., Inc., a
manufacturer of industrial labels. Mr. Kucha is the Chairman of the Company's
Audit Committee.
8.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998 the Board of Directors
held three meetings. The Board has an Audit Committee, a Compensation
Committee and a Nominating Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to
controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee is composed
of three non-employee directors: Messrs. Kucha, Huberman and Sandfort. It met
one time during such fiscal year.
The Compensation Committee administers the Company's stock plans and
approves salaries, stock options and other compensation arrangements for
executive officers of the Company. The Compensation Committee is composed of
two non-employee directors: Messrs. Huberman and Sandfort. It met four times
during such fiscal year.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof and nominates specific individuals to be elected as officers of the
Company by the Board of Directors. No procedure has been established for the
consideration of nominees recommended by stockholders. The Nominating
Committee is composed of two non-employee directors: Messrs. Huberman and
Sandfort. It met one time during such fiscal year.
During the fiscal year ended December 31, 1998, each Board member
attended 75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
9.
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PROPOSAL 2
APPROVAL OF 1999 STOCK OPTION PLAN
In January 1999, the Board adopted the Company's 1999 Stock Option Plan
(the "Option Plan"), subject to stockholder approval. There are 3,000,000
shares of Common Stock reserved for issuance under the Option Plan.
The Option Plan is intended to supplement and replace the Company's
currently existing 1996 Stock Option Plan (the "1996 Plan") and the Company's
1993 Stock Option Plan (the "1993 Plan"). (Hereinafter, the 1996 Plan and the
1993 Plan will be collectively referred to as the "Prior Plans.") The 1996
Plan authorizes the issuance of 2,000,000 shares of the Company's Common
Stock. The 1993 Plan authorizes the issuance of 3,000,000 shares of the
Company's Common Stock. Both of the Prior Plans are administered by the
Compensation Committee of the Board. Both of the Prior Plans allow for the
issuance of incentive stock options, nonstatutory stock options and stock
appreciation rights.
As of December 31, 1998, awards (net of canceled or expired options)
covering an aggregate of 1,808,192 shares of the Company's Common Stock had
been granted under the 1996 Plan. Only 174,707 shares of Common Stock (plus
any shares that might in the future be returned to the 1996 Plan as a result
of cancellations or expiration of awards) remained available for future grant
under the 1996 Plan. As of December 31, 1998, awards (net of canceled or
expired options) covering an aggregate of 1,484,761 shares of the Company's
Common Stock had been granted under the 1993 Plan. Only 327,074 shares of
Common Stock (plus any shares that might in the future be returned to the
1993 Plan as a result of cancellations or expiration of awards) remained
available for future grant under the 1993 Plan.
The Board approved the Option Plan in order to ensure the Company can
continue to grant options and stock appreciation rights at levels and in the
manner determined appropriate by the Board.
Stockholders are requested in this Proposal 2 to approve the Option
Plan. The affirmative vote of the holders of shares representing a least a
majority of the votes represented by the holders of Common Stock and the
holders of Preferred Stock, voting together as a single class on an as-if
converted basis, present in person or represented by proxy and entitled to
vote at the Annual Meeting will be required to approve the Option Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative
votes. Broker non-votes are counted towards a quorum, but are not counted for
any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Option Plan are outlined below:
GENERAL
The Option Plan provides for the grant of incentive stock options,
nonstatutory stock options and stock appreciation rights (collectively
"awards"). Incentive stock options granted under the Option Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory
stock options granted under the Option Plan are not intended to qualify as
incentive stock options under the Code. Stock appreciation rights granted
under the Option Plan may be tandem rights, concurrent rights or independent
rights. See "Federal Income Tax Information" for a discussion of the tax
treatment of awards. To date, the Company has granted no stock awards under
the Option Plan.
PURPOSE
The Board adopted the Option Plan to provide a means by which employees,
directors and consultants of the Company and its affiliates may be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of such persons, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its affiliates.
All of the approximately 37 employees, directors and consultants of the
Company and its affiliates are eligible to participate in the Option Plan.
10.
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ADMINISTRATION
The Board administers the Option Plan. Subject to the provisions of the
Option Plan, the Board has the power to construe and interpret the Option
Plan and to determine the persons to whom and the dates on which awards will
be granted, the number of shares of Common Stock to be subject to each award,
the time or times during the term of each award within which all or a portion
of such award may be exercised, the exercise price, the type of consideration
and other terms of the award.
The Board has the power to delegate administration of the Option Plan to
a committee of the Board. In the discretion of the Board, a committee may
consist solely of two or more outside directors in accordance with Section
162(m) of the Code or solely of two or more non-employee directors in
accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As used herein with respect to the Option Plan, the
"Board" refers to any committee the Board appoints as well as to the Board
itself.
The regulations under Section 162(m) of the Code require that the
directors who serve as members of the committee must be "outside directors."
The Option Plan provides that, in the Board's discretion, directors serving
on the committee may be "outside directors" within the meaning of Section
162(m). This limitation would exclude from the committee directors who are
(i) current employees of the Company or an affiliate, (ii) former employees
of the Company or an affiliate receiving compensation for past services
(other than benefits under a tax-qualified pension Option Plan), (iii)
current and former officers of the Company or an affiliate, (iv) directors
currently receiving direct or indirect remuneration from the Company or an
affiliate in any capacity (other than as a director), and (v) any other
person who is otherwise considered an "outside director" for purposes of
Section 162(m). The definition of an "outside director" under Section 162(m)
is generally NARROWER than the definition of a "non-employee director" under
Rule 16b-3 of the Exchange Act.
ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant
thereto may be granted under the Option Plan only to employees (including
officers) of the Company and its affiliates. Employees (including officers),
directors, and consultants of both the Company and its affiliates are
eligible to receive nonstatutory stock options and other types of stock
appreciation rights under the Option Plan.
No incentive stock option may be granted under the Option Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant
and the term of the option does not exceed five years from the date of grant.
In addition, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionholder during any
calendar year (under the Option Plan and all other such plans of the Company
and its affiliates) may not exceed $100,000.
No employee may be granted awards under the Option Plan exercisable for
more than 1,000,000 shares of Common Stock during any calendar year ("Section
162(m) Limitation").
STOCK SUBJECT TO THE OPTION PLAN
Subject to this Proposal, an aggregate of 3,000,000 shares of Common
Stock is reserved for issuance under the Option Plan. If awards granted under
the Option Plan expire or otherwise terminate without being exercised, the
shares of Common Stock not acquired pursuant to such awards again becomes
available for issuance under the Option Plan. If the Company reacquires
unvested stock issued under the Option Plan, the reacquired stock will not
again become available for reissuance under the Option Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Option Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
may not be less than 100% of the fair market value of the stock subject to
the option on the date of the grant and, in some cases (see "Eligibility"
above), may not be less than 110% of such fair market value. The exercise
price of nonstatutory options may not be less than 85% of
11.
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the fair market value of the stock on the date of grant. If options were
granted with exercise prices below market value, deductions for compensation
attributable to the exercise of such options could be limited by Section
162(m) of the Code. See "Federal Income Tax Information." As of December 31,
1998, the closing price of the Company's Common Stock as reported on the
Nasdaq Unaffiliated Over the Counter Bulletin Board (the "OTCBB") was $0.72
per share.
The exercise price of options granted under the Option Plan must be paid
either in cash at the time the option is exercised or at the discretion of
the Board, (i) by delivery of other Common Stock of the Company, (ii)
pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by options under the Option Plan typically will vest over the
course of four years during the optionholder's employment by, or service as a
director or consultant to, the Company or an affiliate (collectively,
"service"). Shares covered by options granted under the Option Plan may,
however, be subject to different vesting terms. The Board has the power to
accelerate the time during which an option may vest or be exercised. In
addition, options granted under the Option Plan may permit exercise prior to
vesting, but in such event the optionholder may be required to enter into an
early exercise stock purchase agreement that allows the Company to repurchase
unvested shares, generally at their exercise price, should the optionholder's
service terminate before vesting. To the extent provided by the terms of an
option, an optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash
payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionholder, by delivering already-owned
Common Stock of the Company or by a combination of these means.
TERM. The maximum term of options under the Option Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the Option Plan generally terminate three months after
termination of the optionholder's service unless (i) such termination is due
to the optionholder's permanent and total disability (as defined in the
Code), in which case the option may, but need not, provide that it may be
exercised (to the extent the option was exercisable at the time of the
termination of service) at any time within 12 months of such termination (or
such longer or shorter period as the Board may determine on the date of
grant); (ii) the optionholder dies before the optionholder's service has
terminated, or within three months after termination of such service, in
which case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionholder's
death) within 18 months of the optionholder's death (or such longer or
shorter period as the Board may determine on the date of grant) by the person
or persons to whom the rights to such option pass by will or by the laws of
descent and distribution; or (iii) the option by its terms specifically
provides otherwise. An optionholder may designate a beneficiary who may
exercise the option following the optionholder's death. Individual option
grants by their terms may provide for exercise within a longer period of time
following termination of service.
An optionholder's option agreement may provide that if the exercise of
the option following the termination of the optionholder's service would be
prohibited because the issuance of stock would violate the registration
requirements under the Securities Act of 1933, as amended (the "Securities
Act"), then the option will terminate on the earlier of (i) the expiration of
the term of the option or (ii) three months after the termination of the
optionholder's service during which the exercise of the option would not be
in violation of such registration requirements.
STOCK APPRECIATION RIGHTS
The Option Plan authorizes three types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are
tied to an underlying option and require the participant to elect whether to
exercise the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights must be made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at
the same time the underlying option is exercised. The participant receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
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INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the participant to
receive upon exercise an appreciation distribution equal to the market price
of a number of shares equal to the number of share equivalents to which the
participant is vested under the independent stock appreciation right less
than fair market value of such number of shares of stock on the date of grant
of the independent stock appreciation rights. Appreciation distributions
payable upon exercise of independent stock appreciation rights may, at the
Board's discretion, be made in cash, in shares of stock or a combination
thereof.
RESTRICTIONS ON TRANSFER
The optionholder may not transfer an incentive stock option otherwise
than by will or by the laws of descent and distribution. During the lifetime
of the optionholder, only the optionholder may exercise an incentive stock
option. The Board may grant nonstatutory stock options that are transferable
generally. Shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
that the Board deems appropriate.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such
as a stock dividend or stock split, may change the class and number of shares
of Common Stock subject to the Option Plan and outstanding awards. In that
event, the Option Plan will be appropriately adjusted as to the class and the
maximum number of shares of Common Stock subject to the Option Plan and the
Section 162(m) Limitation, and outstanding options will be adjusted as to the
class, number of shares and price per share of Common Stock subject to such
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Option Plan provides that, in the event of a sale of substantially
all of the assets of the Company, specified types of merger, or other
corporate reorganization (a "change in control"), any surviving corporation
may either assume options outstanding under the Option Plan or substitute
similar options for those outstanding under the Option Plan. If any surviving
corporation declines to assume options outstanding under the Option Plan, or
to substitute similar options, then, the vesting and the time during which
such options may be exercised will be accelerated; an any such outstanding
option will terminate if the optionholder does not exercise it before a
change in control. Additionally, the standard form of Stock Option Agreement
under the Option Plan provides that any option which remains in effect after
a change in control (or which is assumed or substituted following a change in
control) shall accelerate in vesting and exercisability so that 50% of any
unvested shares covered by such an option will immediately vest and become
exercisable upon the effective date of the change in control; the remaining
50% of the unvested shares covered by such an option will vest and become
exercisable in accordance with the original schedule for vesting and
exercisability, but in no event will such remaining period of vesting be
longer than two years from the effective date of the change in control.
Moreover, if the continuous service of the optionholder with Company or an
affiliate is terminated without cause or due to a constructive termination
(that is, a voluntary termination with good reason) within one month prior to
or six months following the effective date of a change in control, then all
remaining shares covered by any outstanding option granted under the Option
Plan and held by such optionholder will vest and become exercisable as of the
date of such termination.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Option Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Option Plan will terminate on January 25, 2009.
