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 ss. 240.14a-11(c) or ss. 240.14a-12
ZITEL CORPORATION
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(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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|_| Fee paid previously with preliminary materials.
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paid previously. Identify the previous filing by registration statement
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<PAGE>
ZITEL CORPORATION
47211 Bayside Parkway
Fremont, CA 94538
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 1997
TO THE SHAREHOLDERS OF ZITEL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Zitel
Corporation, a California corporation (the "Company"), will be held on Thursday,
February 27, 1997 at 3:00 p.m. local time at the Milpitas Holiday Inn, 777
Bellew Drive, Milpitas, California 95035 for the following purposes:
1. To elect directors to serve for the ensuing year and until
their successors are elected.
2. To approve an increase in the number of authorized shares of
the Company's Common Stock from 20,000,000 to 40,000,000.
3. To approve the amendment of the 1990 Stock Option Plan, as
amended to increase the number of shares that may be issued
from 4,650,000 to 5,450,000, an increase of 800,000 shares.
4. To approve a change in the Company's state of incorporation
from California to Delaware.
5. 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 December 31,
1996 as the record date for the determination of shareholders entitled to notice
of and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Henry C. Harris
Secretary
Fremont, California
January __, 1997
================================================================================
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
================================================================================
<PAGE>
ZITEL CORPORATION
47211 Bayside Parkway
Fremont, CA 94538
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Zitel Corporation, a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held on February 27, 1997 at 3:00 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 the Milpitas Holiday Inn, 777
Bellew Drive, Milpitas, California 95035.
Solicitation
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to shareholders. The Company
has engaged the firm of Chase Mellon Shareholder Services to assist the Company
in the distribution and solicitation of proxies and has agreed to pay Chase
Mellon Shareholder Services a fee of $7,000 plus expenses for its services.
Copies of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of the Company's common
stock (the "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 and by Chase Mellon
Shareholder Services. No additional compensation will be paid to directors,
officers or other regular employees for such services.
The Company intends to mail this proxy statement and accompanying proxy
card on or about January __, 1997 to all shareholders entitled to vote at the
Annual Meeting.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on
December 31, 1996 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on December 31, 1996, the Company had
outstanding and entitled to vote 15,166,691 shares of Common Stock. On November
27, 1996, the Company issued a dividend of Common Stock in the form of a 2:1
stock split. All numbers represented in the Proxy Statement have been adjusted
to reflect such stock split.
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. With respect to
the election of directors, shareholders may exercise cumulative voting rights.
Under cumulative voting, each holder of Common Stock will be entitled to five
votes for each share held. Each shareholder may give one candidate, who has been
nominated prior to voting, all the votes such shareholder is entitled to cast or
may distribute such votes among as many such candidates as such shareholder
chooses. However, no shareholder will be entitled to cumulate votes unless the
candidate's name has been placed in nomination prior to the voting and at least
one shareholder has given notice at the meeting, prior to the voting, of his or
her intention to cumulate votes. Unless the proxyholders are otherwise
instructed, shareholders, by means of the accompanying proxy, will grant the
proxyholders discretionary authority to cumulate votes.
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 and broker non-votes are counted
towards a quorum but are not counted for any purpose in determining whether a
matter is approved.
<PAGE>
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, 47211
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.
Shareholder Proposals
Proposals of shareholders that are intended to be presented at the
Company's 1998 Annual Meeting of Shareholders must be received by the Company no
later than September __, 1997 in order to be included in the proxy statement and
proxy relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently
authorized in the Company's Bylaws. Each director to be elected will hold office
until the next annual meeting of shareholders and until his or her successor is
elected and has qualified or until such director's earlier death, resignation or
removal. Each nominee listed below is currently a director of the Company. Each
nominee listed below was previously elected by the shareholders.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the five nominees named below,
subject to the discretionary power to cumulate votes. 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 and the board may approve. 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.
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 NAMED NOMINEE.
Nominees
The names of the nominees and certain information about them are set
forth below:
Principal Occupation/
Name Age Position Held with the Company
William R. Lonergan.......... 71 Chairman of the Board of Directors
Jack H. King................. 63 President and Chief Executive Officer
Catherine P. Lego............ 40 Venture Capitalist
William M. Regitz............ 57 Manager, Intel Corporation
Robert H. Welch.............. 56 Private Investor
2.
<PAGE>
William R. Lonergan has served as Chairman of the Board of Directors
since July 1994 and as a Director of the Company since July 1983. Mr. Lonergan
was a Partner of Oxford Partners, the general partner of several venture capital
partnerships, from May 1983 to December 1994. Since January 1995, he has been a
consultant to Oxford Partners. Mr. Lonergan is a Director of Dataware
Technologies, Inc., a developer and marketer of high-performance, multi-platform
and multi-lingual software, Kurzweil Applied Intelligence, Inc. a manufacturer
of voice recognition systems and Medical Sterilization, Inc., a provider of
off-site sterilization of medical equipment and supplies.
Jack H. King was appointed President and Chief Executive Officer of
Zitel in October 1986. He was elected as a Director in January 1987. Prior to
joining Zitel, Mr. King served as President and Chief Executive Officer of
Dynamic Disk, Inc., a manufacturer of thin film media, from 1984 to 1986. From
1981 to 1984, he served as President and Chief Operating Officer of Data
Electronics, Inc., a cartridge tape drive manufacturer. Mr. King is also a
Director of Etec Corp., a manufacturer of semiconductor equipment.
Catherine P. Lego was elected a Director of the Company in July 1994.
Ms. Lego has been a Principal of Lego Ventures and a venture capital consultant
since June 1992. From 1985 to 1992, she was a general partner of Oak Investment
Partners. Ms. Lego is also a Director of Uniphase Corporation, a laser
components semiconductor equipment manufacturer, Etec Corp., a manufacturer of
semiconductor equipment, SanDisk Corp., a manufacturer of flash memory cards and
one privately-held company.
William M. Regitz has served as a Director of the Company since March
1983. He is Manager of the Special Accounts Operations in Hillsboro, Oregon for
Intel Corporation ("Intel"). He has served in various positions at Intel since
1971.
Robert H. Welch is a founder of Zitel and served as its President and
Chief Executive Officer and Director from its inception in 1979 until October
1986. Mr. Welch was Chairman of the Board of Zitel from October 1986 to November
1987 and has remained a Director since that date. Mr. Welch is a private
investor and an officer and director of Telegra Corporation, a privately-held
company. Previously, he was a management consultant through his firm, Bay
Venture Management, for several privately-held firms.
Mr. Lonergan was originally elected to the Board pursuant to agreements
between Zitel, the Oxford Funds and certain Zitel shareholders to elect a
designee of the Oxford Funds reasonably acceptable to Zitel. These agreements
terminated in January 1984. Mr. Regitz was originally elected to the Board
pursuant to an agreement between Zitel and Intel in connection with the February
1983 product acquisition transaction between the two companies. This agreement
expired on February 2, 1987.
Board Committees and Meetings
During the fiscal year ended September 30, 1996, the Board of Directors
held six meetings. The Board has an Audit Committee and a Compensation
Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of three
non-employee directors: Ms. Lego and Messrs. Lonergan and Welch. It met two
times during such fiscal year.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees, sales
representatives and consultants under the Company's stock option plans and
otherwise determines compensation levels and performs such other functions
regarding compensation as the Board may delegate. The Compensation Committee is
composed of three non-employee directors: Messrs. Lonergan, Regitz and Welch. It
met four times during such fiscal year.
During the fiscal year ended September 30, 1996, each Board member
attended 75% or more of the aggregate number of meetings of the Board and of the
committees on which they served that were held during the period for which they
were a director or committee member, respectively.
3.
<PAGE>
PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Company's Restated Certificate of Incorporation, as amended, to
increase the Company's authorized number of shares of Common Stock from
20,000,000 shares to 40,000,000 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. Adoption of the proposed amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding Common
Stock of the Company, except for effects incidental to increasing the number of
shares of the Company's Common Stock outstanding. If the amendment is adopted,
it will become effective upon filing of a Certificate of Amendment of the
Company's Restated Certificate of Incorporation, as amended, with the Secretary
of State of the State of California.
In addition to the 15,166,691 shares of Common Stock outstanding at
December 31, 1996, the Board has reserved 1,763,133 shares for issuance upon the
grant and exercise of options and rights under the Company's stock option and
stock purchase plans, and 41,250 shares of Common Stock may be issued upon
exercise of warrants currently held by three (3) warrantholders. Additionally,
upon approval of Proposal 3, another 800,000 shares will be reserved for future
grants under the Company's 1990 Stock Option Plan, leaving a remainder of
2,228,926 authorized shares available.
On November 27, 1996, the Company issued a dividend of Common Stock in
the form of a 2:1 stock split. Although at present the Board of Directors has no
other plans to issue the additional shares of Common 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 shareholder approval, for various purposes including,
without limitation, issuing additional dividends in the form of stock splits,
raising capital, providing equity incentives to employees, officer 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 that would become available for
issuance if this 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 shareholder approval,
the Board could strategically sell shares of Common 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 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, shareholders should be aware that
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 shareholders might otherwise receive a premium for their shares over
then current market prices.
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to
pages 10 through 26 of the Company's 1996 Annual Report to Shareholders.
4.
<PAGE>
The affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock present in person or represented by proxy and voting
at the Annual Meeting will be required to approve this amendment to the
Company's Restated Certificate of Incorporation, as amended. For purposes of the
vote, abstentions and broker non-votes will not be counted for any purpose in
determining whether this matter has been approved.
If Proposal 4 is approved, the capitalization of the Delaware Company
will be identical to that proposed in this Proposal 2. Accordingly, if Proposal
4 is approved and the Company is reincorporated, the Company will have
40,000,000 shares of authorized Common Stock whether or not Proposal 2 is
approved. If Proposal 4 is not approved, the Company's capitalization will
change only if this Proposal 2 is approved.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
5.
<PAGE>
PROPOSAL 3
APPROVAL OF AMENDMENT OF THE 1990 STOCK OPTION PLAN
In November 1996, the Company's Board of Directors adopted an
amendment, subject to shareholder approval, to increase the number of shares
reserved for issuance under the 1990 Stock Option Plan (the "1990 Option Plan")
by 800,000 shares, from 4,650,000 (including shares reserved or granted under
the Company's prior Option Plans) to 5,450,000 shares. The Board adopted this
amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
At December 31, 1996, options (net of canceled or expired options)
covering an aggregate of 5,021,627 shares of the Company's Common Stock had been
granted under the 1990 Option Plan, with 371,627 of such options granted by the
Board subject to shareholder approval of this Proposal 3. No shares (plus any
shares that might in the future be returned to the plans as a result of
cancellations or expiration of options) remained available for future grant
under the 1990 Option Plan. Options to purchase 3,272,729 shares have been
exercised. During the last fiscal year, under the 1990 Option Plan, the Company
granted 60,000 options at exercise prices of $4.81 to $8.94 per share to current
executive officers and granted to all employees (excluding executive officers)
as a group options to purchase 200,000 shares at exercise prices of $4.81 to
$9.88 per share.
Shareholders are requested in this Proposal 3 to approve the 1990
Option Plan, as amended. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock present in person or represented by proxy
and voting at the Annual Meeting will be required to approve the adoption of the
amendment to the 1990 Option Plan. For purposes of the vote, abstentions and
broker non-votes will not be counted for any purpose in determining whether this
matter has been approved.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
The essential features of the 1990 Option Plan are outlined below:
General
In September 1990, the Company's Board of Directors adopted the 1990
Option Plan, effective on October 1, 1990. The 1990 Option Plan was approved by
the shareholders in January 1991. At the same time, the Board of Directors
terminated the Company's 1982 Incentive Stock Option Plan and 1984 Supplemental
Stock Option Plan (together, these two option plans are sometimes referred to as
the "Former Option Plans" and, together with the 1990 Option Plan as the "Option
Plans"), effective upon shareholder approval of the 1990 Stock Option Plan. A
total of 3,650,000 shares (including shares reserved or granted under the Former
Option Plans), were reserved for issuance under the 1990 Option Plan, which was
exactly equal to the number of ungranted shares reserved for issuance under the
Former Option Plans. Shares reserved for issuance under the Former Option Plans,
if the options under which they were to be issued are canceled or terminate,
will become available for issuance under the 1990 Option Plan. In October 1991,
the Company's Board of Directors adopted an amendment to increase the number of
shares reserved under the 1990 Option Plan from 3,650,000 shares to 4,150,000
shares. This amendment was approved by the shareholders in January 1992. In
September 1994, the Company's Board of Directors adopted an amendment to
increase the number of shares reserved under the 1990 Option Plan from 4,150,000
to 4,650,000. This amendment was approved by the shareholders in January 1995.
Currently the Board has granted a total of 5,021,627 shares under the 1990
Option Plan, with 371,627 of such outstanding options granted by the Board,
subject to shareholder approval of this Proposal 3.
6.
<PAGE>
The 1990 Option Plan provides for the grant of both incentive and
supplemental stock options. Incentive stock options granted under the 1990
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"). Supplemental stock options granted under the 1990 Option Plan are
intended not to qualify as incentive stock options under the Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of incentive and
supplemental stock options.
Purpose
The 1990 Option Plan was adopted to provide a means by which selected
officers, directors and employees of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of employees holding key positions, 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.
Administration
The 1990 Option Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the 1990 Option Plan
and, subject to the provisions of the 1990 Option Plan, to determine the persons
to whom and the dates on which options will be granted, the number of shares to
be subject to each option, the time or times during the term of each option
within which all or a portion of such option may be exercised, the exercise
price, the type of consideration, and other terms of the option. The Board of
Directors is authorized to delegate administration of the 1990 Option Plan to a
committee composed of not fewer than two members of the Board. The Board has
delegated administration of the 1990 Option Plan to the Compensation Committee
of the Board. As used herein with respect to the 1990 Option Plan, the "Board"
refers to the Compensation Committee as well as to the Board of Directors
itself.
Eligibility
Under the 1990 Option Plan, incentive stock options may be granted only
to key employees of the Company and its subsidiaries. A director of the Company
shall not be eligible to receive incentive stock options unless such director is
also an employee (including an officer) of the Company or its subsidiaries.
Supplemental stock options under the 1990 Option Plan may only be granted to
directors of, key employees (including officers) of, sales representatives for,
or consultants to the Company and its subsidiaries. A director of the Company
shall not be eligible to receive a supplemental stock option unless such
director is expressly declared eligible to participate in the 1990 Option Plan
by appropriate action of the Board.
No incentive stock option may be granted under the 1990 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 option 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. For incentive stock options granted under the 1990 Option Plan after
1986, the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000.
Stock Subject to the 1990 Option Plan
If options granted under the 1990 Option Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the 1990 Option Plan.
7.
<PAGE>
Terms of Options
The following is a description of the permissible terms of options
under the 1990 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
under the 1990 Option Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant and, in some
cases (see "Eligibility", above), may not be less than 110% of such fair market
value. The exercise price of supplemental options under the 1990 Option Plan may
not be less than 85% of the fair market value of the Common Stock subject to the
option on the date of the option grant. However, 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). See "Federal
Income Tax Information." At January 14, 1997, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market System was $37.00 per
share.
The exercise price of options granted under the 1990 Option Plan must
be paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1990 Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. The
Board has the power to accelerate the time during which an option may be
exercised. In addition, options granted under the 1990 Option Plan may permit
exercise prior to vesting, but in such event the optionee may be required to
enter into an early exercise stock purchase agreement that allows the Company to
repurchase shares not yet vested, at their exercise price, should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee 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 optionee, by delivering already-owned stock of the
Company, or by a combination of these means.
Term. The maximum term of options under the 1990 Option Plan is 10
years, except that in certain cases (see "Eligibility"), the maximum term is 5
years. Options under the 1990 Option Plan terminate three months after
termination of the optionee's employment or relationship as a consultant, sales
representative or director of the Company or any affiliate of the Company,
unless (a) such termination is due to such person'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 at any time within one year of such
termination; (b) the optionee dies while employed by or serving as a consultant,
sales representative or director to the Company or any affiliate of the Company,
or within three months after termination of such relationship, 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 optionee's death) within eighteen
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option, by its terms, specifically provides otherwise. Individual options, by
their terms, may provide for exercise within a longer period of time following
termination of employment or the consulting relationship. The option term may
also be extended in the event that exercise of the option within these periods
is prohibited for specified reasons.
Adjustment Provisions
If there is any change in the stock subject to the 1990 Option Plan or
subject to any option granted under the 1990 Option Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1990 Option Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan
and the class, number of shares and price per share of stock subject to such
outstanding options.
8.
<PAGE>
Effect of Certain Corporate Events
The 1990 Option Plan provides that, in the event of a dissolution or
liquidation of the Company, or a specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume options outstanding under the 1990 Option Plan or
substitute similar options for those outstanding under such Plans, or, at the
discretion of the Board, (a) such outstanding options will continue in full
force and effect, (b) the time during which such options may be exercised will
be accelerated and the options terminated if not exercised during such time or
(c) the options will be terminated. The acceleration of an option in the event
of an acquisition or similar corporate event may be viewed as an antitakeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
Duration, Termination and Amendment
The Board may suspend or terminate the 1990 Option Plan without
shareholder approval or ratification at any time or from time to time. Unless
sooner terminated, the 1990 Option Plan will terminate on September 27, 2000.
The Board may also amend the 1990 Option Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
shareholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires shareholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 of the Exchange Act); (b) increase the number of shares reserved for
issuance upon exercise of options; or (c) change any other provision of the Plan
in any other way if such modification requires shareholder approval in order to
comply with Rule 16b-3 or satisfy the requirements of Section 422 of the Code.
Restrictions on Transfer
Under the 1990 Option Plan, an option may not be transferred by the
optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an optionee, an option may be exercised only by the
optionee. In addition, shares subject to repurchase by the Company under an
early exercise stock purchase agreement may be subject to restrictions on
transfer which the Board deems appropriate.
Federal Income Tax Information
Incentive Stock Options. Incentive stock options under the 1990 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 optionee
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 optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are transferred
to the optionee upon exercise of the option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price or (b)
the optionee's actual gain, if any, on the purchase and sale. The optionee'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. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the
9.
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maximum ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will 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.
Supplemental Stock Options. Supplemental stock options granted under
the 1990 Option Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a supplemental stock option. Upon exercise of a supplemental
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
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 optionee. Upon disposition of the stock, the optionee 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. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. 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 will qualify as performance-based compensation,
provided that: (i) the option plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified period;
(ii) the per-employee limitation is approved by the shareholders; (iii) the
option is granted by a compensation committee comprised solely of "outside
directors"; and (iv) either the exercise price of the option is no less than the
fair market value of the stock on the date of grant, or the option is granted
(or exercisable) only upon the achievement (as certified by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain.
10.
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PROPOSAL 4
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
General
The Board of Directors has unanimously approved a proposal to change
the Company's state of incorporation from California to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, the Board of
Directors believes that reincorporation will enhance the Company's ability to
attract and retain qualified members of the Company's Board of Directors as well
as encourage directors to continue to make independent decisions in good faith
on behalf of the Company. To date, the Company has not experienced difficulty in
retaining directors. The Company believes that the more favorable corporate
environment afforded by Delaware will enable it to compete more effectively with
other public companies, most of which are incorporated in Delaware, to attract
new directors and to retain its current directors. Reincorporation in Delaware
will allow the Company the increased flexibility and predictability afforded by
Delaware law. Concurrent with the reincorporation, the Company proposes to adopt
or maintain certain measures designed to make hostile takeovers of the Company
more difficult. The Board believes that adoption of these measures will enable
the Board to consider fully any proposed takeover attempt and to negotiate terms
that maximize the benefit to the Company and its shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years Delaware has followed a policy of encouraging
incorporation in that state. In furtherance of that policy, Delaware has adopted
comprehensive corporate laws which are revised regularly to meet changing
business circumstances. The Delaware Legislature is particularly sensitive to
issues regarding corporate law and is especially responsive to developments in
modern corporate law. The Delaware courts have developed considerable expertise
in dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
In 1986, Delaware amended its corporate law to allow corporations to
limit the personal monetary liability of its directors for their conduct as
directors under certain circumstances. The directors have elected to adopt such
a provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct or any
transaction from which the director derives an improper personal benefit or for
violations of federal laws such as the federal securities laws. The Board
believes that Delaware incorporation will enhance the Company's ability to
recruit and retain directors in the future, however, the shareholders should be
aware that such a provision inures to the benefit of the directors, and the
interest of the Board in recommending the reincorporation may therefore be in
conflict with the interests of the shareholders. See "Indemnification and
Limitation of Liability" for a more complete discussion of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. The Company adopted articles and bylaws and entered into
indemnification agreements to take advantage of these changes in California law.
Nonetheless, the Board of Directors believes that the protection from liability
for directors is somewhat greater under the Delaware law than under the
California law and therefore that the Company's objectives in adopting this type
of provision can be better achieved by reincorporation in Delaware. The Board of
Directors has included such a provision in the Delaware articles and bylaws.
Shareholders should be aware
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that, because such provision inures to the benefit of the directors, there is a
potential conflict in the Board's support of such a provision. See
"Indemnification and Limitation of Liability" for a more complete discussion of
these issues.
The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders begins on page __ of this Proxy
Statement.
In addition, portions of the reincorporation proposal may have the
effect of deterring hostile takeover attempts. A hostile takeover attempt may
have a positive or a negative effect on the Company and its shareholders,
depending on the circumstances surrounding a particular takeover attempt.
Takeover attempts that have not been negotiated or approved by the board of
directors of a corporation can seriously disrupt the business and management of
a corporation and generally present to the shareholders the risk of terms which
may be less than favorable to all of the shareholders than would be available in
a board-approved transaction. Board approved transactions may be carefully
planned and undertaken at an opportune time in order to obtain maximum value for
the corporation and all of its shareholders with due consideration to matters
such as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to
shareholders of the changes, shareholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire control
of the Company which is not presented to and approved by the Board of Directors,
but which a substantial number and perhaps even a majority of the Company's
shareholders might believe to be in their best interests or in which
shareholders might receive a substantial premium for their shares over the
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so.
The Delaware certificate and bylaws will contain provisions eliminating
cumulative voting and the action by written consent of shareholders, advance
notice requirement for shareholder proposals, supermajority requirements for
amendment of certain provisions in the Delaware certificate and bylaws and
requiring a vacancy on the board resulting from an increase in number of
directors to be filled by the majority vote of the directors.
In considering the proposals, shareholders should be aware that the
overall effect of certain of the proposed changes is to make it more difficult
for holders of a majority of the outstanding shares of Common Stock to change
the composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
The new provisions in the Company's charter documents could make a
proxy contest a less effective means of removing or replacing existing directors
or could make it more difficult to make a change in control of the Company which
is opposed by the Board of Directors. This strengthened authority of the Board
of Directors could enable the Board of Directors to resist change and otherwise
thwart the desires of a majority of the shareholders. Because this provision may
have the effect of continuing the tenure of the current Board of Directors, the
Board has recognized that the individual directors have a personal interest in
this provision that may differ from those of the shareholders. However, the
Board believes that these provisions' primary purpose is to ensure that the
Board will have sufficient time
12.
<PAGE>
to consider fully any proposed takeover attempt in light of the short and
long-term benefits and other opportunities available to the Company and, to the
extent the Board determines to proceed with the takeover, to effectively
negotiate terms that would maximize the benefits to the Company and its
shareholders.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions included in the proposed
charter documents outweigh the possible disadvantages. In particular, the Board
believes that the benefits associated with attracting and retaining skilled and
experienced outside directors and with enabling the Board to fully consider and
negotiate proposed takeover attempts, as well as the greater sophistication,
breadth and certainty of Delaware law, make the reincorporation proposed
beneficial to the Company, its management and its shareholders.
The proposal to include these antitakeover provisions in the proposed
reincorporation does not reflect knowledge on the part of the Board of Directors
or management of any proposed takeover or other attempt to acquire control of
the Company. Management may in the future propose other measures designed to
discourage takeovers apart from those proposed in this Proxy Statement, if
warranted from time to time in the judgment of the Board of Directors.