The Board may also amend the Option Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by
the Board if the amendment would (i) modify the requirements as to
eligibility for participation (to the extent such modification requires
stockholder approval in order for the Option Plan to satisfy Section 422 of
the Code, if applicable, or Rule 16b-3 of the Exchange Act); (ii) increase
the number of shares reserved for issuance upon exercise of awards; or (iii)
change any other provision of the Option Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3
of the Exchange Act or satisfy the requirements of Section 422 of the Code or
any securities exchange listing requirements. The Board may submit any other
amendment to the Option Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m)
of the Code regarding the exclusion of performance-based compensation from
the limitation on the deductibility of compensation paid to certain employees.
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FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate are
effectively 39.6%. Slightly different rules may apply to optionholders who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Option Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the
optionholder or the Company by reason of the grant or exercise of an
incentive stock option. However, the exercise of an incentive stock option
may increase the optionholder's alternative minimum tax liability, if any.
If an optionholder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are
transferred to the optionholder upon exercise of the option, any gain or loss
on a disposition of such stock will be a long-term capital gain or loss if
the optionholder held the stock for more than one year.
Generally, if the optionholder disposes of the stock before the
expiration of either of these holding periods (a "disqualifying
disposition"), then at the time of disposition the optionholder will realize
taxable ordinary income equal to the lesser of (i) the excess of the stock's
fair market value on the date of exercise over the exercise price, or (ii)
the optionholder's actual gain, if any, on the purchase and sale. The
optionholder's additional gain or any loss upon the disqualifying disposition
will be a capital gain or loss, which will be long-term or short-term
depending on whether the stock was held for more than one year.
To the extent the optionholder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the
Code and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by
reason of the grant of a nonstatutory stock option. Upon exercise of a
nonstatutory stock option, the optionholder normally will recognize taxable
ordinary income equal to the excess, if any, of the stock's fair market value
on the date of exercise over the option exercise price. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally required to withhold from regular wages
or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionholder.
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon exercise of the option (or vesting of the stock). Such gain or loss will
be long-term or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionholders who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income
to the participant in the year of such exercise. Generally, with respect to
employees, the Company is required to withhold from the payment made on
exercise of the stock appreciation right or from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and
the satisfaction of a reporting obligation, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income recognized by
the participant.
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POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation
to such covered employee exceeds $1 million. It is possible that compensation
attributable to stock options, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m),
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation if the award is granted by a
compensation committee comprised solely of "outside directors" and either (i)
the plan contains a per-employee limitation on the number of shares for which
such awards may be granted during a specified period, the per-employee
limitation is approved by the stockholders, and the exercise price of the
award is no less than the fair market value of the stock on the date of
grant, or (ii) the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation committee) of an
objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain, and the award is
approved by stockholders.
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PROPOSAL 3
APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
In January 1999, the Board adopted the Company's 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), subject to Stockholder approval. There
are 1,000,000 shares of Common Stock reserved for issuance under the Purchase
Plan.
The Purchase Plan is intended to supplement and replace the Company's
currently existing Employees' Stock Purchase Plan (the "Old Plan"). The Old
Plan qualifies as an "employee stock purchase plan" under Section 423 of the
Code. The Old Plan authorizes the issuance of 700,000 shares of Common Stock.
The Old Plan allows for the grant of rights to eligible employees to purchase
Common Stock at a price which is the lesser of the fair market value of the
shares on the date on which such rights are granted, which day shall be the
first day of the purchase period, or the fair market value of the shares on
the date such shares are purchased. Under the Old Plan, rights are granted
for purchase periods, which are three months in length. Purchase periods
begin on January 1, April 1, July 1, and October 1. Currently, generally all
employees are eligible to participate in the Old Plan except employees
customarily employed less than 20 hours per week or who have not been
employed for at least 30 days prior to the beginning of a purchase period or
who, after the granting of purchase rights, would own more than 5% of the
outstanding shares of the Company.
During the last fiscal year, shares of Common Stock were purchased in
the amounts and at the weighted average prices per share under the Old Plan
as follows: James R. Fiebiger, 1,722 shares ($1.31 per share), Charles Parr,
802 shares ($1.31 per share), Charles Parr, 2,502 shares ($0.30 per share),
Charles Parr, 1,238 shares ($1.06 per share), all current executive officers
as a group 6,264 shares ($0.75 per share), and all employees (excluding
executive officers) as a group 194,198 shares ($0.75 per share).
As of December 31, 1998 purchase rights (net of canceled or expired
purchase rights) covering an aggregate of 619,818 shares of the Company's
Common Stock had been granted under the Old Plan. Only 80,182 shares of
Common Stock (plus any shares that might in the future be returned to the Old
Plan as a result of cancellations or expiration of purchase rights) remained
available for future grant under the Old Plan.
Pending stockholder approval of the new Purchase Plan, the Company will
terminate the Old Plan effective on or about June 30, 1999. The Board
approved the new Purchase Plan in order to ensure the Company can continue to
grant purchase rights at levels and in the manner determined appropriate by
the Board.
Stockholders are requested in this Proposal 3 to approve the Purchase
Plan. The affirmative vote of the holders of shares representing at least a
majority of votes represented by the holders of Common Stock and the holders
of Preferred Stock, voting together as a single class on an as-if converted
basis present in person or represented by proxy and entitled to vote at the
Annual Meeting will be required to approve the Purchase Plan. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any purpose
in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company
designated by the Board to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll
deductions, to assist the Company in retaining the services of its employees,
to secure and retain the services of new employees, and to provide incentives
for such persons to exert maximum efforts for the success of the Company. All
of the Company's approximately 38 employees are eligible to participate in
the Purchase Plan.
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The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan"
as that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Board administers the Purchase Plan and has the final power to
construe and interpret both the Purchase Plan and the rights granted under
it. The Board has the power, subject to the provisions of the Purchase Plan,
to determine when and how rights to purchase Common Stock of the Company will
be granted, the provisions of each offering of such rights (which need not be
identical), and whether employees of any parent or subsidiary of the Company
will be eligible to participate in the Purchase Plan.
The Board has the power to delegate administration of the Purchase Plan
to a committee composed of not fewer than two members of the Board. As used
herein with respect to the Purchase Plan, the "Board" refers to any committee
the Board appoints as well as to the Board itself.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The initial offering under the Plan
will begin on May 1, 1999 and will be 20 months long. This initial offering
will be divided into three shorter "purchase periods," the first of which
will be approximately eight months long and the second and third of which
will be approximately six months long. Thereafter, unless otherwise
determined by the Board, a new offering will begin on February 1 of each
year, beginning with February 1, 2001. Each such offering will be one year
long and will be divided into two shorter "purchase periods" approximately
six months long. Purchase dates under the Purchase Plan will generally be
January 31 and July 31 of each year. (However, July 31, 1999 will not be a
purchase date under the Purchase Plan; January 31, 2000 will be the first
purchase date under the Purchase Plan.)
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and
five months per calendar year by the Company (or by any parent or subsidiary
of the Company designated by the Board) on the first day of an offering is
eligible to participate in that offering. Officers of the Company who are
"highly compensated" as defined in the Code are eligible to participate in
the Purchase Plan.
However, no employee is eligible to participate in the Purchase Plan if,
immediately after the grant of purchase rights, the employee would own,
directly or indirectly, stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or of any parent
or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options). In addition, no employee
may purchase more than $25,000 worth of Common Stock (determined at the fair
market value of the shares at the time such rights are granted) under all
employee stock purchase plans of the Company and its affiliates in any
calendar year.
PARTICIPATION IN THE PLAN
Eligible employees enroll in the Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to 15% of such
employees' compensation during the offering.
PURCHASE PRICE
The purchase price per share at which shares of Common Stock are sold in
an offering under the Purchase Plan is the lower of (i) 85% of the fair
market value of a share of Common Stock on first day of the offering or (ii)
85% of the fair market value of a share of Common Stock on the last day of
the purchase period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering. At any time during the offering, a participant may reduce
or terminate his or her payroll deductions as the Board provides in the
offering. A participant may not increase or begin such payroll deductions
after the beginning of any purchase period, except, if the Board provides, in
the case of an employee who first becomes eligible to participate as of a
date specified during the
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purchase period. All payroll deductions made for a participant are credited
to his or her account under the Purchase Plan and deposited with the general
funds of the Company. A participant may not make additional payments into
such account, unless specifically provided in the offering and unless the
participant has not had the maximum amount withheld during the offering.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the
employee is entitled to purchase shares under the Purchase Plan. In
connection with offerings made under the Purchase Plan, the Board specifies a
maximum number of shares of Common Stock an employee may be granted the right
to purchase and the maximum aggregate number of shares of Common Stock that
may be purchased pursuant to such offering by all participants. For the
initial offering (and for subsequent offerings unless otherwise determined by
the Board), the maximum aggregate number of shares available to be purchased
will be the number of shares remaining available under the Purchase Plan on
the offering date; the maximum aggregate number of shares available to be
purchased by all eligible employees on a purchase date shall be 200,000
shares of Common Stock. If the aggregate number of shares to be purchased
upon exercise of rights granted in the offering would exceed the maximum
aggregate number of shares of Common Stock available, the Board will make a
pro rata allocation of available shares in a uniform and equitable manner.
Unless the employee's participation is discontinued, his or her right to
purchase shares is exercised automatically at the end of the purchase period
at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering
to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal
may be elected at any time prior to the end of the applicable purchase
period, except as provided by the Board. For the initial offering, the Board
has provided that such withdrawal may be elected up to 10 days prior to the
end of the applicable purchase period.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase
of shares of Common Stock on the employee's behalf during such offering, and
such employee's interest in the offering will be automatically terminated.
The employee is not entitled to again participate in that offering. However,
an employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the
Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan
terminate immediately upon cessation of an employee's employment for any
reason, and the Company will distribute to such employee all of his or her
accumulated payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (i) increase the number of
shares of Common Stock reserved for issuance under the Purchase Plan, (ii)
modify the requirements relating to eligibility for participation in the
Purchase Plan, or (iii) modify any other provision of the Purchase Plan in a
manner that would materially increase the benefits accruing to participants
under the Purchase Plan, if such approval is required in order to comply with
the requirements of Rule 16b-3 under the Exchange Act.
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Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of the Purchase
Plan without consent of the employee to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger
of the Company, the surviving corporation either will assume the rights under
the Purchase Plan or substitute similar rights, or the exercise date of any
ongoing offering will be accelerated such that the outstanding rights may be
exercised immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
Subject to this proposal, an aggregate of 1,000,000 shares of Common
Stock is reserved for issuance under the Purchase Plan. If rights granted
under the Purchase Plan expire, lapse or otherwise terminate without being
exercised, the shares of Common Stock not purchased under such rights again
becomes available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under
an employee stock purchase plan which qualifies under provisions of Section
423 of the Code.
A participant will be taxed on amounts withheld for the purchase of
shares of Common Stock as if such amounts were actually received. Other than
this, no income will be taxable to a participant until disposition of the
acquired shares, and the method of taxation will depend upon the holding
period of the acquired shares.
If the stock is disposed of at least two years after the beginning of
the offering period and at least one year after the stock is transferred to
the participant, then the lesser of (i) the excess of the fair market value
of the stock at the time of such disposition over the exercise price or (ii)
the excess of the fair market value of the stock as of the beginning of the
offering period over the exercise price (determined as of the beginning of
the offering period) will be treated as ordinary income. Any further gain or
any loss will be taxed as a long-term capital gain or loss. Such capital
gains currently are generally subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above, then the excess of the fair market value
of the stock on the exercise date over the exercise price will be treated as
ordinary income at the time of such disposition. The balance of any gain will
be treated as capital gain. Even if the stock is later disposed of for less
than its fair market value on the exercise date, the same amount of ordinary
income is attributed to the participant, and a capital loss is recognized
equal to the difference between the sales price and the fair market value of
the stock on such exercise date. Any capital gain or loss will be short-term
or long-term, depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to
a participant (subject to the requirement of reasonableness and the
satisfaction of tax reporting obligations).