The proposed reincorporation would be accomplished by merging the
Company into a newly formed Delaware corporation which, just before the merger,
will be a wholly owned subsidiary of the Company (the "Delaware Company"),
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), a copy of
which is attached as Exhibit A to this Proxy Statement. Upon the effective date
of the merger, the Delaware Company's name will be Zitel Corporation. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
On the effective date of the proposed reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one share
of Common Stock of the Delaware Company, and shareholders of the Company will
automatically become shareholders of the Delaware Company. On the effective date
of the reincorporation, the number of outstanding shares of Common Stock of the
Delaware Company will be equal to the number of shares of Common Stock of the
Company outstanding immediately prior to the effective date of the
reincorporation. In addition, each outstanding option or right to acquire shares
of Common Stock or Preferred Stock of the Company will be converted into an
option or right to acquire an equal number of shares of Common Stock or
Preferred Stock of the Delaware Company, under the same terms and conditions as
the original options or rights. All of the Company's employee benefit plans,
including the 1984 Employee Stock Purchase Plan, 1990 Stock Option Plan and the
1995 Non-Employee Directors' Stock Option Plan will be adopted and continued by
the Delaware Company following the reincorporation. Shareholders should
recognize that approval of the proposed reincorporation will constitute approval
of the adoption and assumption of those plans by the Delaware Company.
No action need be taken by shareholders to exchange their stock
certificates now; this will be accomplished at the time of the next transfer by
the shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger.
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock present in person or represented by proxy
and voting at the Annual Meeting is required for approval of the
reincorporation. For purposes of the vote, abstentions and broker non-votes will
not be counted for any purpose in determining whether this matter has been
approved. If approved by the shareholders, it is anticipated that the
reincorporation would be completed as soon thereafter as practicable. The
reincorporation may be abandoned or the Merger Agreement may be amended (with
certain exceptions), either before or after shareholder approval has been
obtained, if in the opinion of the Board of Directors, circumstances arise that
make such action advisable; provided, that any amendment that would effect a
material change from the charter provisions discussed in this Proxy Statement
would require further approval by the holders of a majority of the outstanding
shares of the Company's Common Stock.
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Significant Changes Caused by Reincorporation
In general, the Company's corporate affairs are governed at present by
the corporate law of California, the Company's state of incorporation, and by
the Company's Restated Articles of Incorporation, as amended (the "California
Articles") and the Company's Bylaws (the "California Bylaws"), which have been
adopted pursuant to California law. The California Articles and California
Bylaws are available for inspection during business hours at the principal
executive offices of the Company. In addition, copies may be obtained by writing
to the Company at Zitel Corporation, 47211 Bayside Parkway, Fremont, California
94538, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, the Company will merge
into, and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "Application of California
Law After Reincorporation"). The California Articles and California Bylaws,
will, in effect, be replaced by the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate") and the bylaws of the Delaware Company (the
"Delaware Bylaws"), copies of which are attached as Exhibits B and C to this
Proxy. Accordingly, the differences among these documents and between Delaware
and California law are relevant to your decision whether to approve the
reincorporation proposal.
<TABLE>
A number of differences between California and Delaware law and among
the various charter documents are summarized in the chart below. Shareholders
are requested to read the following chart in conjunction with the discussion
following the chart and the Merger Agreement, the Delaware Certificate and the
Delaware Bylaws attached to this Proxy Statement. For each item summarized in
the chart, there is a reference to a page of this Proxy Statement on which a
more detailed discussion appears.
<CAPTION>
================================================================================================================================
Issue Delaware California
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Limitation of Liability of Delaware law permits the limitation of California law contains additional
Directors and Officers liability of directors and officers to the exceptions to the liability limitations
(see page __). Company except in connection with (i) of directors and officers. See
breaches of the duty of loyalty; (ii) "Indemnification and Limitations of
acts or omissions not in good faith or Liability."
involving intentional misconduct or
knowing violations of law; (iii) the payment
of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv)
transactions in which a director received an
improper personal benefit.
- - --------------------------------------------------------------------------------------------------------------------------------
Indemnification of Delaware law permits somewhat California Law permits
Directors and Officers broader indemnification and could indemnification under certain
(see page __). result in indemnification of directors circumstances, subject to certain
and officers in circumstances where limitations. See "Indemnification and
California law would not permit Limitation of Liability."
indemnification. See "Indemnification
and Limitation of Liability."
- - --------------------------------------------------------------------------------------------------------------------------------
14.
<PAGE>
================================================================================================================================
Issue Delaware California
- - --------------------------------------------------------------------------------------------------------------------------------
Cumulative Voting for Cumulative voting not available under Cumulative voting is mandatory upon
Directors Delaware law because not provided in notice given by a shareholder at a
(See page __). the Delaware Certificate. shareholders' meeting at which
directors are to be elected. California law
permits NASDAQ/NMS corporations with over 800
equity security holders to eliminate cumulative
voting.
- - --------------------------------------------------------------------------------------------------------------------------------
Number of Directors Determined solely by resolution of the Determined by Board within range set
(see page __). Board. in the California Bylaws. Changes in
the authorized range must be
approved by the shareholders.
- - --------------------------------------------------------------------------------------------------------------------------------
Filling Board Vacancies Delaware law provides for the California law permits (a) any holder
Delaware Court of Chancery to order of 5% or more of the corporation's
an election to fill vacancies or newly Voting Stock or (b) the superior court
created directorships upon the of the appropriate county to call a
application of the holders of 10% of special meeting of shareholders to
the outstanding shares having a right elect the entire board if, after filling
to vote for such directors if, at the any vacancy, the directors then in
time of filling such vacancies or office who have been elected by the
directorships, the directors then in shareholders constitute less than a
office constitute less than a majority of majority of the directors then in
the entire board as constituted office.
immediately prior to any increase.
- - --------------------------------------------------------------------------------------------------------------------------------
Removal of Directors by Removal with or without cause by Removal with or without cause by
Shareholders (see page affirmative vote of a majority of the affirmative vote of a majority of the
__). outstanding shares. outstanding shares, provided that
shares voting against removal could not elect
such director under cumulative voting.
- - --------------------------------------------------------------------------------------------------------------------------------
Who May Call Special The Board, the Chairman of the Board The Board, the Chairman of the
Shareholder Meeting or the Chief Executive Officer. Board, the President, or holders of
(see page __). 10% of the shares entitled to vote at
the special meeting.
- - --------------------------------------------------------------------------------------------------------------------------------
Action by Written Action by written consent not Any action which may be taken at
Consent of Shareholders permitted by Delaware Certificate. any annual or special meeting of
in Lieu of a Shareholder All shareholder action must take place shareholders may be taken without a
Vote at Shareholder by a shareholder vote at a meeting of meeting and without prior notice, if a
Meeting (see page __). shareholders. written consent is signed by the
holders of outstanding shares
necessary to authorize the action.
- - --------------------------------------------------------------------------------------------------------------------------------
Tender Offer Statute (see Restricts hostile two-step takeovers. No comparable statute.
page __).
- - --------------------------------------------------------------------------------------------------------------------------------
15.
<PAGE>
================================================================================================================================
Issue Delaware California
- - --------------------------------------------------------------------------------------------------------------------------------
Amendment of Amendments to provisions relating to Amendments require approval by a
Certificate (see page __). director indemnification, management majority of the voting stock of the
of the Delaware Company, and Company.
amendment of the Delaware
Certificate require approval by
66 2/3% of the voting stock of the
Delaware Company.
- - --------------------------------------------------------------------------------------------------------------------------------
Amendment of Bylaws By the Board or the holders of By the Board or the holders of a
(see page __). 66 2/3% of the outstanding voting majority of the outstanding voting
shares. shares.
- - --------------------------------------------------------------------------------------------------------------------------------
Loans to Officers and Board may authorize if expected to Loans must be approved or ratified by
Directors (see page __). benefit the Company. a majority of the outstanding shares.
- - --------------------------------------------------------------------------------------------------------------------------------
Class Vote for Generally not required unless a A reorganization transaction must
Reorganizations (see reorganization adversely affects a generally be approved by a majority
page __). specific class of shares. vote of each class of shares
outstanding.
- - --------------------------------------------------------------------------------------------------------------------------------
Right of Shareholders to Permitted for any purpose reasonably Permitted for any purpose reasonably
Inspect Shareholder List related to such shareholder's interest related to such shareholder's interest
(see page __). as a shareholder. as a shareholder. Also, an absolute
right to 5% shareholders and certain
1% shareholders.
- - --------------------------------------------------------------------------------------------------------------------------------
Appraisal Rights (see Generally available if shareholders Available in certain circumstances if
page __). receive cash in exchange for the the holders of 5% of the class assert
shares and in certain other such rights.
circumstances.
- - --------------------------------------------------------------------------------------------------------------------------------
Dividends (see page __). Paid from surplus (including paid-in Generally limited to the greater of (i)
and earned surplus or net profits). retained earnings or (ii) an amount
which would leave the Company with assets of 125%
of liabilities and current assets of 100% of
current liabilities.
- - --------------------------------------------------------------------------------------------------------------------------------
Other Responsive legislature and larger body of
corporate case law in Delaware provides more
predictable corporate legal environment in
Delaware.
================================================================================================================================
</TABLE>
Indemnification and Limitation of Liability
Limitations on Director Liability. Both California and Delaware permit
a corporation to limit the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of certain duties as a
director. The California and Delaware laws adopt a self-governance approach by
enabling a corporation to take
16.
<PAGE>
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders: (f) interested
transactions between the corporation and a director in which a director has a
material financial interest: and (g) liability for improper distributions, loans
or guarantees.
The Delaware Certificate also eliminates the liability of directors to
the fullest extent permissible under Delaware law, as such law exists currently
or as it may be amended in the future. Under Delaware law, such provision may
not eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its stockholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care
in managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors to the
Company and its shareholders.
Indemnification of Officers and Directors. The California and Delaware
Bylaws relating to indemnification similarly require that the California Company
and the Delaware Company, respectively, indemnify its directors and its
executive officers and officers, respectively, to the fullest extent permitted
by the respective state law, provided, that the Company may modify the extent of
such indemnification by individual contracts with its directors and executive
officers, and, provided, further, that the Company will not be required to
indemnify any director or executive officer in connection with a proceeding
initiated by such person, with certain exceptions. Such Bylaws permit the
California Company and the Delaware Company, respectively, to provide
indemnification to its other officers, employees and agents as set forth in the
respective state law. Such indemnification is intended to provide the full
flexibility available under such laws. The Delaware Bylaws contain provisions
similar to the California Bylaws with respect to advances in that the Company is
17.
<PAGE>
required to advance expenses related to any proceeding contingent on such
persons' commitment to repay any advances unless it is determined ultimately
that such persons are entitles to be indemnified.
California and Delaware have similar laws respecting indemnification by
a corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines such person
is entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law
providing the requisite standard of conduct is met, as determined by a majority
vote of a disinterested quorum of the directors, independent legal counsel (if a
quorum of independent directors is not obtainable), a majority vote of a quorum
of the shareholders (excluding shares owned by the indemnified party) or the
court handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in
the defense or settlement of a derivative or third-party action, provided there
is a determination by a disinterested quorum of the directors, by independent
legal counsel or by a majority vote of a quorum of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in or (in contrast to California law) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation. Delaware law requires indemnification of
expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise.
California corporations may include in their articles of incorporation
a provision which extends the scope of indemnification through agreements,
bylaws or other corporate action beyond that specifically authorized by statute.
The California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors, officers, employees and other agents, within the limits
established by law and public policy, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes. If the
reincorporation is approved, the Company intends to enter into indemnification
agrements with its officers and directors.
The indemnification and limitation of liability provisions of
California law, and not Delaware law, will apply to actions of the directors and
officers of the California Company made prior to the proposed reincorporation.
Nevertheless, the Board has recognized in considering this reincorporation
proposal that the individual directors have a personal interest in
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obtaining the application of Delaware law to such indemnity and limitation of
liability issues affecting them and the Company in the event they arise from a
potential future case, and that the application of Delaware law, to the extent
that any director or officer is actually indemnified in circumstances where
indemnification would not be available under California law, would result in
expense to the Company which the Company would not incur if the Company were not
reincorporated. The Board believes, however, that the overall effect of
reincorporation is to provide a corporate legal environment that enhances the
Company's ability to attract and retain high quality outside directors and thus
benefits the interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened
litigation to which any of its directors is a party in which the rights of the
Company or its shareholders would be affected if the Company currently were
subject to the provisions of Delaware law rather than California law.
California and Delaware corporate law, the bylaws of both the Company
and of the Delaware Company, as well as any indemnity agreements, may permit
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act. The Board of Directors has
been advised that, in the opinion of the Securities and Exchange Commission (the
"SEC"), indemnification for liabilities arising under the Securities Act is
contrary to public policy and is therefore unenforceable, absent a decision to
the contrary by a court of appropriate jurisdiction.