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PROPOSAL 4
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
PREFERRED STOCK
The Board of Directors has adopted, subject to Stockholder approval, an
amendment to the Company's Certificate to increase the Company's authorized
number of shares of Common Stock from 65,000,000 shares to 120,000,000 shares
and the authorized number of shares of Preferred Stock from 2,000,000 to
10,000,000 shares.
The additional Common Stock to be authorized by adoption of the
amendment would have rights identical to the currently outstanding Common
Stock of the Company. The additional Preferred Stock to be authorized would
have such rights as shall be designated from time to time by the Board of
Directors and, if required, as approved by the Stockholders. Adoption of the
proposed amendment and issuance of the Common Stock would not affect the
rights of the holders of currently outstanding Common Stock, Series B
Preferred Stock or Series C Preferred Stock of the Company, except for
effects incidental to increasing the number of shares of the Company's Common
Stock outstanding, such as dilution of the earnings per share and voting
rights of current holders of Common Stock. If the amendment is adopted, it
will become effective upon filing of a Certificate of Amendment of the
Company's Restated Certificate of Incorporation ("Certificate of Amendment")
with the Secretary of State of the State of Delaware.
The Certificate of Amendment would amend paragraph A of Article IV of
the Certificate to read in its entirety as follows:
"A. The Corporation is authorized to issue a total of
130,000,000 shares of all classes of stock, of which
120,000,000 shall be shares of Common Stock with a par
value of $.10 per share and 10,000,000 shall be shares of
Series Preferred Stock with a par value of $.10 per share."
In addition to the 41,425,738 shares of Common Stock outstanding at
December 31, 1998, the Board has reserved 82,498 shares of Common Stock for
conversion of the 18,003 shares of Series B Preferred Stock outstanding and
2,000,000 shares of Common Stock for conversion of the 300,000 shares of
Series C Preferred Stock outstanding. The Board has also reserved a total of
5,900,000 shares of Common Stock for issuance upon options and rights granted
under the Company's stock option plans, 3,523,782 shares of Common Stock
which may be issued upon exercise of a warrant held by Siemens
Aktiengesellschaft ("Siemens") and approximately 302,474 shares of Common
Stock which may be issued upon exercise of warrants currently held by James
R. Fiebiger, Halifax Fund, Capital Ventures International, and Benjamin
Huberman. Also, Siemens has the right to acquire 500,000 shares of Common
Stock of the Company pursuant to the Siemens License Agreement. See "Certain
Transactions." This right expires in November 2000.
On January 26, 1999, the Board authorized management to pursue efforts
to sell Common Stock or Preferred Stock in order to raise additional capital
to finance the Company's operations. If the Company is successful in its
efforts to sell such securities, the Board may, in connection with such sale,
either issue or reserve for issuance shares of Common Stock or Preferred
Stock in connection with such sale.
Four Million (4,000,000) of the additional shares of Common Stock that
would become available for issuance if this Proposal 4 were adopted would,
pending stockholder approval of the 1999 Stock Option Plan pursuant to
Proposal 2 and the 1999 Employee Stock Purchase Plan pursuant to Proposal 3,
be reserved for issuance pursuant to such option plans. Although at present,
other than as mentioned above, the Board of Directors has no other plans to
issue the remainder of the additional shares of Common Stock or additional
shares of Preferred Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further Stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other
companies and expanding the company's business or product lines through the
acquisition of other businesses or products.
The additional shares of Common Stock and Preferred Stock that would
become available for issuance if the proposal were adopted could also be used
by the Company to oppose a hostile takeover attempt or delay or prevent
changes in control or management of the Company. For example, without further
stockholder approval, the Board could strategically sell shares of Common
Stock or Preferred Stock in a private transaction to purchasers who would
oppose a takeover or favor the current Board. Although this proposal to
increase the authorized Common Stock and Preferred Stock has been prompted by
business and financial considerations and not by the threat of any hostile
takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
20.
<PAGE>
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares
over then current market prices.
The affirmative vote of the holders of shares representing at least a
majority of the votes represented by the holders of Common Stock, voting as a
separate class, the affirmative vote of the holders of shares representing at
least a majority of the votes represented by the holders of Preferred Stock,
voting as a separate class on an as-converted basis, and the affirmative vote
of the holders of shares representing at least a majority of the votes
represented by the holders of Common Stock and Preferred Stock, voting
together as a single class on an as-converted basis, present in person or
represented by proxy and entitled to vote at the Annual Meeting, will be
required to approve this amendment to the Company's Certificate. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
21.
<PAGE>
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999
and has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting.
Deloitte & Touche LLP has audited the Company's financial statements since
its inception in 1992. Representatives of Deloitte & Touche LLP are expected
to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as
the Company's independent auditors is not required by the Company's By-laws
or otherwise. However, the Board is submitting the selection of Deloitte &
Touche to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent auditors at
any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Deloitte & Touche LLP.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
22.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock and each series of Preferred Stock as
of February 9, 1999 by: (i) each director and nominee for director; (ii)
certain executive officers named in the Summary Compensation Table; (iii) all
executive officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent of its
Common Stock and each series of Preferred Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------
PERCENTAGE
OF TOTAL
BENEFICIAL OWNERS NUMBER OF OUTSTANDING
SHARES COMMON STOCK
- - -------------------------------------------- ---------- ------------
<S> <C> <C>
Idanta Partners Ltd. (2).................... 3,659,347 8.8%
Siemens Aktiengesellschaft (3).............. 2,849,188 6.4%
Actel Corporation (4)....................... 2,000,000 4.6%
David J. Dunn (5)........................... 4,607,348 11.1%
Timothy Saxe (6)............................ 200,898 *
Jonathan S. Huberman (7).................... 3,674,347 8.9%
Horst G. Sandfort (8)....................... 7,500 *
Michael J. Kucha........................... 0 *
Peter G. Feist (9)......................... 125,000 *
James R. Fiebiger (10)..................... 696,722 2.0%
All directors and executive officers
as a group (7 persons) (11).............. 5,650,746 12.0%
</TABLE>
- - -------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise
indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 41,455,755 shares of Common Stock outstanding on
FEBRUARY 9, 1999, adjusted as required by rules promulgated by the SEC.
(2) The address of Idanta Partners Ltd. ("Idanta") is 4660 La Jolla Village
Drive, Suite 850, San Diego, CA 92122. Includes 64,714 shares of Common
Stock issuable upon the conversion of 14,122 shares of Series B Preferred
Stock. Idanta holds 78.6% of the outstanding Series B Preferred Stock.
(3) The address of Siemens Aktiengesellschaft ("Siemens") is Hofmannstr. 51,
81359 Munich, Germany. Consists of (i) 2,349,188 shares of Common Stock
which Siemens has the right to acquire within 60 days of the date of
23.
<PAGE>
this table upon the exercise of outstanding warrants, and (ii) 500,000
shares of Common Stock which Siemens has the right to acquire within 60
days of the date of this table pursuant to the Siemens License Agreement.
(4) The address of Actel Corporation ("Actel") is 955 East Argues Avenue,
Sunnyvale, California 94086. Consists of 2,000,000 shares of Common Stock
issuable upon conversion of 300,000 shares of Series C Preferred Stock.
Actel holds 100% of the outstanding Series C Preferred Stock.
(5) Consists of (i) 16,501 shares of Common Stock issuable upon conversion of
3,601 shares of Series B Preferred Stock, 916,500 shares of Common Stock,
and 15,000 shares of Common Stock which may be acquired within 60 days
after the date of this table upon the exercise of outstanding stock
options, all held by a family trust of which Mr. Dunn is trustee (the
"Trust"), and (ii) 3,659,347 shares of Common Stock held by Idanta, which
includes of 64,714 shares of Common Stock issuable upon the conversion of
14,122 shares of Series B Preferred Stock. The Trust holds 20% of the
outstanding Series B Preferred Stock and is a managing general partner of
Idanta. Mr. Dunn shares voting and investment power with respect to
Idanta's shares. Mr. Dunn disclaims beneficial ownership of all of the
foregoing shares.
(6) Consists of shares which Mr. Saxe has the right to acquire within 60 days
after the date of this table upon the exercise of outstanding stock
options.
(7) Consists of (i) 3,659,347 shares of Common Stock beneficially owned by
Idanta, which includes 64,714 shares of Common Stock issuable upon the
conversion of 14,122 shares of Series B Preferred Stock, and (ii) 15,000
shares of Common Stock which Mr. Huberman has the right to acquire within
60 days after the date of this table upon exercise of outstanding stock
options. Mr. Huberman is a general partner of Idanta. Mr. Huberman
shares voting and investment power with respect to such shares. Mr.
Huberman disclaims beneficial ownership of all of the foregoing shares.
(8) Consists of shares which Mr. Sandfort has the right to acquire within 60
days after the date of this table upon the exercise of outstanding stock
options.
(9) Includes 64,433 shares which Mr. Feist has the right to acquire within 60
days after the date of this table upon the exercise of outstanding stock
options.
(10) Includes 1,722 shares purchased in 1998, 400,000 shares which Mr.
Fiebiger has the right to acquire within 60 days after the date of this
table upon the exercise of outstanding stock options, and 50,000 shares
issuable upon the exercise of outstanding warrants which are immediately
exercisable. Mr. Fiebiger resigned as Director and Chief Executive
Officer of the Company on February 8, 1999.
(11) Includes shares described in the notes above, as applicable.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent Stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended December 31, 1998,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent beneficial owners were complied with; except that
one report, covering an aggregate of 1 transaction, was filed late by Mr.
Feist.
24.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a quarterly retainer
of $2,500 and a per meeting fee of $1,000 for each Board and committee meeting
attended. The members of the Board of Directors are also eligible for
reimbursement for their expenses incurred in connection with attendance at
Board meetings in accordance with Company policy. In the fiscal year ended
December 31, 1998, the total compensation paid to non-employee directors was
$57,758.
Each non-employee director of the Company also receives stock option
grants under the 1995 Stock Option Directors' Plan for Non-Employee Directors
(the "Directors' Plan"). Only non-employee directors of the Company or an
affiliate of such directors (as defined in the Code) are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan
are intended by the Company not to qualify as incentive stock options under
the Code.
Option grants under the Directors' Plan are non-discretionary. Under the
Director's Plan, each non-employee director elected to the Board of Directors
is automatically granted, upon his or her initial election as a director, and
without further action by the Company, the Board or the stockholders of the
Company, an option to purchase 15,000 shares of Common Stock (an "Initial
Grant"). Each non-employee director is also granted an option to purchase
7,500 shares of Common Stock on the date of each Annual Meeting of
Stockholders (an "Annual Grant"). In no event shall any non-employee director
receive an option to purchase in the aggregate more than 100,000 shares
pursuant to the Directors' Plan. On May 13, 1998, the date of the 1997 Annual
Meeting of Stockholders, Messrs. Sandfort, Dunn and Huberman were each granted
an option to purchase 7,500 shares of Common Stock at an exercise price of
$1.50 per share, the fair market value of the Common Stock on such date. On
July 23, 1998, the date of his appointment as a director by the Board, Mr.
Kucha was granted an option to purchase 15,000 shares of Common Stock at an
exercise price of $0.83 per share, the fair market value of the Common Stock
on such date. All options granted under the Director's Plan have or will have
an exercise price equal to the fair market value of the Common Stock on the
date of grant and expire ten years from the date of grant (subject to earlier
termination in the event the optionee ceases to serve as a director of the
Company). Under the Directors' Plan, options from an Initial Grant vest in
full two years after the date of grant. Options from an Annual Grant vest one
year after the date of grant. The total number of shares of Common Stock that
may be issued under the Director's Plan is 200,000 shares. As of February 9,
1999, 75,000 shares had been granted under the Directors' Plan. As of
February 9, 1999, no options had been exercised under the Directors' Plan.
25.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended 1997 and 1998
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and its other two most highly compensated executive officers at
December 31, 1998 and two former executive officers who departed from the
Company during fiscal year 1998 (collectively, the "Named Executive
Officers"). During fiscal year 1996, none of the Named Executive Officers
were executive officers of the Company. Accordingly, no amounts are shown for
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(2)
---------------------------------------------------- ---------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) SARS(#) ($)
- - --------------------------- ---- ----------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. James R. Fiebiger 1998 $180,000 $94,000(4) $56,120(5) -- $10,500(6)
Chief Executive Officer (3) 1997 $ 98,890(7) $94,000(8) $32,251(9) 900,000(10) $ 4,945(11)
Dr. Timothy Saxe 1998 $175,003 $ 750 -- 326,181 $10,250(12)
President and Chief 1997 $150,015 $ 1,500 -- 265,750(13) $ 9,000(14)
Operating Officer
Peter G. Feist 1998 $167,303 $16,247(15) -- 184,375 $ 7,360(16)
Senior Vice President, 1997 $140,010 $30,247(17) $43,044(18) 190,000(19) $ 8,501(20)
Marketing
FORMER OFFICERS
Stephen A. Flory (21) 1998 $105,965 -- -- -- $83,398(22)
Vice President, Chief 1997 $150,014 $20,000 -- 211,000(23) $ 9,001(24)
Financial Officer and
Treasurer
Charles S. Parr (25) 1998 $160,387(26) $15,855(27) -- -- $14,193(28)
Senior Vice President, 1997 $212,930(29) $15,855(30) -- 185,000(31) $ 8,501(32)
Worldwide Sales
</TABLE>
- - -----------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of prerequisites and other personal
benefits has been omitted because such prerequisites and other personal
benefits constituted less than the lesser of $50,000 or 10% of the total
of annual salary and bonus for the executive officer for the fiscal year.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts during
1997 and 1998.
(3) Dr. Fiebiger resigned as Chief Executive Officer on February 8, 1999. On
that date the Board approved Dr. Timothy Saxe to serve as Chief Executive
Officer. Mr. Fiebiger continues to serve as Vice Chairman and Managing
Director of Technology and Licensing.
(4) The bonus of $94,000 was earned in fiscal 1997 and paid in fiscal 1998.
Dr. Fiebiger did not receive a bonus in fiscal 1998.
26.
<PAGE>
(5) Represents $22,588 in cost of living adjustments for California housing
and $33,532 in tax gross up reimbursement payments for 1998.
(6) Represents the value of the Company's contribution during 1998 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(7) Represents compensation since June 1997, the date Mr. Fiebiger became an
employee of the Company.
(8) The bonus of $94,000 was earned in fiscal 1997 and paid in fiscal 1998.
(9) Represents $10,424 in cost of living adjustments for California housing,
$14,077 in tax gross up reimbursement payments for 1997, and $7,750 in
consulting fees from January 1997 through June 1997 paid while a director
of the Company.
(10) Includes options to purchase an aggregate of 300,000 shares granted on
July 28, 1997 replacing an option to purchase 300,000 shares granted on
June 12, 1997. Options to purchase 300,000 shares were cancelled in
connection with the repricing in fiscal 1997.
(11) Represents the value of the Company's contribution during 1997 to a
cafeteria benefit plan for the Named Executive.
(12) Represents the value of the Company's contribution during 1998 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(13) Includes options to purchase an aggregate of 129,400 shares granted on
July 28, 1997 replacing options to purchase an aggregate of 50,000 shares
granted on August 16, 1993, an option to purchase 14,400 shares granted
on October 29, 1996, an option to purchase 40,000 shares granted on
October 29, 1996 and an option to purchase 25,000 shares granted on June
5, 1997. Options to purchase 129,400 shares were cancelled in connection
with the repricing in fiscal 1997.
(14) Represents the value of the Company's contribution during 1997 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(15) The bonus of $16,247 was earned in fiscal 1997 and was paid in fiscal
1998.
(16) Represents the value of the Company's contribution during 1998 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(17) Includes bonus of $16,247 which was earned in fiscal 1997 and paid in
fiscal 1998.
(18) Represents $43,044 in cost of living adjustments for California housing
for 1997 for the Named Executive Officer.
(19) Includes options to purchase an aggregate of 85,000 shares granted on
July 28, 1997 replacing options to purchase an aggregate of 60,000 shares
granted on October 2, 1996 and an option to purchase 25,000 shares
granted on June 5, 1997. Options to purchase 85,000 shares were
cancelled in connection with the repricing in fiscal 1997.
(20) Represents the value of the Company's contribution during 1997 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(21) Mr. Flory's employment with the Company terminated in August 1998.
(22) Represents the value of the Company's contribution during 1998 to a
cafeteria benefit plan, $1,500 contributed by the Company to a 401(k)
plan and, $59,156 for payments in respect of severance arrangements.
(23) Includes options to purchase an aggregate of 110,000 shares granted on
July 28, 1997 replacing an option to purchase 10,000 shares granted on
October 29, 1996, an option to purchase 46,000 shares granted on January
29,
27.
<PAGE>
1997, an option to purchase 10,000 shares granted on April 3, 1997, an
option to purchase 10,000 shares granted on July 10, 1997, an option to
purchase 15,000 shares granted on October 29, 1996, an option to purchase
5,000 shares granted on February 27, 1995, an option to purchase 8,500
shares granted on February 4, 1994, an option to purchase 1,500 shares
granted on August 16, 1993, an option to purchase 2,000 shares granted on
July 30, 1990 and an option to purchase 2,000 shares granted on June 1,
1990. Options to purchase 110,000 shares were cancelled in connection
with the repricing in fiscal 1997.
(24) Represents the value of the Company's contribution during 1997 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
(25) Mr. Parr's employment as Senior Vice President, Worldwide Sales
terminated in September 1998. However, he is still employed by the
Company on a part-time basis.
(26) Includes $113,036 of base salary and $47,351 of sales commissions.
(27) Mr. Parr's bonus of $15,855 was earned in fiscal 1997 and paid in fiscal
1998.
(28) Represents the value of the Company's contribution during 1998 to a
cafeteria benefit plan, $1,500 contributed by the Company to a 401(k)
plan and $7,041 for payments in respect of hourly part-time work
arrangements.
(29) Includes $140,010 base salary and $72,920 of sales commissions.
(30) Mr. Parr's bonus of $15,855 was earned in fiscal 1997 and paid in fiscal
1998.
(31) Includes options to purchase an aggregate of 100,000 shares granted on
July 28, 1997 replacing an option to purchase 75,000 shares granted on
August 19, 1996 and an option to purchase 25,000 shares granted on June
5, 1997. Options to purchase 100,000 shares were cancelled in connection
with the repricing in fiscal 1997.
(32) Represents the value of the Company's contribution during 1997 to a
cafeteria benefit plan and $1,500 contributed by the Company to a 401(k)
plan for the Named Executive Officer.
28.
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1993 Stock
Option Plan (the "1993 Plan") and its 1996 Stock Option Plan (the "1996 Plan,"
and collectively "the Plans"). As of February 9, 1999, options to purchase
3,382,269 shares were outstanding under the Plans and options to purchase
612,415 shares remained available for grant.
The following tables show for the fiscal year ended December 31, 1998
certain information regarding options granted to, exercised by, and held at
year end by, the Named Executive Officers:
OPTION/SAR GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- - --------------------------- -------------- ------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Dr. Fiebiger -- -- -- -- -- --
Dr. Saxe 326,181 21.4% $0.53 12/15/08 $108,912 $274,873
Mr. Feist 184,375 12.1% $0.53 12/15/08 $ 61,563 $155,373
Mr. Flory -- -- -- -- -- --
Mr. Parr -- -- -- -- -- --
</TABLE>
- - -------------------
(1) Options are non-qualified stock options. Options vest 25% on the first
anniversary of the date of grant and thereafter at 1/48th per month. All
options expire ten years from the date of grant. All options are subject
to accelerated vesting upon the achievement of certain management
business objectives. The options generally terminate three months
following termination of the executive officer's employment with the
Company or the expiration date, whichever occurs earlier. The exercise
price of each is equal to the fair market value per share of the Common
Stock on the date of grant. The Board of Directors may reprice options
under the terms of the Company's option plans. In the event of a "change
in control," 50% of any unvested portion of the option shall immediately
vest upon the closing of such change in control transaction. The
remaining 50% of any unvested portion of the Option shall vest per its
original schedule but in no event shall such vesting period be longer
than two years from the closing date of the change in control. If an
employee is terminated for any reason other than for cause, within six
months of a change in control event, then such option shall vest in its
entirety upon such termination.
(2) The potential realizable value is based on the term of the option at its
time of grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option, and that the
option is exercised and sold on the last day of its term for the
appreciated stock price. These amounts represent certain assumed rates
of appreciation only, in accordance with the rules of the SEC, and do not
reflect the Company's estimate or projection of future stock price
performance. Actual gains, if any, are dependent on the actual future
performance of the Company's Common Stock and no gain to the optionee is
possible unless the stock price increases over the option term, which
will benefit all stockholders.
29.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES ACQUIRED VALUE OPTIONS/SARS AT FY-END(#) AT FY-END ($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ------------------ --------------- ----------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Dr. Fiebiger 200,000 $138,000 399,154 / 846 $99,789 / $212
Dr. Saxe -- -- 185,075 / 381,856 $46,269 / $95,464
Mr. Fiest 60,567 $ 52,638 54,433 / 234,375 $13,608 / $58,594
Mr. Flory -- -- 117,766 / 0 $29,442 / $0
Mr. Parr 32,467 ($2,922) 90,033 / 0 $22,508 / $0
</TABLE>
- - ------------------------
(1) Based on a value of $0.72 per share, the fair market value of the Common
Stock on December 31, 1998, less the option exercise price.
30.
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into a severance agreement with Mr. Fiebiger
which provides for the continued payment of his monthly base salary for a
period of up to twelve months, or until he gains employment, whichever occurs
first, in the event his employment with the Company is terminated by the
Company without cause. Mr. Fiebiger is currently serving as Vice Chairman and
Managing Director of Technology and Licensing.
The Company has entered into an Employment, Confidential Information and
Invention Assignment Agreement, with each of Messrs. Fiebiger, Feist, Saxe,
Parr and Flory. These agreements provide that each such Named Executive shall
be an at-will employee of the Company, and his employment may be terminated by
the Company at any time. The agreements contain a covenant by each of such
executives not to compete with the business of the Company during the term of
such executive's employment with the Company, and also contain customary
confidentiality and invention assignment provisions.
In connection with the termination of Mr. Flory's employment with the
Company, on August 18, 1998 the Company entered into a Severance Agreement and
General Release of All Claims with Mr. Flory, pursuant to which the Company
agreed to pay Mr. Flory the sum of $152,000, his annual salary, in twenty-four
equal installments payable over one year, commencing on August 19, 1998.
Should he become employed with another company, the severance payments will
terminate. The Company also agreed to continue to provide Mr. Flory with
health, dental, life, AD&D, LTD and supplemental life insurance benefits
through August 18, 1999.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION (1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"), which is
currently comprised of Messrs. Huberman and Sandfort, two of the Company's
non-employee directors. The Committee is responsible for determining the
salaries of, establishing bonus programs for, and granting stock options to,
the Company's executive officers, including the Chief Executive Officer (the
"CEO"). In making decisions regarding executive compensation, other than for
the CEO, the Committee receives and considers input from the CEO. The CEO is
not present during the discussion of his compensation. In administering the
executive compensation program, including the salary to be paid to the CEO,
the Committee considers several elements designed to attract and retain key
personnel, reward outstanding performance, link executive pay to long-term
Company performance and to align executive interests with stockholder
interests. These elements consist of a base salary, annual bonuses, and
long-term incentive stock awards.
BASE SALARY
The base salaries of the Company's executive officers are determined by
the Committee and, for executive officers other than the CEO, are based upon
recommendations from the CEO. In establishing base salaries for executive
officers, including the CEO, the Committee considers numerous factors such as:
salaries paid to executive officers in comparable positions at similar
companies, the executive's responsibilities, prior experience and breadth of
knowledge, the executive's importance to the Company, the executive's
performance in the prior year, historical salary levels of the executive and
relative salary levels within the Company. Increases in base salary are
generally based upon the Committee's subjective review of enhanced individual
performance and/or increases in an executive's responsibilities.