Cumulative Voting for Directors
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative.
Under California law cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its articles of incorporation or bylaws, to eliminate cumulative voting when the
Company's shares are listed on a national stock exchange or traded on the NASDAQ
National Market System and are held by at least 800 equity security holders.
Cumulative voting is not available under Delaware law unless so
provided in the corporation's certificate of incorporation. The Delaware
Certificate does not provide for cumulative voting.
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as it chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, the holder or holders of a majority of the
shares entitled to vote in an election of directors will be able to elect all
the directors of the Delaware Company.
The elimination of cumulative voting could deter investors from
acquiring a minority block in the Company with a view toward obtaining a board
seat and influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
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Other Matters Relating to Directors
Number of Directors. California law allows the number of persons
constituting the board of directors of a corporation to be fixed by the bylaws
or the articles of incorporation, or permits the bylaws to provide that the
number of directors may vary within a specified range, the exact number to be
determined by the Board of Directors. California law further provides that, in
the case of a variable board, the maximum number of directors may not exceed two
times the minimum number minus one. The California Articles and Bylaws provide
for a board of directors that may vary between five and nine members, inclusive,
and the Board of Directors has fixed the exact number of directors at five.
California law also requires that any change in a fixed number of directors and
any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
three cannot be adopted if votes cast against its adoption are equal to more
than 16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the vote of a majority of the outstanding shares to change the range of
the Company's variable Board of Directors; provided, any amendment reducing the
minimum number of directors cannot be adopted if votes cast against are equal to
more than 16 2/3 percent of the outstanding shares entitled to vote.
Delaware law permits a board of directors to change the authorized
number of directors by amendment to the bylaws unless the number of directors is
fixed in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
Removal of Directors. Under California law, a director may be removed
with or without cause by the affirmative vote of a majority of the outstanding
shares, provided that the shares voted against removal would not be sufficient
to elect the director by cumulative voting. Under Delaware law, unless the board
is classified or cumulative voting is permitted, a director can be removed from
office during his term by shareholders with or without cause by the holders of a
majority of the shares then entitled to vote at an election of directors. The
Delaware Certificate provides that the Company's directors may be removed from
office at any time with or without cause by the affirmative vote of the holders
of a majority of the voting power of the then-outstanding shares of voting stock
of the Company entitled to vote in the election of directors (the "Voting
Stock"). The term "cause" with respect to the removal of directors is not
defined in the Delaware General Corporation Law and its meaning has not been
precisely delineated by the Delaware courts.
Filling Board Vacancies. Under California law, if, after the filling of
any vacancy by the directors of a corporation, the directors then in office who
have been elected by the corporation's shareholders constitute less than a
majority of the directors then in office, then: (i) any holder of more than 5%
of the corporation's Voting Stock may call a special meeting of shareholders, or
(ii) the superior court of the appropriate county may order a special meeting of
the shareholders to elect the entire board of directors of the corporation.
Delaware law provides that if, at the time of filling any vacancy or newly
created directorship, the directors then in office constitute less than a
majority of the entire board of directors as constituted immediately prior to
any increase, the Delaware Court of Chancery may, upon application of any
shareholder or shareholders holding at least 10% of the total number of shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships or to replace the directors chosen by the directors then in
office.
The proposed Delaware Certificate and Bylaws provide that vacancies
shall, unless the Board of Directors determines by resolution that any such
vacancies be filled by the shareholders or as otherwise provided by law, be
filled only by the affirmative vote of a majority of directors then in office,
even if such directors comprise less than a quorum of the Board of Directors.
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Capitalization
Currently, the Company's capital stock consists of 20,000,000
authorized shares of Common Stock, no par value, of which 15,166,691 shares
issued and outstanding as of December 31, 1996, and 1,000,000 authorized shares
of Preferred Stock, no par value, of which (a) 200,000 shares are designated
Series A Junior Preferred Stock and (b) none are issued and outstanding as of
December 31, 1996. In Proposal 2, the shareholders of the Company are asked to
increase the number of authorized shares of Common Stock to 40,000,000.
Upon the effectiveness of the reincorporation, the Delaware Company
will have the same number of outstanding shares of Common Stock that the Company
had outstanding immediately prior to the reincorporation, assuming approval of
Proposal 2.
The capitalization of the Delaware Company is identical to the
capitalization of the Company, assuming shareholder approval of Proposal 2, with
the addition of a per share par value, with authorized capital stock of
40,000,000 shares of Common Stock, $.001 par value and 1,000,000 shares of
Preferred Stock, $.001 par value (200,000 of which are designated Series A
Junior Preferred Stock), consistent with maintaining adequate capitalization for
the current needs of the Company. The Delaware Company's authorized but unissued
shares of Preferred Stock will be available for future issuance.
Under the Delaware Certificate, as under the California Articles, the
Board of Directors has the authority to determine or alter the rights,
preferences, privileges and restrictions to be granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares
constituting any such series and to determine the designation thereof. The
rights, preferences, privileges and restrictions granted to and imposed upon the
Series A Junior Preferred Stock in the Delaware Certificate are identical to
those granted and imposed in the California Certificate.
In addition to the shareholder rights plan adopted by the Board of
Directors of the California Company, the Board may authorize the issuance of
Preferred Stock for the purpose of adopting other shareholder rights plans and
in connection with various corporate transactions, including corporate
partnering arrangements. If the reincorporation is approved, it is not the
present intention of the Board of Directors to seek shareholder approval prior
to any issuance of Preferred Stock, except as required by law or regulation. See
"Anti-Takeover Measures."
Shareholder Power to Call Special Shareholders' Meeting
Under California law, a special meeting of shareholders may be called
by the Board of Directors, the Chairman of the Board of Directors, the President
or the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors,
(i.e., by the Chairman or the Board of the Chief Executive Officer) the Board of
Directors shall determine the time and the place of such meeting which shall be
from 35 to 120 days after the receipt of the request of the meeting.
Actions by Written Consent of Shareholders
Under California and Delaware law, shareholders may execute an action
by written consent in lieu of a shareholder meeting. Both California and
Delaware law permits a corporation to eliminate such actions by written consent
in its charter. The Delaware Certificate eliminates actions by written consent
of shareholders.
Elimination of such shareholders written consents may lengthen the
amount of time required to take shareholder actions because certain actions by
written consent are not subject to the minimum notice requirement of a
shareholders' meeting. The elimination of shareholders written consents may
deter hostile takeover attempts because of the lengthened shareholder approval
process. Without the ability to act by written consent, a holder or group of
holders controlling a majority in interest of the Delaware Company's capital
stock will not be able to amend the Delaware Bylaws or remove
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directors pursuant to a written consent. Any such holder or group of holders
would have to wait until a shareholders' meeting was held to take any such
action. The Board believes this provision, like the other provisions to be
included in the Delaware Certificate and Bylaws, will enhance the Board's
opportunity to fully consider and effectively negotiate in the context of a
takeover attempt.
Advance Notice Requirement for Shareholder Proposals and Director Nominations
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date of the proxy statement
released in connection with the previous year's annual meeting.
The Delaware Bylaws provide that in order for director nominations or
shareholder proposals to be properly brought before the meeting, the shareholder
must have delivered timely notice to the Secretary of the corporation. To be
timely, notice must be delivered not less than 120 days prior to the date of the
Company's proxy statement released to stockholders in connection with the
previous year's annual meeting under the Delaware Bylaws. If no annual meeting
was held in the previous year or the date of the annual meeting has been changed
by more than 30 days from the date contemplated at the time of the previous
year's proxy statement, the Delaware Bylaws will provide that notice must be
given not more than 90 days nor less than 60 days prior to the annual meeting.
Proper notice under the federal securities laws for a proposal to be included in
the Company's proxy materials will constitute proper notice under the Delaware
Bylaws. These notice requirements help ensure that shareholders are aware of all
proposals to be voted on at the meeting and have the opportunity to consider
each proposal in advance of the meeting.
Anti-Takeover Measures
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the establishment of a
classified board of directors and the elimination of the right of shareholders
to call special shareholders' meetings, each of which is described above. In
addition, certain types of "poison pill" defenses (such as shareholder rights
plans) have been upheld by Delaware courts, while California courts have yet to
decide on the validity of such defenses, thus rendering their effectiveness in
California less certain.
As discussed herein, certain provisions of the Delaware Certificate and
Delaware Bylaws could be considered to be anti-takeover measures. The California
Company currently has a shareholder rights plan, which plan will be terminated
prior to the reincorporation if the shareholders vote to approve this Proposal
4. The Company intends that the Delaware Company will adopt a stockholders
rights plan similar to the existing shareholders rights plan; however, the
Company does not have any present intention of adopting any further
anti-takeover measures, nor does the Board of Directors have knowledge that any
attempt to gain control of the Company is being contemplated. As discussed
above, numerous differences between California and Delaware law, effective
without additional action by the Delaware Company, could have a bearing on
unapproved takeover attempts. See "Description of the California Company's 1996
Preferred Share Purchase Rights Plan."
One such difference is the existence of a Delaware statute regulating
tender offers, which statute is intended to limit coercive takeovers of
companies incorporated in that state. California has no comparable statute. The
Delaware law provides that a corporation may not engage in any business
combination with any interested shareholder for a period of three years
following the date that such shareholder became an interested shareholder,
unless (i) prior to the date the shareholder became an interested shareholder
the Board of Directors approved the business combination or the transaction
which resulted in the shareholder becoming an interested shareholder, or (ii)
upon consummation of the transaction which resulted in the shareholder becoming
an interested shareholder, the interested shareholder owned at least 85% of the
Voting Stock, or (iii) the business combination is approved by the Board of
Directors and authorized by 66 2/3% of the outstanding Voting Stock which is not
owned by the interested shareholder. An interested shareholder means any person
that is the owner of 15% or
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more of the outstanding Voting Stock, however, the statute provides for certain
exceptions to parties who otherwise would be designated interested shareholders,
including an exception for parties that held 15% or more of the outstanding
Voting Stock as of December 23, 1987. Any corporation may decide to opt out of
the statute in its original certificate of incorporation or, at any time, by
action of its shareholders. The Company has no present intention of opting out
of the statute.
There can be no assurance that the Board of Directors would not adopt
any further antitakeover measures available under Delaware law (some of which
may not require shareholder approval). Moreover, the availability of such
measures under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such
transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the Company.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board to fully
consider the proposed takeover attempt and actively negotiate its terms are in
the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be
available to the Delaware Company after the reincorporation due to the
application of Delaware law, the Delaware Company would retain the rights
currently available to the Company under California law to issue shares of its
authorized but unissued capital stock. Following the effectiveness of the
proposed reincorporation, shares of authorized and unissued Common Stock and
Preferred Stock of the Delaware Company could (within the limits imposed by
applicable law) be issued in one or more transactions, or Preferred Stock could
be issued with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any
unissued series of Preferred Stock of the Delaware Company ("Delaware Preferred
Stock") remain to be fixed by the Delaware Board. Accordingly, if the Delaware
Board so authorizes, the holders of Delaware Preferred Stock may be entitled to
vote separately as a class in connection with approval of certain extraordinary
corporate transactions in circumstances where Delaware law does not ordinarily
require such a class vote, or might be given a disproportionately large number
of votes. Such Delaware Preferred Stock could also be convertible into a large
number of shares of Common Stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a controlling
interest in the Delaware Company more difficult or more costly, including the
right to elect additional directors to the Delaware Board. Potentially, the
Delaware Preferred Stock could be used to create voting impediments or to
frustrate persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware Preferred Stock could be privately placed
with purchasers who might side with the management of the Delaware Company in
opposing a hostile tender offer or other attempt to obtain control.
In addition to the shares of Series A Junior Preferred Stock authorized
in connection with the adoption of the 1996 Preferred Share Purchase Rights
Plan, the Board may authorize the issuance of additional Preferred Stock for the
purpose of adopting another shareholder rights plan and/or in connection with
various corporate transactions, including corporate partnering arrangements. See
"Description of the California Company's 1996 Preferred Share Purchase Rights
Plan." However, future issuances of Delaware Preferred Stock as an anti-takeover
device might preclude shareholders from taking advantage of a situation which
might otherwise be favorable to their interests. In addition (subject to the
considerations referred to above as to applicable law), the Delaware Board could
authorize issuance of shares of Common Stock of the Delaware Company ("Delaware
Common Stock") or Delaware Preferred Stock to a holder who might thereby obtain
sufficient voting power to ensure that any proposal to alter, amend, or repeal
provisions of the Delaware Certificate
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unfavorable to a suitor would not receive the necessary vote of 66 2/3% of the
Voting Stock required for certain of the proposed amendments (as described
below).