ANNUAL BONUS
The Committee believes that it is important to tie a significant portion
of the compensation of executive officers to the attainment of corporate
success, thus aligning the objectives and rewards of Company executives with
those of the stockholders of the Company. The Committee awards executive
bonuses based upon a review of the bonuses given by comparable companies, and,
for executive officers other than the CEO, based upon recommendations from the
CEO. Individual bonuses are paid as a percentage of salary and are based upon
the Company meeting certain financial goals, in addition to the attainment of
individual achievement goals. The Company's financial goals are established
by the Board of Directors in the form of gross revenue and net income
benchmarks. If the specified gross revenue and net income
- - ----------------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act, whether made before or
after the date hereof and irrespective of any general incorporation language
contained in such filing.
31.
<PAGE>
benchmarks are achieved the Committee has discretion to distribute bonuses to
the Company's executives based upon their individual contributions to the
achievement of the Company's financial benchmarks. Individual achievement
goals are established for each executive, other than the CEO, by the CEO. An
executive's performance in meeting his or her specified individual achievement
goals, coupled with attainment of the Company's gross revenue and net income
goals, determines the total bonus for each executive in any given year.
LONG TERM INCENTIVE STOCK AWARDS
The Company's Plans authorize the Committee to grant incentive or
non-qualified stock options to employees of the Company. The Committee
determines the prices and terms at which such options are granted. The
Committee uses stock options as a significant element of the compensation
package of executive officers, because it believes options provide an
incentive to executives to maximize stockholder value and because they
compensate executives only to the extent that the Company's stockholders
receive a return on their investment. Options vest 25% on the first
anniversary of the date of grant and thereater at 2.08% per month. Moreover,
options are subject to accelerated vesting upon achievement of certain
management business objectives and terminate three months after the
termination of the executive's employment with the Company. Accordingly, such
stock options serve as a means of retaining executives. In determining the
total number of shares of Common Stock to be covered by option grants to
executive officers in a given year, the Committee takes into account the
number of outstanding shares of Common Stock, the number of shares reserved
for issuance under the Company's Plans, recommendations of management
concerning option grants to employees below executive level, and the Company's
projected hiring needs for the coming year. In making individual stock option
grants to executives, the Committee considers the same factors considered in
the determination of base salary levels, as well as the stock and option
holdings of each executive and the remaining vesting schedule of such
executive's options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary, bonus and stock option awards
for the CEO. In determining where the CEO's total compensation is set in
light of the considerations described above, the Committee subjectively
evaluates such factors as the CEO's performance and the achievement of the
Company's financial benchmarks. In determining the CEO's salary the Committee
considers the salaries paid to CEO's of similar companies. For fiscal 1998
the base salary of the CEO was set at $180,000. In setting this amount, the
Committee took into account Dr. Fiebiger's experience and his value to the
Company. In awarding stock options to the CEO, the Committee considers, in
addition to the factors enumerated above, the CEO's stock and option holdings
and the number of options still subject to vesting. The CEO was not awarded
any options in fiscal 1998 because the Company's financial performance did not
meet expectations. The CEO's annual bonus is dependent upon the criteria
enumerated above for other executive officers. The CEO did not earn a bonus in
fiscal 1998 because the Company's financial performance did not meet
expectations.
Section 162(m) of the Internal Revenue Code (the "Code") limits the
Company to a deduction for federal income tax purposes of no more than $1
million of compensation paid to certain Named Executive Officers in a taxable
year. Compensation above $1 million may be deducted if it is
"performance-based compensation" within the meaning of the Code. The statute
containing this law and the applicable proposed Treasury regulations offer a
number of transitional exceptions to this deduction limit for pre-existing
compensation plans, arrangements and binding contracts. As a result, the
Compensation Committee believes that at the present time it is quite unlikely
that the compensation paid to any Named Executive Officer in a taxable year
which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." The
Compensation Committee intends to continue to evaluate the effects of the
statute and any final Treasury regulations.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Jonathan S. Huberman
Horst G. Sandfort
32.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's compensation committee consists of Jonathan
S. Huberman and Horst G. Sandfort, two of the Company's non-employee
directors. From September 1995 to June 1997, Mr. Sandfort was an employee
and an executive officer of the Company, serving as President of the Company's
GateField division. Mr. Huberman is a general partner of Idanta Partners,
Ltd. ("Idanta"), a principal stockholder of the Company. Mr. Huberman was
elected to the Company's Board of Directors in 1997 in accordance with the
terms of a Stock Purchase Agreement (the "Idanta Agreement"), dated November
10, 1997, among the Company, Idanta, the Dunn Family Trust and the Perscilla
Family Trust (the "Idanta Entities"). Pursuant to the Idanta Agreement, the
Company agreed to cause Messrs. Jonathan Huberman and David Dunn to be
nominated for election to the Board at the Company's 1997 Annual Meeting and
for re-election to the Company's Board on each proxy statement filed for each
subsequent meeting of stockholders as their respective terms expire, until the
earlier of (i) the date the Company first reports Annual Net Income (as
defined in the Idanta Agreement) of at least $15 million and (ii) the date
that the Idanta Entities own less than one half of the total number of shares
of Preferred Stock and Common Stock purchased pursuant to the Idanta Agreement.
On October 19, 1998, the Company was notified by the Idanta Entities of
their request that the Company redeem, in cash, an aggregate of 981,997 shares
of the Company's Series B Preferred Stock (the "Shares") at a redemption price
of equal to $4.5825 per share plus accrued dividends thereon. The Idanta
Entities became entitled, pursuant to the Idanta Agreement, to request
redemption of their shares upon the delisting of the Company's Common Stock
from the Nasdaq SmallCap Market. On December 16, 1998, the Company redeemed
the Shares for an aggregate price of 4,648,000. Eighteen Thousand and Three
(18,003) shares of Series B Preferred Stock remain outstanding.
No executive officer of the Company serves as a member of the Board of
Directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
33.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment
of $100 in cash on December 31, 1993 for (i) the Company's Common Stock, (ii)
the Hambrecht and Quist Technology Index (the "H&Q") and (iii) the Nasdaq
Composite Index (the "NASDAQ"). All values assume reinvestment of the full
amount of all dividends and are calculated as of December 31 of each year:
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
GateField Corporation $100.00 $51.17 $307.03 $63.97 $51.17 $26.8
Nasdaq Composite Index $100.00 $97.75 $138.26 $170.01 $208.58 $293.21
Hambrecht and Quist
Technology Index $100.00 $120.12 $179.61 $223.23 $261.72 $407.08
</TABLE>
- - -------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act whether made before or after the
date hereof and irrespective of any general incorporation language in any
such filing.
34.
<PAGE>
CERTAIN TRANSACTIONS
On August 14, 1998, the Company and Actel Corporation ("Actel"), a
principal Stockholder of the Company, entered into a series of related
transactions (collectively, the "Transaction"). As part of the Transaction,
the Company sold certain of the assets relating to its Design Service
Business Unit, which is engaged in the business of providing prototyping
design services and verification services for electronic systems, integrated
circuits and other electronic components, located in Mt. Arlington, New
Jersey (the "Design Services Business") to Actel. The purchase price for
such assets was (i) $5.4 million plus (ii) contingent payments to be paid
over a three-year period on a quarterly basis based on the Design Services
Business achieving certain profitability levels which payments shall not
exceed $1.0 million in the aggregate. Also, as part of the Transaction,
Actel purchased, and the Company issued to Actel, 300,000 shares of the
Company's Series C Preferred Stock for an aggregate purchase price of
$3,000,000 (the "Shares"). The Shares are initially convertible into
2,000,000 shares of the Company's Common Stock and are entitled to certain
liquidation and redemption rights. Actel is entitled to certain registration
rights and shall have a right of first refusal to purchase its pro rata share
of certain new securities the company may issue. Also as part of the
Transaction, the Company and Actel entered into a Product Marketing Agreement
(the "Marketing Agreement"). Under the terms of the Marketing Agreement,
Actel received exclusive, worldwide distribution rights to the Company's
standard ProASIC FPGA products below .35 micron, including FPGA products that
are integrated with SRAM or Flash memory and all resulting next generation
reduced process geometry ProASIC FPGA products. For these rights, Actel
agreed to pay the Company an initial fee of $1.0 million and a $1.0 million
fee upon qualification of the initial .25 micron product. Finally, the
Company and Actel entered into a license agreement pursuant to which the
Company granted to Actel a fully paid, non-exclusive, non-transferable
license to sell and upon certain release events, make, have made, import and
use the Company's standard ProASIC FPGA products below .35 micron and all
resulting next generation reduced process geometry ProASIC FPGA products.
Actel agreed to pay the Company a $1.0 million fee for such license.
On November 10, 1997, the Company, Idanta and the Idanta Entities
entered into a two phase private placement transaction, pursuant to the
Idanta Agreement. In phase one of the transaction, Idanta agreed to purchase
1,000,000 shares of the Company's Series B Preferred Stock for an aggregate
purchase price of $4,582,500. Each share of Series B Preferred Stock is
convertible into 4.5825 shares of the Company's Common Stock. In addition,
Idanta was required, under the Idanta Agreement, to purchase 4,582,500 shares
of the Company's Common Stock for an aggregate purchase price of $4,582,500,
pending Stockholder approval of certain management proposals contained in the
proxy statement filed in connection with the Company's 1997 Annual Meeting.
Upon the occurrence of certain events, the Series B Preferred Stock was also
subject to redemption at the election of at least 51% of the then outstanding
shares of Series B Preferred Stock. On December 15, 1997, the Stockholders
approved all the management proposals. Accordingly, on January 14, 1998, in
phase two of the transaction, the Company sold, and Idanta and the Idanta
Entities purchased, an aggregate of 4,582,500 shares of the Company's Common
Stock for an aggregate purchase price of $4,582,500. In addition, pursuant
to the Idanta Agreement, the Company agreed to cause Messrs. Jonathan
Huberman and David Dunn to be nominated for election to the Board at the 1997
Annual meeting and for re-election to the Board on each proxy statement filed
for each subsequent meeting of Stockholders as their respective terms expire,
until the earlier of (i) the date the Company first reports Annual Net Income
(as defined in the Idanta Agreement) of at least $15 million and (ii) the
date that the Idanta Entities (and their affiliates) owns less than one-half
of the total number of shares of preferred stock and common stock purchased
pursuant to the Idanta Agreement. On October 19, 1998, the Company was
notified by the Idanta Entities of their request that the Company redeem, in
cash, an aggregate of 981,997 shares of the Company's Series B Preferred
Stock (the "Shares") at a redemption price of equal to $4.5825 per share plus
accrued dividends thereon. The Idanta Entities became entitled, pursuant to
the Idanta Agreement, to request redemption of their shares upon the
delisting of the Company's Common Stock from the Nasdaq SmallCap Market. On
December 16, 1998, the Company redeemed the Shares for an aggregate price of
$4,648,000. 18,003 shares of Series B Preferred Stock remain outstanding.
On September 6, 1995, Mr. Sandfort, a director of the Company, was
granted, while an employee of the Company, a stock option to purchase 400,000
shares of Common Stock at an exercise price of $6.81 per share, the fair
market value of the Common Stock on the date of such grant. On October 29,
1996, the Board of Directors approved the exchange of the stock option held
by Mr. Sandfort for an option to purchase 400,000 shares of Common Stock at
an exercise price of $1.63 per share, the fair market value of the Common
Stock on such date. On July 28, 1997, the Board of Directors approved the
exchange of the stock options held by Mr. Sandfort for a warrant to purchase
57,595 shares of Common Stock (the vested portion of his stock option) at an
exercise price of $.47 per share, the fair market value of the Common Stock
on such date. On February 3, 1998, Mr. Sandfort exercised the foregoing
warrant by "cashless exercise" and purchased 38,770 shares of Common Stock.
35.
<PAGE>
In June 1998, the Company and Siemens, a principal stockholder of the
Company, entered into a foundry agreement pursuant to which Siemens
manufactures and tests the Company's ProAsic products. Unless extended by
the parties, the term of the agreement expires in 2001. In connection with
the agreement, the Company issued to Siemens a warrant to purchase up to
3,523,782 shares of Common Stock.
The Company has entered into indemnity agreements with directors and
certain executive officers which provide, among other things, that the
Company will indemnify such officer or director, under the circumstances and
to the extent provided for therein, for expenses, damages, judgments, fines,
witness fees and settlements such officer or director may be required to pay
in actions or proceedings which he is or may be made a party by reason of his
position as a director, officer or other agent of the Company, and otherwise
to the full extent permitted under Delaware law and the Company's By-laws.
36.
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
[FACSIMILE SIGNATURE]
MICHAEL J. KUCHA
Secretary
March 9, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY,
GATEFIELD CORPORATION, 47100 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538.
37.
<PAGE>
GATEFIELD CORPORATION
1999 STOCK OPTION PLAN
ADOPTED JANUARY 26, 1999
APPROVED BY STOCKHOLDERS , 1999
TERMINATION DATE: JANUARY 25, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and
its Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an
opportunity to benefit from increases in value of the Common Stock through
the granting of the following Stock Awards: (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, and (iii) stock appreciation rights.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock
Awards, to secure and retain the services of new members of this group and
to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Gatefield Corporation, a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by
the Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (2) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for
their services as Directors or Directors of the Company who are merely paid
a director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Participant renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no interruption or
termination of the Participant's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or
a Director of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
1
<PAGE>
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or
an Affiliate shall not be sufficient to constitute "employment" by the
Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market or on an
established over the counter market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock)
on the last market trading day prior to the day of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant
or in any capacity other than as a Director (except for an amount as to
which disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a
business relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee
director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
2
<PAGE>
(v) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within
the meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this Gatefield Corporation 1999 Stock Option Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option or a stock appreciation right.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award
shall be granted; the provisions of each Stock Award granted (which need
not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
3
<PAGE>
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority
has been delegated. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan,
the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee
is authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as
may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the
Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of
the Board, a Committee may consist solely of two or more Outside
Directors, in accordance with Section 162(m) of the Code, and/or solely
of two or more Non-Employee Directors, in accordance with Rule 16b-3.
Within the scope of such authority, the Board or the Committee may (i)
delegate to a committee of one or more members of the Board who are not
Outside Directors, the authority to grant Stock Awards to eligible
persons who are either (a) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income
resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate three million (3,000,000)
shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan.
Shares subject to stock appreciation rights exercised in accordance with the
Plan shall not be available for subsequent issuance under the Plan. If any
Common Stock acquired pursuant to the exercise of an Option shall for any
reason be repurchased by the Company under an unvested share repurchase
option provided under the Plan, the stock repurchased by the Company under
such repurchase option shall not revert to and again become available for
issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligib4le for the grant of an Incentive Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible
to be granted Options and/or stock appreciation
4
<PAGE>
rights covering more than one million (1,000,000) shares of the Common Stock
during any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after
the expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Incentive Stock Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth
in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii)
as determined at the discretion of the Board at the time of the grant of the
Option (or subsequently in the case of a Nonstatutory Stock Option) by
delivery to the Company of other Common Stock, according to a deferred
payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock) with the
Participant or in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the
Company is incorporated in Delaware, payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(e), the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does
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not provide for transferability, then the Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(f), the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become
exercisable in periodic installments which may, but need not, be equal. The
Option may be subject to such other terms and conditions on the time or
times when it may be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are
subject to any Option provisions governing the minimum number of shares as
to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of
(i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements
under the Securities Act, then the Option shall terminate on the earlier of
(i) the expiration of the term of the Option set forth in subsection 6(a) or
(ii) the expiration of a period of three (3) months after the termination of
the Optionholder's Continuous Service during which the exercise of the
Option would not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability,
the Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination), but
only within such period of time ending on the earlier of (i) the date twelve
(12) months following such termination (or such longer or shorter period
specified in the Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or
(ii) the Optionholder dies within the period (if any) specified in the
Option Agreement after the termination of the Optionholder's Continuous
Service for a reason other than death, then the Option may be exercised (to
the extent the Optionholder was entitled to exercise the Option as of the
date of death) by the Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person
designated to exercise the option upon the Optionholder's death pursuant to
subsection 6(e) or 6(f), but only within the period ending on the earlier of
(1) the date eighteen (18) months following the date of death (or such
longer or shorter period specified in the Option Agreement) or (2) the
expiration of the term of such Option as set forth in the Option Agreement.
If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate.
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(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all
of the shares subject to the Option prior to the vesting of such shares
under the Option. Any unvested shares so purchased may be subject to an
unvested share repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
"Re-Load Option") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering
other shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option shall (i)
provide for a number of shares equal to the number of shares surrendered as
part or all of the exercise price of such Option; (ii) have an expiration
date which is the same as the expiration date of the Option the exercise of
which gave rise to such Re-Load Option; and (iii) have an exercise price
which is equal to one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Re-Load Option on the date of exercise of the
original Option. Notwithstanding the foregoing, a Re-Load Option shall be
subject to the same exercise price and term provisions heretofore described
for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. STOCK APPRECIATION RIGHT PROVISIONS.
(a) AUTHORIZED RIGHTS. The following three types of stock appreciation
rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same
terms and conditions applicable to the particular Option grant to
which it pertains with the following exceptions: The Tandem Right
shall require the holder to elect between the exercise of the
underlying Option for shares of Common Stock and the surrender, in
whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercise of the Tandem
Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of
the Option surrender) in an amount up to the excess of (A) the Fair
Market Value (on the date of the Option surrender) of the number of
shares of Common Stock covered by that portion of the surrendered
Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to
all or a portion of the shares of Common Stock subject to the
underlying Option and which is subject to the same terms and
conditions applicable to the particular Option grant to which it
pertains with the following exceptions: A Concurrent Right shall be
exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to
which the Concurrent
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Right pertains. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an
amount equal to such portion as determined by the Board at the time
of the grant of the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Concurrent Right) of the vested
shares of Common Stock purchased pursuant to the underlying Option
which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is
subject to the same terms and conditions applicable to a Nonstatutory
Stock Option with the following exceptions: An Independent Right
shall be denominated in share equivalents. The appreciation
distribution payable on the exercised Independent Right shall be not
greater than an amount equal to the excess of (a) the aggregate Fair
Market Value (on the date of the exercise of the Independent Right)
of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the
Independent Right on such date, over (b) the aggregate Fair Market
Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution
payable on the exercised Independent Right shall be in cash or, if so
provided, in an equivalent number of shares of Common Stock based on
Fair Market Value on the date of the exercise of the Independent
Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant
to Incentive Stock Options may be granted only to Employees. The "Section
162(m) Limitation" provided in subsection 5(c) and any authority to
reprice Options shall apply as well to the grant of stock appreciation
rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of exercise to the Company
in compliance with the provisions of the Stock Award Agreement evidencing
such right. Except as provided in subsection 5(c) regarding the "Section
162(m) Limitation," no limitation shall exist on the aggregate amount of
cash payments that the Company may make under the Plan in connection with
the exercise of a stock appreciation right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell
shares of Common Stock upon exercise of the Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any stock issued or issuable
pursuant to any such Stock Award. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
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10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised or the time
during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant or other holder of Stock Awards any right to continue
to serve the Company or an Affiliate in the capacity in effect at the time
the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a Consultant pursuant
to the terms of such Consultant's agreement with the Company or an Affiliate
or (iii) the service of a Director pursuant to the Bylaws of the Company or
an Affiliate, and any applicable provisions of the corporate law of the
state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company
and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof which exceed such limit (according to the order
in which they were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ
a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii)
to give written assurances satisfactory to the Company stating that the
Participant is acquiring the stock subject to the Stock Award for the
Participant's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel
deems necessary or appropriate in order to comply with applicable securities
laws, including, but not limited to, legends restricting the transfer of the
stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by
the Company) or by a combination of such means: (i) tendering a cash
payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the participant as a result of the
exercise or acquisition of stock under the Stock Award; or (iii) delivering
to the Company owned and unencumbered shares of the Common Stock.
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11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property
other than cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other transaction not
involving the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the class(es) and maximum number of securities
subject to the Plan pursuant to subsection 4(a) and the maximum number of
securities subject to award to any person pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the class(es)
and number of securities and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated
as a transaction "without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then such Stock Awards shall be terminated if
not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (1) a sale of substantially all of the assets of
the Company, (2) a merger or consolidation in which the Company is not the
surviving corporation or (3) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring corporation may assume any Stock Awards
outstanding under the Plan or may substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c)) for those outstanding under
the Plan. In the event any surviving corporation or acquiring corporation
does not assume such Stock Awards or does not substitute similar stock
awards for those outstanding under the Plan, then with respect to Stock
Awards held by Participants whose Continuous Service has not terminated, the
vesting of such Stock Awards (and, if applicable, the time during which such
Stock Awards may be exercised) shall be accelerated in full, and the Stock
Awards shall terminate if not exercised (if applicable) at or prior to such
event. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised (if applicable) prior to
such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act, or
comparable successor rule) of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in
the election of directors, then any such acquiring person, entity or group
may assume any Stock Awards outstanding under the Plan or may substitute
similar stock awards (including an award to acquire the same consideration
paid to the stockholders in the transaction described in this subsection
11(d)) for those outstanding under the Plan. In the event any such acquiring
person, entity or group does not assume such Stock Awards or does not
substitute similar stock awards for those outstanding under the Plan, then
such Stock Awards shall continue in full force and effect.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the
Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
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(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits provided
or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring
the Plan and/or Incentive Stock Options granted under it into compliance
therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Participant and (ii)
the Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any
such amendment unless (i) the Company requests the consent of the
Participant and (ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock
Award granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan, except with the written consent of
the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
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GATEFIELD CORPORATION
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Gatefield Corporation (the "Company") has granted you an
option under its 1999 Stock Option Plan (the "Plan") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING.
(a) Subject to the limitations contained herein, the shares covered by
your option will vest (and become exercisable) as provided in your Grant
Notice, provided that vesting will cease upon the termination of your
Continuous Service.
(b) Notwithstanding any other provision of this Stock Option Agreement
or of the Plan to the contrary, in the event of the occurrence of a
transaction described in subsections 11(c) or 11(d) of the Plan (hereafter,
a "Change in Control") and if this option remains in effect following such
Change in Control or if this option is assumed or a similar option
substituted for this option in connection with a Change in Control, then the
vesting and exercisability of the shares covered by this option (or by any
substituted option) shall accelerate so that fifty percent (50%) of any
unvested shares covered by this option shall immediately vest and become
exercisable upon the effective date of the Change in Control. The remaining
fifty percent (50%) of the unvested shares covered by this option (or by any
substituted option) shall vest and become exercisable in accordance with the
original schedule for vesting and exercisability (as provided in the Grant
Notice), but in no event shall such remaining period of vesting be longer
than two (2) years from the effective date of the Change in Control.
Moreover, if your Continuous Service is terminated without Cause (as defined
below) or you voluntarily terminate your Continuous Service due to a
Constructive Termination (as defined below) within one (1) month prior to
the effective date of the Change in Control or within six (6) months
following the effective date of the Change in Control, then all remaining
unvested shares covered by this option (or by any substituted option) shall
vest and become exercisable as of the date of such termination.
For purposes of this subparagraph 1(b) only, Cause means (i) conviction of,
a guilty plea with respect to, or a plea of NOLO CONTENDERE to a charge that you
have committed a felony under the laws of the United States or of any state or a
crime involving moral turpitude, including, but not limited to, fraud, theft,
embezzlement or any crime that results in or is intended to result in personal
enrichment at the expense of the Company or an Affiliate; (ii) material breach
of any agreement entered into between you and the Company or an Affiliate that
impairs the Company's or the Affiliate's interest therein; (iii) willful
misconduct, significant failure by you to perform your duties, or gross neglect
by you of your duties; or (iv) engagement in any activity that constitutes a
material conflict of interest with the Company or any Affiliate.