If the reincorporation is approved it is not the present intention of
the Board of Directors to seek shareholder approval prior to any issuance of the
Delaware Preferred Stock or Delaware Common Stock, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board of Directors that the delay necessary for shareholder
approval of a specific issuance would be a detriment to the Delaware Company and
its shareholders. The Board of Directors does not intend to issue any Preferred
Stock except on terms which the Board of Directors deems to be in the best
interests of the Delaware Company and its then existing shareholders.
Description of the Company's 1996 Preferred Share Purchase Rights Plan
On June 12, 1996, the Board of Directors of the California Company
approved the adoption of a Preferred Share Purchase Rights Plan (the "California
Rights Plan"). Terms of the California Rights Plan provide for a dividend
distribution of one preferred share purchase right (a California "Right") for
each outstanding share of common stock, no par value per share (the "Common
Shares"), of the Company. The dividend was paid on July 1, 1996 (the "Record
Date") to the stockholders of record on that date. Each California Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, no par value (the
"Preferred Stock"), at an exercise price of $69.50 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment, and a redemption
price of $.01 per California Right. Each one one-hundredth of a share of
Preferred Stock has designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions which make its value approximately
equal to the value of a Common Share. The description and terms of the Rights
are set forth in a Rights Agreement dated as of June 12, 1996 (the "Rights
Agreement"), between the Company and American Stock Transfer and Trust, as
Rights Agent (the "Rights Agent").
Initially, the Rights are and will be evidenced by stock certificates
representing the Common Shares then outstanding, and no separate Rights will be
distributed. Until the earlier to occur of (i) 10 days following a public
announcement that a person, entity or group of affiliated or associated persons
(an "Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or entity becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate, with or without a copy of the Summary of
Rights which is included in the Rights Agreement as Exhibit C thereof (the
"Summary of Rights"), attached thereto. So long as Rights are attached to the
Common Stock as provided in the Rights Agreement, one additional Right shall be
delivered with each share of Common Stock issued after July 1, 1996, including
but not limited to Common Stock issued upon conversion of any convertible
securities of the Company and exercise of options to purchase Common Stock
granted by the Company.
Under the California Rights Plan until the Distribution Date, the
Rights are transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
Under the California Rights Plan, the Rights are not exercisable until
the Distribution Date. The Rights will expire on June 11, 2006 (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed by the Company, in each case, as described below.
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The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above). The exercise of Rights
for Preferred Shares is at all times subject to the availability of a sufficient
number of authorized but unissued Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidation or combinations of the Common Shares occurring, in any case, prior
to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, a minimum preferential quarterly dividend payment in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $0.50 or (b)
subject to the provisions for adjustment set forth in the Rights Agreement, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise) declared on the Common Stock since the immediately preceding date
such a quarterly dividend payment was made or, with respect to the date on which
the first quarterly dividend payment was made, since the first issuance of any
share or fraction of a share of Preferred Stock but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $50.00 but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount of consideration received per Common Share. These rights are
protected by customary anti-dilution provisions. Because of the nature of the
Preferred Shares' dividend and liquidation rights, the value of one
one-hundredth of a Preferred Share should approximate the value of one Common
Share.
In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
for a 60-day period have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the Right
(or, if such number of shares is not and cannot be authorized, the Company may
issue Preferred Stock, cash, debt, stock or a combination thereof in exchange
for the Rights). This right will terminate 60 days after the date on which the
Rights become nonredeemable (as described below), unless there is an injunction
or similar obstacle to exercise of the Rights, in which event this right will
terminate 60 days after the date on which the Rights again become exercisable.
In the event that the Company is acquired in a merger or other business
combination transaction, or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one Common Share, or
one one-hundredth of a Preferred Share, per Right (or, if the number of shares
is not and cannot be authorized, the Company may issue cash, debt, stock or a
combination thereof in exchange for the Rights), subject to adjustment.
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With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of a
Preferred Share issuable upon the exercise of one Right, which may, at the
option of the Company, be evidenced by depository receipts), and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the earliest of (i) the close of business on the
first public announcement that a person has become an Acquiring Person, or (ii)
the Final Expiration Date, the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). Following the expiration of the above periods, the Rights become
nonredeemable. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower the threshold for exercisability of the Rights from 15% to any
percentage which is (i) greater than the largest percentage of the outstanding
Common Shares then known to the Company to be beneficially owned by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary, or any entity holding Common Shares
pursuant to the terms of any such plan) and (ii) not less than 10%, except that
from and after such time as any person becomes an Acquiring Person no such
amendment may adversely affect the interest of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, has no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights granted under
the California Rights Plan will cause substantial dilution to a person or group
that attempts to acquire the Company on terms not approved by the Company's
Board of Directors. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors, since the Rights may be
redeemed by the Company at $.01 per Right prior to the earliest of (i) the
twentieth day following the time that a person or group has acquired beneficial
ownership of 15% or more of the Common Shares (unless extended for one or more
10 day periods by the Board of Directors), (ii) a Change of Control, or (iii)
the final expiration date of the rights. If the reincorporation described in
this Proposal is adopted, the Company will terminate the California Rights Plan
and intends that the Delaware Company will adopt a stockholders rights plan
similar to the existing shareholders rights plan. See "Anti-Takeover Measures."
Amendment of Certificate
The California Articles may be amended by the approval of a majority of
the members of the Board of Directors and by a majority of the outstanding
shares. The Delaware Certificate provides that the provisions relating to (i)
indemnification of directors, (ii) management of the Delaware Company and (iii)
the number, term, election and removal of directors can only be amended by the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
outstanding voting stock of the Delaware Company.
Amendment of Bylaws
The California Bylaws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company. Upon the effectiveness of the proposed reincorporation, the
Delaware Bylaws may be adopted, amended or repealed by the Delaware Board or by
the holders of at least 66 2/3% of the voting power of the outstanding capital
stock of the Delaware Company.
Loans to Officers, Directors and Employees
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
26.
<PAGE>
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
Class Vote for Certain Reorganizations
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally does
not require class voting for such transactions, except in certain situations
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of a California corporation's
Common Stock receive nonredeemable Common Stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its Common Stock, unless all of the holders of its Common Stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters
rights. Delaware law has no comparable provision.
Inspection of Shareholder Lists
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's
outstanding voting shares or shareholders holding 1% or more or' such shares who
have filed a Schedule 14B with the SEC. Delaware law provides no such absolute
right of shareholder inspection. However, both California and Delaware law
permit any shareholder of record to inspect the shareholder list for any purpose
reasonably related to that person's interest as a shareholder.
Appraisal Rights
Under both California law and Delaware law, a shareholder of a
corporation participating in certain mergers and reorganizations may be entitled
to receive cash in the amount of the "fair value" (Delaware) or "fair market
value" (California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are
listed on a national securities exchange or on the OTC margin stock list,
generally do not have appraisal rights unless the holders of at least 5% of the
class of outstanding shares assert the appraisal right. In any reorganization in
which one corporation or the shareholders of one corporation own more than 5/6
of the voting power of the surviving or acquiring corporation, shareholders are
denied dissenters' rights under California law. For this reason, appraisal
rights will not be available to shareholders in connection with the
reincorporation proposal.
Under Delaware law appraisal rights are not available to shareholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
27.
<PAGE>
Voting and Appraisal Rights in Certain Transactions
Delaware law does not provide shareholders with voting or appraisal
rights when a corporation acquires another business through the issuance of its
stock, whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
Dividends
Under California law, any dividends or other distributions to
shareholders, such as redemptions, are limited to the greater of (i) retained
earnings or (ii) an amount which would leave the corporation with assets
(excluding certain intangible assets) equal to at least 125% of its liabilities
(excluding certain deferred items) and current assets equal to at least 100%
(or, in certain circumstances, 125%) of its current liabilities. Delaware law
allows the payment of dividends and redemption of stock out of surplus
(including paid-in and earned surplus) or out of net profits for the current and
immediately preceding fiscal years. The Company has never paid cash dividends
and has no present plans to do so.
Application of California Law After Reincorporation
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Company's shares are traded in the NASDAQ National Market System and
are held by fewer than 800 equity security holders, as of its most recent annual
meeting of shareholders, then the Delaware Company would become subject to
certain provisions of California law regardless of its state of incorporation.
The Company does not currently meet all of the above requirements.
Because the Company's Common Stock is traded in the NASDAQ National
Market System and the Company's shares are held by at least 800 equity security
holders, as of its most recent annual meeting of shareholders, California law
will not initially apply to the Delaware Company if the reincorporation is
approved. The Company would not be subject to California law as long as it
continued to meet both of these requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
Federal Income Tax Consequences of the Reincorporation
The reincorporation provided for in the Merger Agreement is intended to
be a tax free reorganization under the Internal Revenue Code of 1986, as
amended. Assuming the reincorporation qualifies as a reorganization, no gain or
loss will be recognized to the holders of capital stock of the Company as a
result of consummation of the reincorporation, and no gain or loss will be
recognized by the Company or the Delaware Company. Each former holder of capital
stock of the Company will have the same basis in the capital stock of the
Delaware Company received by such holder pursuant to the reincorporation as such
holder has in the capital stock of the Company held by such holder at the time
of consummation of the reincorporation. Each shareholder's holding period with
respect to the Delaware Company's capital stock will include the period during
which such holder held the corresponding Company capital stock, provided the
latter was held by such holder as a capital asset at the time of consummation of
the reincorporation. The Company has not obtained a ruling from the Internal
Revenue Service or an opinion of legal or tax counsel with respect to the
consequences of the reincorporation.
28.
<PAGE>
The foregoing is only a summary of certain federal income tax
consequences. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF
THE LAWS OF ANY STATE OR OTHER JURISDICTION.
Board Recommendation
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition, both
California and Delaware law provide that some of the statutory provisions as
they affect various rights of holders of shares may be modified by provisions in
the charter or bylaws of the corporation.
A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, assumption of the
indemnification agreements, the adoption and assumption by the Delaware Company
of each of the Company's stock option, stock purchase and employee benefit plans
and all other aspects of this Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4
29.
<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 as of November 29, 1996 by: (i) each
nominee for director; (ii) each of the 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.
Beneficial Ownership1/
Number of Percent of
Beneficial Owner Shares Total
William R. Lonergan2/............................ 25,058 *
Jack H. King2/................................... 630,846 4.1%
Catherine P. Lego2/.............................. 16,000 *
William M. Regitz2/.............................. 29,000 *
Robert H. Welch2/................................ 10,502 *
Jesse I. Stamness2/.............................. 18,500 *
Frank J. Vukmanic2/.............................. 14,430 *
Henry C. Harris2/................................ 171,402 1.1%
Richard F. Harapat2/............................. 10,836 *
All executive officers and directors
as a group (9 persons)2/....................... 926,574 5.9%
- - ------------------
* Less than one percent.
1/ This table is based upon information supplied by officers, directors and
principal shareholders and Schedules 13D and 13G filed with the
Commission. Unless otherwise indicated in the footnotes to this table
and subject to community property laws, where applicable, each of the
shareholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 14,906,678 shares outstanding on November 29,
1996, adjusted as required by rules promulgated by the Commission.
2/ Includes shares which certain executive officers, directors and
principal shareholders of the Company have the right to acquire within
60 days after the date of this table pursuant to outstanding options as
follows: William R. Lonergan, 23,500 shares; Jack H. King, 555,770
shares; Catherine P. Lego, 16,000 shares; William M. Regitz, 1,500
shares; Robert H. Welch, 10,500 shares; Jesse I. Stamness, 18,500
shares; Frank J. Vukmanic, 12,500 shares; Henry C. Harris, 170,000
shares; Richard F. Harapat, 5,000 shares and all executive officers and
directors as a group, 813,270 shares.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange 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 Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by Commission 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 September 30, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
30.
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
Each non-employee director of the Company receives a per meeting fee of
$1,500. In the fiscal year ended September 30, 1996, the total paid to
non-employee directors for meeting fees was $30,000. In addition, Mr. Lonergan
was reimbursed $3,569.71 for out-of-pocket expenses in connection with his
attendance at Board meetings.