For purposes of this subparagraph 1(b) only, Constructive Termination means
the occurrence of any of the following events or conditions: (i) (A) a change in
your status, title, position or responsibilities (including reporting
responsibilities) which represents an adverse change from your status, title,
position or responsibilities as in effect at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter; (B) the
assignment to you of any duties or responsibilities which are inconsistent with
your status, title, position or responsibilities as in effect at any time within
ninety (90) days preceding
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the date of a Change in Control or at any time thereafter; or (C) any removal of
you from or failure to reappoint or reelect you to any of such offices or
positions, except in connection with the termination of the your Continuous
Service for Cause, as a result of the your Disability or death or by you other
than as a result of Constructive Termination; (ii) a reduction in your annual
base compensation or any failure to pay you any compensation or benefits to
which you are entitled within five (5) days of the date due; (iii) the Company's
requiring you to relocate to any place outside a twenty (20) mile radius of your
current work site, except for reasonably required travel on the business of the
Company or its Affiliates which is not materially greater than such travel
requirements prior to the Change in Control; (iv) the failure by the Company to
(A) continue in effect (without reduction in benefit level and/or reward
opportunities) any material compensation or employee benefit plan in which you
were participating at any time within ninety (90) days preceding the date of a
Change in Control or at any time thereafter, unless such plan is replaced with a
plan that provides substantially equivalent compensation or benefits to you, or
(B) provide you with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those provided for
under each other employee benefit plan, program and practice in which you were
participating at any time within ninety (90) days preceding the date of a Change
in Control or at any time thereafter; (v) any material breach by the Company of
any provision of an agreement between the Company and you, whether pursuant to
this Plan or otherwise, other than a breach which is cured by the Company within
fifteen (15) days following notice by you of such breach; or (vi) the failure of
the Company to obtain an agreement from any successors and assigns to assume and
agree to perform the obligations created under the Plan.
(c) Notwithstanding, subparagraph 1(b) above, in the event the potential
acceleration of vesting and exercisability of the shares covered by this
option would cause a contemplated Change in Control transaction that would
otherwise be accounted for as a "pooling-of-interests" transaction to become
ineligible for such accounting treatment under generally accepted accounting
principles as determined by the Company's independent public accountants
(the "Accountants") prior to the Change in Control, such acceleration shall
not occur.
(d) Notwithstanding any other provision of this paragraph (1) to the
contrary, in the event that the acceleration of the vesting and
exercisability of the shares covered by this option as provided for in this
Stock Option Agreement and benefits otherwise payable to you (i) constitute
"parachute payments" within the meaning of Section 280G (as it may be
amended or replaced) of the Code and (ii) but for this subparagraph 1(d)
would be subject to the excise tax imposed by Section 4999 (as it may be
amended or replaced) of the Code (the "Excise Tax"), then your benefits
hereunder shall be delivered to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax; PROVIDED, HOWEVER,
that the benefits hereunder shall be reduced only to the extent necessary
only after all cash and all restricted stock otherwise payable to you and
which constitute "parachute payments" have been returned. Unless the Company
and you otherwise agree in writing, any determination required under this
subparagraph 1(d) shall be made in writing in good faith by the Accountants.
For purposes of making the calculations required by this subparagraph 1(d),
the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of the Code. The Company and you
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under
this subparagraph 1(d). The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
subparagraph 1(d).
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for capitalization
adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your
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option, you may elect at any time that is both (i) during the period of your
Continuous Service and (ii) during the term of your option, to exercise all or
part of your option, including the nonvested portion of your option; provided,
however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that have
not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other incentive stock options you hold are exercisable for
the first time by you during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is
publicly traded, pursuant to a program developed under the rules and
regulations promulgated by the Federal Reserve Board that, prior to the
issuance of Common Stock, results in either the receipt of cash (or check)
by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is publicly
traded, by delivery of already-owned shares of Common Stock either that you
have held for the period required to avoid a charge to the Company's
reported earnings (generally six months) and that you did not acquire,
directly or indirectly from the Company, that are owned free and clear of
any liens, claims, encumbrances or security interests, and that are valued
at Fair Market Value on the date of exercise. "Delivery" for these purposes,
in the sole discretion of the Company at the time you exercise your option,
shall include delivery to the Company of your attestation of ownership of
such shares of Common Stock in a form approved by the Company.
Notwithstanding the foregoing, you may not exercise your option by tender to
the Company of Common Stock to the extent such tender would violate the
provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from
date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) Interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment
as interest, under any applicable provisions of the Code, of any portion
of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
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(iii) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred
payment.
(iv) In order to elect the deferred payment alternative if allowed,
you must, as a part of your written notice of exercise, give notice of
the election of this payment alternative and, in order to secure the
payment of the deferred exercise price to the Company hereunder, if the
Company so requests, you must tender to the Company a promissory note and
a security agreement covering the purchased shares of Common Stock, both
in form and substance satisfactory to the Company, or such other or
additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous Service
for any reason other than your Disability or death, provided that if during
any part of such three (3)- month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph
relating to "Securities Law Compliance," your option shall not expire until
the earlier of the Expiration Date or until it shall have been exercisable
for an aggregate period of three (3) months after the termination of your
Continuous Service;
(b) twelve (12) months after the termination of your Continuous Service
due to your Disability;
(c) eighteen (18) months after your death if you die either during your
Continuous Service or within three (3) months after your Continuous Service
terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the unvested
portion of your option if your Grant Notice so permits) during its term by
delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
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(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise
of your option, (2) the lapse of any substantial risk of forfeiture to which
the shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of your option that occurs within two (2)
years after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws as
amended from time to time, the Company shall have the right to repurchase all or
any part of the shares of Common Stock you acquire pursuant to the exercise of
your option.
11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
12. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at any
time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under the rules and regulations
promulgated by the Federal Reserve Board to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign
tax withholding obligations of the Company or an Affiliate, if any, which
arise in connection with your option.
(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of
Common Stock otherwise issuable to you upon the exercise of your option a
number of whole shares of Common Stock having a Fair Market Value,
determined by the Company as of the date of exercise, not in excess of the
minimum amount of tax required to be withheld by law. If the date of
determination of any tax withholding obligation is deferred to a date later
than the date of exercise of your option, share withholding pursuant to the
preceding sentence shall not be permitted unless you make a proper and
timely election under Section 83(b) of the Code, covering the aggregate
number of shares of Common Stock acquired upon such exercise with respect to
which such determination is otherwise deferred, to accelerate the
determination of such tax withholding obligation to the date of exercise of
your option. Notwithstanding the filing of such election, shares of Common
Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise
issuable to you upon such exercise. Any adverse consequences to you arising
in connection with such share withholding procedure shall be your sole
responsibility.
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(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly,
you may not be able to exercise your option when desired even though your
option is vested, and the Company shall have no obligation to issue a
certificate for such shares of Common Stock or release such shares of Common
Stock from any escrow provided for herein.
13. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
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GATEFIELD CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED JANUARY 26, 1999
APPROVED BY THE STOCKHOLDERS ON , 1999
EFFECTIVE DATE: JUNE 1, 1999
1. PURPOSE.
(a) The purpose of this 1999 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Gatefield Corporation, a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b),
may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 424(e) and (f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success
of the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration
to a committee as provided in subparagraph 2(c). Whether or not the Board
has delegated administration the Board shall have the final power to
determine all questions of policy and expediency that may arise in the
administration of the Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such
rights (which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the
best interests of the Company and its Affiliates and to carry out the
intent that the Plan be treated as an "employee stock purchase plan"
within the meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee").
If administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the board, subject, however, to such resolutions, not
inconsistent with the
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provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one million (1,000,000)
shares of the Company's common stock (the "Common Stock"). If any right
granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the
Plan to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate, which shall comply with the requirements
of Section 423(b)(5) of the Code that all employees granted rights to
purchase stock under the Plan shall have the same rights and privileges. The
terms and conditions of an Offering shall be incorporated by reference into
the Plan and treated as part of the Plan. The provisions of separate
Offerings need not be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the document
comprising the Offering or otherwise) the period during which the Offering
shall be effective, which period shall not exceed twenty-seven (27) months
beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right
with a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if
two rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in
subparagraph 5(b), an employee of the Company or any Affiliate shall not be
eligible to be granted rights under the Plan unless, on the Offering Date,
such employee has been in the employ of the Company or any Affiliate for
such continuous period preceding such grant as the Board or the Committee
may require, but in no event shall the required period of continuous
employment be equal to or greater than two (2) years. In addition, unless
otherwise determined by the Board or the Committee and set forth in the
terms of the applicable Offering, no employee of the Company or any
Affiliate shall be eligible to be granted rights under the Plan unless, on
the Offering Date, such employee's customary employment with the Company or
such Affiliate is for at least twenty (20) hours per week and at least five
(5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company
or designated Affiliate will, on a date or dates specified in the Offering
which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which
right shall thereafter be
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deemed to be a part of that Offering. Such right shall have the same
characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right
under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns
stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate.
For purposes of this subparagraph 5(c), the rules of Section 424(d) of the
Code shall apply in determining the stock ownership of any employee, and
stock which such employee may purchase under all outstanding rights and
options shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase
stock of the Company or any Affiliate to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) of fair market value of such stock
(determined at the time such rights are granted) for each calendar year in
which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that
the Board or the Committee may provide in an Offering that certain employees
who are highly compensated employees within the meaning of Section
423(b)(4)(D) of the Code shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to
the number of shares of Common Stock of the Company purchasable with a
percentage designated by the Board or the Committee not exceeding fifteen
percent (15%) of such employee's Earnings (as defined by the Board for each
Offering) during the period which begins on the Offering Date (or such later
date as the Board or the Committee determines for a particular Offering) and
ends on the date stated in the Offering, which date shall be no later than
the end of the Offering. The Board or the Committee shall establish one or
more dates during an Offering (the "Purchase Date(s)") on which rights
granted under the Plan shall be exercised and purchases of Common Stock
carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased
by any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition,
in connection with each Offering that contains more than one Purchase Date,
the Board or the Committee may specify a maximum aggregate number of shares
which may be purchased by all eligible employees on any given Purchase Date
under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and
as it shall deem to be equitable.
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(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within
the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board or the Committee of such employee's
Earnings (as defined by the Board for each Offering) during the Offering.
The payroll deductions made for each participant shall be credited to an
account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero)
or increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for
in the Offering. A participant may make additional payments into his or her
account only if specifically provided for in the Offering and only if the
participant has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the participant) under the Offering, without interest, and
such participant's right to acquire Common Stock under that Offering shall
be automatically terminated. A participant's withdrawal from an Offering
will have no effect upon such participant's eligibility to participate in
any other Offerings under the Plan but such participant will be required to
deliver a new participation agreement in order to participate in subsequent
Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14, and during a
participant's lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of
stock of the Company, up to the maximum number of shares permitted pursuant
to the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. Unless otherwise provided for in the applicable
Offering, no fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of
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stock on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering,
as provided in subparagraph 7(b), or is no longer eligible to be granted
rights under the Plan, as provided in paragraph 5, in which case such amount
shall be distributed to the participant after such final Purchase Date,
without interest. The amount, if any, of accumulated payroll deductions
remaining in any participant's account after the purchase of shares which is
equal to the amount required to purchase whole shares of stock on the final
Purchase Date of an Offering shall be distributed in full to the participant
after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act") and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan.
If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no rights granted under the Plan or any
Offering shall be exercised on such Purchase Date, and the Purchase Date
shall be delayed until the Plan is subject to such an effective registration
statement and such compliance, except that the Purchase Date shall not be
delayed more than twelve (12) months and the Purchase Date shall in no event
be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised then all payroll
deductions accumulated during the Offering (reduced to the extent, if any,
such deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times keep available the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon
exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights granted
under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until the participant's shares acquired upon exercise of
rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other transaction not
involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and
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maximum number of shares subject to the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding rights. Such
adjustments shall be made by the Board or the Committee, the determination
of which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction
not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) the acquisition
by any person, entity or group within the meaning of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of
the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then,
as determined by the Board in its sole discretion (i) any surviving or
acquiring corporation may assume outstanding rights or substitute similar
rights for those under the Plan, (ii) such rights may continue in full force
and effect, or (iii) participants' accumulated payroll deductions may be
used to purchase Common Stock immediately prior to the transaction described
above and the participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before
or after the adoption of the amendment if such amendment requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the
Board or the Committee deems necessary or advisable to provide eligible
employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating
to employee stock purchase plans and/or to bring the Plan and/or rights
granted under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan,
except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under the
Plan comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of
an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the
event of the death of a participant and in the
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absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under the Plan
while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulation, or except as necessary to ensure
that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on June 1, 1999 (the "Effective Date"),
provided that the Plan has been approved by the stockholders of the Company
prior to the Effective Date.
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GATEFIELD CORPORATION
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED JANUARY 26, 1999
1. GRANT; OFFERING DATE.
(a) The Board of Directors of Gatefield Corporation (the "Company"),
pursuant to the Company's 1999 Employee Stock Purchase Plan (the "Plan"),
hereby authorizes the grant of rights to purchase shares of the common stock
of the Company ("Common Stock") to all Eligible Employees (an "Offering").
Subject to subsection 1(b) below, the first Offering shall begin on June 1,
1999 and shall end on January 31, 2001 (the "Initial Offering"). Thereafter,
subject to subsection 1(b) below, an Offering shall begin on February 1
every year, beginning on February 1, 2001. An Offering shall end on the day
prior to the first day of the subsequent Offering. The first day of an
Offering is that Offering's "Offering Date." If an Offering Date would fall
on a day during which the Company's Common Stock is not actively traded,
then the Offering Date shall be the next subsequent day during which the
Company's Common Stock is actively traded.
(b) Prior to the commencement of any Offering, the Board of Directors
(or the Committee described in subparagraph 2(c) of the Plan, if any) may
change any or all terms of such Offering and any subsequent Offerings. The
granting of rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless, prior to such date (a) the Board of
Directors (or such Committee) determines that such Offering shall not occur,
or (b) no shares remain available for issuance under the Plan in connection
with the Offering.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such
Offering, provided that each such employee otherwise meets the employment
requirements of subparagraph 5(a) of the Plan (an "Eligible Employee").
Notwithstanding the foregoing, the following employees shall NOT be Eligible
Employees or be granted rights under an Offering: (i) part-time or seasonal
employees whose customary employment is less than 20 hours per week or 5
months per calendar year or (ii) 5% stockholders (including ownership
through unexercised options) described in subparagraph 5(c) of the Plan.
(b) Each person who first becomes an Eligible Employee during any
Offering will, on the first business day of the month of August or on the
first business day of the month of February during the Offering, which
coincides with the day on which such person becomes an Eligible Employee or
which occurs thereafter, receive a right under such Offering, which right
shall thereafter be deemed to be a part of the Offering. Such right shall
have the same characteristics as any rights originally granted under the
Offering except that:
(1) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right; and
(2) the Offering for such right shall begin on its Offering Date and
end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase
the number of shares of Common Stock purchasable with up to fifteen percent
(15%) of such Eligible Employee's Earnings paid during such Offering after
the Eligible Employee first commences participation; provided, however, that
no
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employee may purchase Common Stock on a particular Purchase Date that would
result in more than fifteen percent (15%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other
Company plans intended to qualify as "employee stock purchase plans" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
For this Offering, "Earnings" means the total compensation paid to an
employee, including all salary, wages (including amounts elected to be
deferred by the employee, that would otherwise have been paid, under any
cash or deferred arrangement or other deferred compensation program
established by the Company), overtime pay, commissions, bonuses, and other
remuneration paid directly to the employee, but excluding profit sharing,
the cost of employee benefits paid for by the Company, education or tuition
reimbursements, imputed income arising under any Company group insurance or
benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options,
contributions made by the Company under any employee benefit plan, and
similar items of compensation.
(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on a Purchase Date in an
Offering is such number of shares as has a fair market value (determined as
of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering has been
outstanding any time, minus (y) the fair market value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to
such shares) which, for purposes of the limitation of Section 423(b)(8) of
the Code, are attributed to any of such calendar years in which the right is
outstanding. The amount in clause (y) of the previous sentence shall be
determined in accordance with regulations under Section 423(b)(8) of the
Code based on (i) the number of shares previously purchased with respect to
such calendar years pursuant to such Offering or any other Offering under
the Plan, or pursuant to any other Company plans intended to qualify as
"employee stock purchase plans" under Section 423 of the Code, and (ii) the
number of shares subject to other rights outstanding on the Offering Date
for such Offering pursuant to the Plan or any other such Company plan.
(c) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares
remaining available under the Plan on the Offering Date. The maximum
aggregate number of shares available to be purchased by all Eligible
Employees on a Purchase Date shall be two hundred thousand (200,000) shares
of Common Stock. If the aggregate purchase of shares of Common Stock upon
exercise of rights granted under the Offering would exceed the maximum
aggregate number of shares available under either of the limits set forth in
this subsection 3(c), the Board shall make a pro rata allocation of the
shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share.
5. PARTICIPATION.
(a) Except as otherwise provided in this paragraph 5, an Eligible
Employee may elect to participate in an Offering only at the beginning of
the Offering; provided, however, that a person who first becomes an Eligible
Employee during an Offering may elect to participate at the Offering Date
applicable to such Eligible Employee in accordance with subparagraph 2(b).
An Eligible Employee shall become a participant in an Offering by delivering
an agreement authorizing payroll deductions. Such deductions may be in whole
percentages only, with a minimum percentage of one percent (1%)
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<PAGE>
and maximum percentage of fifteen percent (15%) of Earnings. A participant
may not make additional payments into his or her account. The agreement
shall be made on such enrollment form as the Company provides, and must be
delivered to the Company before the date of participation to be effective
for such Offering, as determined by the Company and communicated to Eligible
Employees. As to the Initial Offering, the time for filing an enrollment
form and commencing participation for individuals who are Eligible Employees
on the Offering Date for the Initial Offering shall be determined by the
Company and communicated to such Eligible Employees.
(b) Generally, a participant may increase or reduce (including to zero)
his or her participation level only as of each February 1 and August 1
during any Offering (except not during the ten (10) days immediately
preceding a Purchase Date). Any such change in participation shall be made
by delivering a notice to the Company or a designated Affiliate in such form
and at such time as the Company provides. Notwithstanding the foregoing, a
participant may reduce his or her participation level to zero once at any
time during the six (6) month period ending on a Purchase Date (except not
during the ten (10) days immediately preceding a Purchase Date).
Additionally, a participant may withdraw from an Offering and receive his or
her accumulated payroll deductions from the Offering (reduced to the extent,
if any, such deductions have been used to acquire Common Stock for the
participant on any prior Purchase Dates), without interest at any time prior
to the end of the Offering, excluding only each ten (10) day period
immediately preceding a Purchase Date (or such shorter period of time
determined by the Company and communicated to participants), by delivering a
withdrawal notice to the Company in such form as the Company provides. A
participant who has withdrawn from an Offering shall not be entitled to
again participate in such Offering, but may participate in other Offerings
under the Plan by submitting a new participation agreement in accordance
with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering. "Purchase
Date" shall be defined as the last day of each January and of each July.
(Notwithstanding the foregoing sentence, July 31, 1999 under this Initial
Offering shall not be a Purchase Date.) If a Purchase Date would not fall on a
day during which the Company's Common Stock is actively traded, then the
Purchase Date shall be the nearest prior day during which the Company's Common
Stock is actively traded.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the Plan
by the shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and
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regulations which may from time to time be promulgated and adopted pursuant to
the Plan), the provisions of the Plan shall control.
4
<PAGE>
GATEFIELD CORPORATION
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
APRIL 13, 1999
The undersigned hereby appoints Michael J. Kucha and James R. Fiebiger
and each of them, as the attorneys and proxies of the undersigned, with power
of substitution, to vote all shares of the capital stock of GATEFIELD
CORPORATION, a Delaware corporation (the "Company"), which the undersigned
may be entitled to vote at the Annual Meeting of Stockholders of the Company
to be held at the offices of the Company, on April 13, 1999 at 1:00 p.m.
local time, and at any and all postponements, continuations or adjournments
thereof, with the same force and effect as the undersigned might or could do
if personally present thereat, as set forth below and in their discretion
upon any other business that may properly come before the meeting.
Attendance of those signing on the reverse side at the Annual Meeting or
at any adjourned session thereof will not be deemed to revoke this proxy
unless those signing on the reverse side shall affirmatively indicate thereat
the intention of those signing on the reverse side to vote said shares in
person. If those signing on the reverse side hold(s) any of the shares of
capital stock of the Company in a fiduciary, custodial or joint capacity or
capacities, this proxy is signed by those signing on the reverse side in
every such capacity as well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING, OR ANY
ADJOURNMENT THEREOF.
PROPOSAL 1: To elect one Class II director of the Company pursuant to
Delaware law and the classified Board provisions of the
Company's Amended and Restated Certificate of Incorporation to
serve until the 2002 Annual Meeting of Stockholders and until
their successors are elected; and to elect five directors of
the Company pursuant to California law, whether by cumulative
voting or otherwise, to serve until the next Annual Meeting of
Stockholders and until their successors are elected.
1.
<PAGE>
SLATE 1 SLATE 2
NOMINEE FOR A NOMINEES FOR A
THREE-YEAR TERM EXPIRING ONE-YEAR TERM EXPIRING
AT THE 2002 ANNUAL MEETING AT THE 2000 ANNUAL MEETING
-------------------------- --------------------------
Michael J. Kucha Michael J. Kucha
David J. Dunn
Horst G. Sandfort
Timothy Saxe
Jonathan S. Huberman
[ ] WITH AUTHORITY to vote for the SLATE 1 nominee
[ ] WITHHOLD AUTHORITY as to the SLATE 1 nominee
[ ] WITH AUTHORITY to vote for the SLATE 2 nominees listed above
(except as marked below)
[ ] WITHHOLD AUTHORITY as to the following SLATE 2 nominees:
PROPOSAL 2: To approve the Company's 1999 Stock Option Plan, providing for
the issuance of up to 3,000,000 shares of Common Stock (check
one box).
[ ] For [ ] Against [ ] Abstain
PROPOSAL 3: To approve the Company's 1999 employee Stock Purchase Plan,
providing for the issuance of up to 1,000,000 shares of Common
Stock (check one box).
[ ] For [ ] Against [ ] Abstain
PROPOSAL 4: To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number
of shares of Common Stock from 65,000,000 to 120,000,000 shares
and the authorized number of shares of Preferred Stock from
2,000,000 to 10,000,000 shares (check one box).
[ ] For [ ] Against [ ] Abstain
PROPOSAL 5: To ratify the appointment of Deloitte & Touche as independent
auditors for the Company for the fiscal year ending December 31,
1999 (check one box).
[ ] For [ ] Against [ ] Abstain
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS
MADE HEREIN. IF NO SPECIFICATION IS MADE AS TO ANY INDIVIDUAL ITEM HEREIN,
IT IS INTENDED THAT SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NAMED NOMINEES AND FOR THE OTHER PROPOSALS SPECIFIED HEREIN.
2.
<PAGE>
Both of said attorneys and proxies or their substitutes as shall be
present and act at the meeting, or if only one be present and act then that
one, shall have and may exercise all of the powers of both of said attorneys
and proxies hereunder.
The undersigned hereby acknowledges receipt of (a) the Notice of Annual
Meeting of Stockholders to be held on April 13, 1999 and (b) the accompanying
Proxy Statement.
3.
<PAGE>
WITNESS the signature of the undersigned this ______day of __________, 1999.
_____________________________________
_____________________________________
SIGNATURE(S)
Please sign this proxy exactly as
your name appears hereon: joint
owners should each sign personally.
Trustees and other fiduciaries
should indicate the capacity in
which they sign. If a corporation
or partnership, this signature
should be that of an authorized
officer who should state his or her
title.
Please vote, date and promptly
return this proxy in the enclosed
return envelope which is postage
prepaid if mailed in the united
states.
4.