In April 1995, the Board adopted the 1995 Employee Directors' Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to Non-Employee Directors of the Company. On January 25,
1996, the date of the Annual Meeting of Shareholders, each person who was then a
Non-Employee Director and had been a Non-Employee Director of the Company for at
least three months, was granted an option to purchase 6,000 shares of the Common
Stock of the Company under the Directors' Plan. Messrs. Lonergan, Regitz and
Welch and Ms. Lego each received such a grant. The grants have an exercise price
of $6.22 per share, the fair market value on the grant date. Such option has a
term of ten years and becomes exercisable in equal quarterly installments over a
period of one year from the date of grant.
31.
<PAGE>
<TABLE>
Compensation of Executive Officers
Summary of Compensation
The following table shows for the fiscal years ending September 30, 1994,
1995 and 1996, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, its other four most highly compensated executive officers at
September 30, 1996 (the "Named Executive Officers"):
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
- - --------------------------------------------------------------------------------------- -----------------------------------
Number of
Name Securities Other
and Underlying Compen-
Principal Salary1/ Bonus Options sation2/
Position Year ($) ($) (#) ($)
- - -------- ---- ------- ------- --------- ----
<S> <C> <C> <C> <C> <C>
Jack H. King 1996 240,000 20,000 0 1,770
----
President and 1995 229,904 14,600 50,000 1,469
----
Chief Executive Officer 1994 196,096 0 [30,000]3/ 2,396
----
Jesse I. Stamness 1996 154,821 4,000 20,000 0
----
Vice President, 1995 -- -- -- --
----
Engineering 1994 -- -- -- --
----
Frank J. Vukmanic 1996 153,234 0 0 456
----
Vice President, 1995 145,000 9,000 15,000 110,3904/
----
Sales 1994 45,173 0 30,000 32
----
Henry C. Harris 1996 150,557 4,513 40,000 638
----
Vice President, Finance 1995 140,975 19,000 20,000 569
----
and Administration, 1994 130,368 0 [5,000]3/ 697
----
Chief Financial and
Accounting Officer and
Secretary
Richard F. Harapat 1996 127,361 8,0245/ 0 851
----
Vice President, 1995 118,751 19,8136/ 10,000 690
----
International Sales 1994 111,550 13,9237/ 0 1,101
----
<FN>
- - --------------------
1/ Includes amounts deferred pursuant to Section 401(k) of the Internal Revenue
Code of 1986, as amended.
2/ Represents life insurance premiums for the benefit of the Named Executive
Officers.
3/ Options canceled during fiscal year ended September 30, 1994.
4/ Includes $110,000 in expenses paid in connection with Mr. Vukmanic's
relocation.
5/ Includes $4,200 in commissions on Company net sales.
6/ Includes $15,813 in commissions on Company net sales.
7/ Represents commission on Company net sales.
</FN>
</TABLE>
32.
<PAGE>
<TABLE>
Stock Option Grants and Exercises
The following tables show for the fiscal year ended September 30,
1996, certain information regarding options granted to, exercised by, and held
at year end by, the Named Executive Officers:
Option Grants in Last Fiscal Year
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term 1/
----------------- ----------------------
Number
of Securi- % of
ties Total
Under- Options/
lying Granted to Exercise
Options/ Employees or Base Expira-
Granted in Fiscal Price tion
Name (#) 2/ Year (%) ($/Sh) Date 5% ($) 10% ($)
- - ---- -------- --------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack H. King 0 0 -- -- -- --
Jesse I. Stamness 20,000 7.7 4.81 10/25/05 60,606 152,958
Frank J. Vukmanic 0 0 -- -- -- --
Henry C. Harris 40,000 15.4 8.94 06/09/06 225,288 568,584
Richard F. Harapat 0 0 -- -- -- --
<FN>
- - --------------------
1/ Calculated on the assumption that the market value of the underlying stock
increases at the stated values compounded annually for the ten-year term
of the options.
2/ Such options generally vest over a four-year period with 25% of the
options vesting in each of the first four years of its ten-year term. The
Board of Directors may reprice or accelerate the options under the terms
of the 1990 Option Plan.
</FN>
</TABLE>
33.
<PAGE>
<TABLE>
The following table sets forth for the fiscal year ended September 30,
1996 options exercised by and held at year end by the Named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) 1/ Unexercisable Unexercisable 2/
- - ---- ---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Jack H. King 75,076 492,686 601,924/75,000 5,122,124/318,750
Jesse I. Stamness 14,000 86,375 22,500/36,500 149,625/233,625
Frank J. Vukmanic 15,000 72,750 22,500/52,500 138,750/309,375
Henry C. Harris 4,000 34,000 170,000/70,000 1,306,625/165,000
Richard F. Harapat 105,500 491,006 5,000/17,500 21,250/83,281
<FN>
- - --------------------
1/ Value realized is based upon the fair market value of the Company's Common
Stock on the date of exercise less the exercise price and does not
necessarily indicate that the optionee sold such stock.
2/ The fair market value of the Company's Common Stock at September 30, 1996
($9.875) less the exercise price of the options. The fair market value of
the Company's Common Stock on January 14, 1997 was $37.00.
</FN>
</TABLE>
34.
<PAGE>
Performance Measurement Comparison
The following chart shows the value of an investment of $100 on September
30, 1991 in cash of (i) the Company's Common Stock, (ii) the NASDAQ Stock
Market-US Index and (iii) the Hambrecht & Quist Technology Index. All values
assume reinvestment of the full amount of all dividends and are calculated as of
September 30 of each year:1/
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Cumulative Total Return
-----------------------------------------------
9/91 9/92 9/93 9/94 9/95 9/96
Zitel ZITL 100 105 56 115 154 268
NASDAQ STOCK
MARKET--US INAS 100 112 147 148 204 242
H & Q TECHNOLOGY IHQT 100 114 136 154 258 286
- - --------
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.
35.
<PAGE>
Report of the Compensation Committee of the Board of Directors
on Executive Compensation1/
The Company's executive compensation generally consists of a base salary,
a cash bonus and long-term incentive stock options.
Annual compensation for executive officers and non-officer vice
presidents of the Company, other than the President, is recommended by the
President and is reviewed and approved by the Compensation Committee. The
individual salary recommendations may vary based on the President's judgment
regarding the value of a position in the Company, performance of the executive
and comparative compensation for like positions at other technology companies of
similar size in the area, derived from salary survey data and other sources.
The annual compensation for the President is recommended by the
Compensation Committee and approved by the non-employee members of the Board of
Directors. The Committee determines the President's annual compensation based on
the same criteria and the same survey as used for officers, with the objective
of placing his salary at the median for Presidents of comparable companies.
The Company believes that compensation of the key executives should be
sufficient to attract and retain highly qualified personnel and should also
provide meaningful incentives for measurable superior performance. The Company
seeks to reward achievement of long-term and short-term performance goals. The
Company currently does not provide retirement benefits to its executive
officers, other than the availability of a 401(k) plan.
During fiscal year 1996, the Company did not establish a formal bonus
plan. Subsequent to the fiscal year end, bonus compensation was recommended by
the President and was reviewed and approved by the Compensation Committee. In
addition to individual achievements, the primary factor considered in
establishing bonus amounts for fiscal year 1996 was the Company's net sales and
operating results.
The Compensation Committee uses stock option grants to further align the
interests of shareholders and management by creating common incentives related
to the possession by management of a substantial economic interest in the
long-term appreciation of the Company's Common Stock. The Committee considers
the number of options previously granted and the proportion that have vested in
making its decisions. Stock option grants, other than for the President, are
made periodically at the recommendation of the President with the approval of
the Compensation Committee. The Committee makes option grants to the President
on the same basis as for other officers. Options are granted at the full market
value on the date of grant. In light of these factors, and in order to provide
an incentive to management to achieve the Company's operational goals, in June
1996, the Committee approved a grant to purchase 40,000 shares to the Vice
President, Finance and Administration at $8.94 per share, in October 1995, the
Committee approved a grant to purchase 20,000 shares to the Vice President,
Engineering at $4.81 per share.
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."
- - --------
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.
36.
<PAGE>
During fiscal year 1996, the Company reported a decrease in revenue of 3%
and reported earnings of $0.26 per share. Accordingly, in November 1996, the
Compensation Committee approved a discretionary bonus totaling $12,337 for the
officers, excluding the President, and $10,000 to the President. In November
1996, the Committee approved raises for officers ranging from 4% to 6%,
effective in December 1996. The President's salary was adjusted to $254,400.
COMPENSATION COMMITTEE
William R. Lonergan
William M. Regitz
Robert H. Welch
Compensation Committee Interlocks and Insider Participation
As noted above, the Company's Compensation Committee consists of Messrs.
Lonergan, Regitz and Welch. Mr. Welch served as President, Chief Executive
Officer and Director of the Company from 1979 to October 1986. Mr. Welch was
Chairman of the Board of the Company from October 1986 to November 1987 and has
remained a Director since that date.
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
Henry C. Harris
Secretary
January ___, 1997
37.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of _____________, 1997 by and between ZITEL CORPORATION,
a California corporation ("Zitel California"), and ZITEL CORPORATION, a Delaware
corporation ("Zitel Delaware"). Zitel California and Zitel Delaware are
sometimes referred to as the "Constituent Corporations."
The authorized capital stock of Zitel California consists of forty
million (40,000,000) shares of Common Stock and one million (1,000,000) shares
of Preferred Stock, of which two hundred thousand (200,000) shares have been
designated Series A Junior Preferred Stock, none of which are issued and
outstanding. The authorized capital stock of Zitel Delaware consists of forty
million (40,000,000) shares of Common Stock, $.001 par value, and one million
(1,000,000) shares of Preferred Stock, $.001 par value, of which two hundred
thousand (200,000) shares have been designated Series A Junior Participating
Preferred Stock.
The directors of the Constituent Corporations deem it advisable and to
the advantage of said corporations that Zitel California merge into Zitel
Delaware upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Zitel California
shall merge into Zitel Delaware on the following terms, conditions and other
provisions:
1. TERMS AND CONDITIONS.
(a) Merger. Zitel California shall be merged with and into Zitel
Delaware (the "Merger"), and Zitel Delaware shall be the surviving corporation
(the "Surviving Corporation") effective upon the date when this Merger Agreement
is filed with the Secretary of State of Delaware (the "Effective Date").
(b) Succession. On the Effective Date, Zitel Delaware shall continue
its corporate existence under the laws of the State of Delaware, and the
separate existence and corporate organization of Zitel California, except
insofar as it may be continued by operation of law, shall be terminated and
cease.
(c) Transfer Of Assets And Liabilities. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each of
the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
1.
<PAGE>
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their shareholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
(d) Common Stock Of Zitel California And Zitel Delaware. On the
Effective Date, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their shareholders, (i) each share of
Common Stock of Zitel California issued and outstanding immediately prior
thereto shall be changed and converted into one (1) fully paid and nonassessable
share of Common Stock of Zitel Delaware; and (ii) each share of Common Stock of
Zitel Delaware issued and outstanding immediately prior thereto shall be
canceled and returned to the status of authorized but unissued shares.
(e) Preferred Stock Of Zitel California. On the Effective Date, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each share of Preferred Stock of
Zitel California issued and outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of Series A
Junior Participating Preferred Stock of Zitel Delaware.
(f) Stock Certificates. At and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock and Preferred Stock of Zitel California shall be deemed for all
purposes to evidence ownership of and to represent the shares of Zitel Delaware
into which the shares of Zitel California represented by such certificates have
been converted as herein provided and shall be so registered on the books and
records of the Surviving Corporation or its transfer agents. The registered
owner of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or conversion or otherwise accounted
for to the Surviving Corporation or its transfer agent, have and be entitled to
exercise any voting and other rights with respect to and to receive any dividend
and other distributions upon the shares of Zitel Delaware evidenced by such
outstanding certificate as above provided.
(g) Options and Rights Of Zitel California. On the Effective Date, the
Surviving Corporation will assume and continue all of Zitel California's stock
option and rights plans in existence at the Effective Date, including but not
limited to the 1990 Stock Option Plan, the 1995 Non-Employee Directors' Stock
Option Plan and the 1996 Preferred Share Purchase Plan, and the outstanding
options to purchase Common Stock of Zitel California, including without
limitation all options outstanding under such stock option plans and any other
outstanding options, shall become options to purchase shares of Common Stock of
Zitel Delaware, with no changes in terms and conditions, and the outstanding
rights to purchase Preferred Stock of Zitel
2.
<PAGE>
California, including without limitation all options outstanding under such
rights plan and any other outstanding rights, shall become rights to purchase
shares of Preferred Stock of Zitel Delaware, with no changes in terms and
conditions. Effective on the Effective Date, Zitel Delaware hereby assumes the
outstanding and unexercised portions of such options and rights and the
obligations of Zitel California with respect thereto.
(h) Employee Benefit Plans. On the Effective Date, the Surviving
Corporation shall assume all obligations of Zitel California under any and all
employee benefit plans in effect as of the Effective Date with respect to which
employee rights or accrued benefits are outstanding as of such time, including,
but not limited to the 1984 Employee Stock Purchase Plan. On the Effective Date,
the Surviving Corporation shall adopt and continue in effect all such employee
benefit plans upon the same terms and conditions as were in effect immediately
prior to the Merger and shall reserve that number of shares of Zitel Delaware
Common Stock with respect to each such employee benefit plan as is equal to the
number of shares of Zitel California Common Stock (if any) so reserved on the
Effective Date.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
(a) Certificate Of Incorporation And Bylaws. The Certificate of
Incorporation and Bylaws of Zitel Delaware in effect on the Effective Date shall
continue to be the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(b) Directors. The directors of Zitel California immediately preceding
the Effective Date shall become the directors of the Surviving Corporation on
and after the Effective Date to serve until the expiration of their terms and
until their successors are elected and qualified.
(c) Officers. The officers of Zitel California immediately preceding
the Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS.
(a) Further Assurances. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Zitel California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
action, as shall be appropriate or necessary in order to vest or perfect in or
to conform of record or otherwise, in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Zitel California and otherwise
to carry out the purposes of this Merger Agreement, and the officers and
directors of the Surviving Corporation are fully authorized in the name and on
behalf of Zitel California or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
(b) Amendment. At any time before or after approval by the shareholders
of Zitel California, this Merger Agreement may be amended in any manner (except
that, after the approval of the Merger Agreement by the shareholders of Zitel
California, the principal terms may not be amended without the further approval
of the shareholders of Zitel California) as may
3.
<PAGE>
be determined in the judgment of the respective Board of Directors of Zitel
Delaware and Zitel California to be necessary, desirable, or expedient in order
to clarify the intention of the parties hereto or to effect or facilitate the
purpose and intent of this Merger Agreement.
(c) Conditions To Merger. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived by
either of the Constituent Corporations in its sole discretion to the extent
permitted by law):
(i) the Merger shall have been approved by the shareholders of
Zitel California in accordance with applicable provisions of the General
Corporation Law of the State of California; and
(ii) Zitel California, as sole stockholder of Zitel Delaware,
shall have approved the Merger in accordance with the General Corporation Law of
the State of Delaware; and
(iii) any and all consents, permits, authorizations, approvals,
and orders deemed in the sole discretion of Zitel California to be material to
consummation of the Merger shall have been obtained.
(d) Abandonment Or Deferral. At any time before the Effective Date,
this Merger Agreement may be terminated and the Merger may be abandoned by the
Board of Directors of either Zitel California or Zitel Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
Zitel California or Zitel Delaware or the prior filing of this Merger Agreement
with the Secretary of State of the State of Delaware, or the consummation of the
Merger may be deferred for a reasonable period of time if, in the opinion of the
Boards of Directors of Zitel California and Zitel Delaware, such action would be
in the best interests of such corporations. In the event of termination of this
Merger Agreement, this Merger Agreement shall become void and of no effect and
there shall be no liability on the part of either Constituent Corporation or its
Board of Directors or shareholders with respect thereto, except that Zitel
California shall pay all expenses incurred in connection with the Merger or in
respect of this Merger Agreement or relating thereto.
(e) Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
4.
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been fully
approved by the Board of Directors of Zitel California and Zitel Delaware, is
hereby executed on behalf of each said corporation and attested by their
respective officers thereunto duly authorized.
ZITEL CORPORATION,
ATTEST: a California corporation
__________________________________ By:__________________________________
Henry C. Harris Jack H. King
Secretary President and
Chief Executive Officer
ZITEL CORPORATION,
ATTEST: a Delaware corporation
__________________________________ By:__________________________________
Henry C. Harris Jack H. King
Secretary President and
Chief Executive Officer
5.
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
ZITEL CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Zitel Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is forty-one million
(41,000,000) shares. Forty million (40,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). One million
(1,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In
1.
<PAGE>
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
C. Two Hundred Thousand (200,000) shares of Preferred Stock, without
par value, are designated "Series A Junior Participating Preferred Stock" with
the rights, preferences, privileges and restrictions specified herein (the
"Junior Preferred Stock"). Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Junior Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into Junior
Preferred Stock.
(1) Dividends and Distributions.
(a) Subject to the rights of the holders of any
shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Junior Preferred Stock with respect to
dividends, the holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock, without par value (the
"Common Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction
of a share of Junior Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $.50 or (b) subject to
the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise) declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Junior Preferred Stock.
In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event
2.
<PAGE>
and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in paragraph (a) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $.50 per share on the Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Junior Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Junior Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
(2) Voting Rights. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying
3.
<PAGE>
such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other
Certificate of Determination of Preferences creating a series of
Preferred Stock or any similar stock, or by law, the holders of shares
of Junior Preferred Stock and the holders of shares of Common Stock and
any other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by
law, holders of Junior Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
(3) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in
Section 1 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Junior Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except dividends paid ratably on the Junior
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Junior Preferred Stock; or
4.
<PAGE>
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Junior Preferred Stock, or any shares of
stock ranking on a parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 3, purchase or otherwise acquire such
shares at such time and in such manner.
(4) Reacquired Shares. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein or in
any other Certificate of Determination of Preferences creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
(5) Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred
Stock shall have received the greater of: (A) $50 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment; or (B) an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Junior Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
5.
<PAGE>
(6) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Junior Preferred Stock shall at the same time be similarly exchanged or changed
into an amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Junior Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(7) No Redemption. The shares of Junior Preferred Stock shall
not be redeemable.
(8) Rank. The Junior Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all other
series of the Corporation's Preferred Stock.
(9) Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Junior Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Junior Preferred Stock, voting
together as a single class.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
6.
<PAGE>
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time with or without cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation, entitled to vote at an election of
directors.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
(1) Subject to paragraph (g) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws. No action shall be taken by the stockholders of the
corporation by written consent.
(4) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
7.
<PAGE>
(5) Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as
follows:
NAME MAILING ADDRESS
Ann Chiga Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
8.
<PAGE>
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day
of __________, 1997 by the undersigned who affirms that the statements made
herein are true and correct.
____________________________________
Ann Chiga
Sole Incorporator
9.
<PAGE>
APPENDIX C
BYLAWS
OF
ZITEL CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
OFFICES................................................... 1
Section 1. Registered Office........................................................... 1
Section 2. Other Offices............................................................... 1
ARTICLE II
CORPORATE SEAL................................................ 1
Section 3. Corporate Seal.............................................................. 1
ARTICLE III
STOCKHOLDERS' MEETINGS............................................ 1
Section 4. Place Of Meetings........................................................... 1
Section 5. Annual Meeting.............................................................. 2
Section 6. Special Meetings............................................................ 3
Section 7. Notice Of Meetings.......................................................... 4
Section 8. Quorum...................................................................... 4
Section 9. Adjournment And Notice Of Adjourned Meetings................................ 5
Section 10. Voting Rights............................................................... 5
Section 11. Joint Owners Of Stock....................................................... 5
Section 12. List Of Stockholders........................................................ 5
Section 13. Action Without Meeting...................................................... 6
Section 14. Organization................................................................ 6
ARTICLE IV
DIRECTORS.................................................. 6
Section 15. Number And Term Of Office................................................... 6
Section 16. Powers...................................................................... 7
Section 17. Classes Of Directors........................................................ 7
Section 18. Vacancies................................................................... 7
Section 19. Resignation................................................................. 7
Section 20. Removal..................................................................... 7
Section 21. Meetings.................................................................... 8
(a) Annual Meetings............................................................. 8
(b) Regular Meetings............................................................ 8
(c) Special Meetings............................................................ 8
(d) Telephone Meetings.......................................................... 8
(e) Notice Of Meetings.......................................................... 8
i.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
(f) Waiver Of Notice............................................................ 8
Section 22. Quorum And Voting........................................................... 8
Section 23. Action Without Meeting...................................................... 9
Section 24. Fees And Compensation....................................................... 9
Section 25. Committees.................................................................. 9
(a) Executive Committee......................................................... 9
(b) Other Committees............................................................ 10
(c) Term........................................................................ 10
(d) Meetings.................................................................... 10
Section 26. Organization................................................................ 11
ARTICLE V
OFFICERS................................................... 11
Section 27. Officers Designated......................................................... 11
Section 28. Tenure And Duties Of Officers............................................... 11
(a) General..................................................................... 11
(b) Duties Of Chairman Of The Board Of Directors................................ 11
(c) Duties Of President......................................................... 12
(d) Duties Of Vice Presidents................................................... 12
(e) Duties Of Secretary......................................................... 12
(f) Duties Of Chief Financial Officer........................................... 12
Section 29. Delegation Of Authority..................................................... 12
Section 30. Resignations................................................................ 13
Section 31. Removal..................................................................... 13
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION.................................... 13
Section 32. Execution Of Corporate Instruments.......................................... 13
Section 33. Voting Of Securities Owned By The Corporation............................... 14
ARTICLE VII
SHARES OF STOCK............................................... 14
Section 34. Form And Execution Of Certificates.......................................... 14
Section 35. Lost Certificates........................................................... 14
Section 36. Transfers................................................................... 15
ii.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 37. Fixing Record Dates......................................................... 15
Section 38. Registered Stockholders..................................................... 15
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION..................................... 16
Section 39. Execution Of Other Securities............................................... 16
ARTICLE IX
DIVIDENDS.................................................. 16
Section 40. Declaration Of Dividends.................................................... 16
Section 41. Dividend Reserve............................................................ 16
ARTICLE X
FISCAL YEAR................................................. 17
Section 42. Fiscal Year................................................................. 17
ARTICLE XI
INDEMNIFICATION............................................... 17
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents.................................................. 17
(a) Directors and Officers...................................................... 17
(b) Expenses.................................................................... 17
(c) Enforcement................................................................. 18
(d) Non-Exclusivity Of Rights................................................... 18
(e) Survival Of Rights.......................................................... 19
(f) Insurance................................................................... 19
(g) Amendments.................................................................. 19
(h) Saving Clause............................................................... 19
(i) Certain Definitions......................................................... 19
ARTICLE XII
NOTICES................................................... 20
Section 44. Notices..................................................................... 20
(a) Notice To Stockholders...................................................... 20
iii.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
(b) Notice To Directors......................................................... 20
(c) Affidavit Of Mailing........................................................ 20
(d) Time Notices Deemed Given................................................... 20
(e) Methods Of Notice........................................................... 20
(f) Failure To Receive Notice................................................... 21
(g) Notice To Person With Whom Communication Is Unlawful........................ 21
(h) Notice To Person With Undeliverable Address................................. 21
ARTICLE XIII
AMENDMENTS.................................................. 22
Section 45. Amendments.................................................................. 22
ARTICLE XIV
LOANS TO OFFICERS.............................................. 22
Section 46. Loans To Officers........................................................... 22
ARTICLE XV
MISCELLANEOUS................................................ 22
Section 47. Annual Report............................................................... 22
</TABLE>
iv.
<PAGE>
BYLAWS
OF
ZITEL CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
Section 2. Other Offices. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE>
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
2.
<PAGE>
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stock-holder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by tele-
3.
<PAGE>
graphic or other facsimile transmission to the Chairman of the Board of
Directors, the Chief Executive Officer, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the request.
Upon determination of the time and place of the meeting, the officer receiving
the request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
Section 7. Notice Of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws,
4.
<PAGE>
the affirmative vote of the majority (plurality, in the case of the election of
directors) of the votes cast, including abstentions, by the holders of shares of
such class or classes or series shall be the act of such class or classes or
series.
Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the
5.
<PAGE>
meeting, or, if not specified, at the place where the meeting is to be held. The
list shall be produced and kept at the time and place of meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 13. Action Without Meeting.
(a) No action shall be taken by the stockholders except at an
annual or special meeting of stockholders called in accordance with these
Bylaws, and no action shall be taken by the stockholders by written consent.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number And Term Of Office. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
6.
<PAGE>
Section 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 17. Classes Of Directors.
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, directors shall be
elected at each annual meeting of stockholders for a term of one year. Each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 20. Removal.
Subject to the rights of the holders of any series of Preferred Stock,
the Board of Directors or any individual director may be removed from office at
any time with or without cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock").
7.
<PAGE>
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors
(d) Telephone Meetings. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice Of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver Of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 22. Quorum And Voting.
8.
<PAGE>
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, including without limitation the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
9.
<PAGE>
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b) Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the
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meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
Section 26. Organization. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) Duties Of Chairman Of The Board Of Directors. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
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(c) Duties Of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties Of Vice Presidents. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) Duties Of Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties Of Chief Financial Officer. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
Section 29. Delegation Of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
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Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
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Section 33. Voting Of Securities Owned By The Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
Section 35. Lost Certificates. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as
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it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 38. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution Of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration Of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.
(a) Directors and Officers. The corporation shall indemnify
its directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (c).
(b) Expenses. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or officer,
of the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(d) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such officer is or was a
director of the corporation in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of
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disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(c) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such officer is or
was a director of the corporation) for advances, the corporation shall be
entitled to raise a defense as to any such action clear and convincing evidence
that such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(d) Non-Exclusivity Of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
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(e) Survival Of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(f) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(g) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(h) Saving Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(i) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the
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request of the corporation as, respectively, a director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) Methods Of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be
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employed in respect of any one or more, and any other permissible method or
methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice To Person With Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
21.
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ARTICLE XIII
AMENDMENTS
Section 45. Amendments.
Subject to paragraph (g) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
Section 46. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE XV
MISCELLANEOUS
Section 47. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall
22.
<PAGE>
also be contained in such report, provided that if the corporation has a class
of securities registered under Section 12 of the 1934 Act, that Act shall take
precedence. Such report shall be sent to stockholders at least fifteen (15) days
prior to the next annual meeting of stockholders after the end of the fiscal
year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
23.
<PAGE>
APPENDIX D
ZITEL CORPORATION
1990 STOCK OPTION PLAN
Adopted by the Board of Directors September 27, 1990
Effective October 1, 1990
Approved by the Shareholders January 25, 1991
Amended by the Board of Directors October 31, 1991
Approved by the Shareholders January 30, 1992
Amended by the Board of Directors September 21, 1994
Approved by the Shareholders January 26, 1995
Amended by the Board of Directors November 7, 1996
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which
selected key employees, including directors of, sales representatives for, and
consultants to Zitel Corporation, a California corporation (the "Company"), and
its Affiliates, as defined in subparagraph 1(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 425(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now employed by or having key relationships with the
Company, 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.
1.
<PAGE>
(d) The Company intends that the options issued under the Plan
shall, in the discretion of the Board of Directors of the Company (the "Board")
or any committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph 2(c), be either incentive stock options as
that term is used in Section 422A of the Code ("Incentive Stock Options"), or
options which do not qualify as incentive stock options ("Supplemental Stock
Options"). All options shall be separately designated Incentive Stock Options or
Supplemental Stock Options at the time of grant, and in such form as issued
pursuant to paragraph 5, and a separate certificate or certificates shall be
issued for shares purchased on exercise of each type of option. An option
designated as a Supplemental Stock Option shall not be treated as an incentive
stock option.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a committee, as provided in subparagraph
2(c); provided, however, that if and to the extent required in order to comply
with the disinterested administration requirements of Rule 16b-3, as amended
from time to time, promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor rule ("Rule 16b-3"), the Plan
shall be administered by a committee as provided in subparagraph 2(c). Such
requirements of Rule 16b-3 are hereinafter referred to as the "Disinterested
Administration Requirements." Except to the extent precluded by the
Disinterested Administration Requirements, 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.
2.
<PAGE>
(b) The Board (or the Committee, as defined below) shall have the
power, subject to, and within the limitations of, the express provisions of the
Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; whether the option will be an Incentive Stock Option or a
Supplemental Stock Option; the provisions of each option granted (which need not
be identical), including the time or times during the term of each option within
which all or portions of such option may be exercised; and the number of shares
for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options
granted under it, and to establish, amend and revoke rules and regulations for
its administration and otherwise to make decisions concerning the Plan. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any option agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform
such acts as the Board (or the Committee, as defined below) deems necessary or
expedient to promote the best interests of the Company.
(c) The Board may, and under the circumstances set forth in
subparagraph 2(a) shall, delegate administration of the Plan to a committee
composed of not fewer than three (3) members or such greater or lesser number as
may be required to comply with the Disinterested Administration Requirements
(the "Committee"). To the extent required to comply with the Disinterested
Administration Requirements, the members of such Committee shall also be
3.
<PAGE>
members of the Board and shall be disinterested persons, as defined by the
provisions of subparagraph 2(d). If administration is delegated to a Committee,
the Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, subject, however, to such
resolutions, not inconsistent with the provisions of the Plan and the
Disinterested Administration Requirements, as may be adopted from time to time
by the Board. Unless precluded by the Disinterested Administration Requirements,
the Board may (i) abolish the Committee at any time and revest in the Board the
administration of the Plan, or (ii) expressly determine that the requirement
that the Committee be composed of three (3) members be waived and may delegate
administration of the Plan to any person or persons and the term "Committee"
shall apply to any person or persons to whom such authority has been delegated.
(d) The term "disinterested person," as used in this Plan, shall
mean an administrator of the Plan, whether a member of the Board or of any
Committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph 2(c), who is a "disinterested person" within
the meaning of Rule 16b-3 or otherwise in accordance with the rules, regulations
or interpretations of the Securities and Exchange Commission. Any such person
shall otherwise comply with the requirements of Rule 16b-3 including, without
limitation, any limitation contained therein on eligibility of a "disinterested
person" to participate in plans of the Company or any affiliate (as defined
under the Exchange Act) of the Company.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate five million
four hundred fifty thousand (5,450,000) shares of the Company's
4.
<PAGE>
common stock; provided, however, that such aggregate number of shares shall be
reduced to reflect the number of shares of the Company's common stock which has
been sold under, or may be sold pursuant to options granted under, the Company's
1982 Incentive Stock Option Plan or the Company's 1984 Supplemental Stock Option
Plan to the same extent as if such sales had been made or options granted
pursuant to this Plan. If any option granted under the Plan shall for any reason
expire or otherwise terminate without having been exercised in full, the stock
not purchased under such option 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.
(c) An Incentive Stock Option may be granted to an eligible person
under the Plan only if the aggregate fair market value (determined at the time
the option is granted) of the stock with respect to which incentive stock
options (as defined in the Code) granted after 1986 are exercisable for the
first time by such optionee during any calendar year under all incentive stock
option plans of the Company and its Affiliates does not exceed one hundred
thousand dollars ($100,000). Should it be determined that an option granted
under the Plan exceeds such maximum for any reason other than the failure of a
good faith attempt to value the stock subject to the option, such option shall
be considered a Supplemental Stock Option to the extent, but only to the extent,
of such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by reason of exceeding such maximum, such option or the applicable
portion shall be considered a Supplemental Stock Option.
5.
<PAGE>
4. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to employees
(including officers) of the Company or its Affiliates. A director of the Company
shall not be eligible to receive Incentive Stock Options unless such director is
also an employee (including an officer) of the Company or any Affiliate.
Supplemental Stock Options may be granted only to key employees (including
officers) of, directors of, sales representatives for, or consultants to the
Company or its Affiliates. A director of the Company shall not be eligible for a
Supplemental Stock Option unless such director is also an employee (including an
officer) of, sales representative for, or consultant to the Company or any
Affiliate.
(b) A director shall in no event be eligible for the benefits of
the Plan unless and until such director is expressly declared eligible to
participate in the Plan by action of the Board or the Committee, and only if, at
any time discretion is exercised by the Board in the selection of a director as
a person to whom options may be granted, or in the determination of the number
of shares which may be covered by options granted to a director, the
Disinterested Administration Requirements are satisfied and the Plan otherwise
complies with the requirements of Rule 16b-3. The Board shall otherwise comply
with the requirements of Rule 16b-3.
(c) No person shall be eligible for the grant of an Incentive
Stock Option under the Plan if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 425(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 unless the exercise price of such option
is at least one hundred ten percent (110%) of the fair market value of such
stock
6.
<PAGE>
at the date of grant and the term of the option does not exceed five (5) years
from the date of grant.
(d) If required to comply with the Disinterested Administration
Requirements, no person who acts as an administrator of the Plan shall be
eligible for selection as a person to whom options may be granted under the Plan
for a period of one (1) year (or such longer or shorter period of time as may be
required to comply with the Disinterested Administration Requirements) following
the time such person last exercised discretion in administering the Plan. No
person who acts as an administrator of any other plan of the Company in which
members of the Board are eligible for selection as persons to whom securities
may be granted shall be eligible for selection as a person to whom options may
be granted under the Plan for a period of one (1) year (or such longer or
shorter period of time as may be required to comply with the Disinterested
Administration Requirements) following the time such person last exercised
discretion in administering such plan; provided, however, that such limitation
on eligibility shall be applicable if and only to the extent required to comply
with the Disinterested Administration Requirements with respect to such plan.
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. 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) The term of any option shall not be greater than ten (10)
years from the date it was granted.
7.
<PAGE>
(b) 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. The exercise price of
each Supplemental 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.
(c) 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) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the option is granted or to
whom the option is transferred pursuant to subparagraph 5(d), or (C) in any
other form of legal consideration that may be acceptable to the Board or the
Committee.
In the case of any deferred payment arrangement, interest shall be payable
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.
(d) An 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 person to whom the option is granted only by such person.
8.
<PAGE>
(e) The total number of shares of stock subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the option
was not fully exercised. During the remainder of the term of the option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the option; provided, however, that if and to the extent required to satisfy the
definition of "plan" within the meaning of Rule 16b-3, no option granted under
the Plan may be exercised as to any shares subject to such option until more
than six (6) months following the date of grant of such option (except in the
event of death or disability of the optionee) (the "Six Month Limitation"). The
provisions of this subparagraph 5(e) are subject to any option provisions
governing the minimum number of shares as to which an option may be exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option, (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the option
9.
<PAGE>
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) 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.
(g) An option shall terminate three (3) months after termination
of the optionee's employment or relationship as a consultant, sales
representative or director with the Company or an Affiliate, unless (i) such
termination is due to such person's permanent and total disability, within the
meaning of Section 422A(c)(7) of the Code, in which case the option may, but
need not, provide that it may be exercised at any time within one (1) year
following such termination of employment or relationship as a consultant, sales
representative or director; or (ii) the optionee dies while in the employ of or
while serving as a consultant, sales representative or director to the Company
or an Affiliate, or within not more than three (3) months after termination of
such relationship, in which case the option may, but need not, provide that it
may be exercised at any time within eighteen (18) months following the death of
the optionee by the person or persons to whom the optionee's rights under such
option pass by will or by the laws of descent and distribution; or (iii) the
option by its terms specifies either (a) that it shall terminate sooner than
three (3) months after termination of the optionee's employment or relationship
as a consultant, sales representative or director, or (b) that it may be
exercised more than three (3) months after termination of such relationship with
the Company or an Affiliate.
10.
<PAGE>
This subparagraph 5(g) shall not be construed to extend the term of any option
or to permit anyone to exercise the option after expiration of its term, nor
shall it be construed to increase the number of shares as to which any option is
exercisable from the amount exercisable on the date of termination of the
optionee's employment or relationship as a consultant, sales representative or
director.
(h) Subject to the Six Month Limitation, the option may, but need
not, include a provision whereby the optionee may elect at any time during the
term of his or her employment or relationship as a consultant, sales
representative or director with the Company or any Affiliate to exercise the
option as to any part or all of the shares subject to the option prior to the
stated vesting date of the option or of any installment or installments
specified in the option. Any shares so purchased from any unvested installment
or option may be subject to a repurchase right in favor of the Company or to any
other restriction the Board or the Committee determines to be appropriate.
(i) To the extent provided by the terms of an option, the optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering to the Company owned and unencumbered shares
of the common stock having a fair market value less than or equal to the amount
of the withholding tax obligation.
11.
<PAGE>
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option granted
under the Plan or any stock issued or issuable pursuant to any such option. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such options unless and until such authority is obtained.
7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under
the Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate
the time at which an option may first be exercised or the time during which an
option or any part thereof will vest pursuant to subparagraph 5(e),
notwithstanding the provisions in the option stating the time at which it may
first be exercised or the time during which it will vest; provided that no
acceleration of options held by officers or directors of the Company and granted
less than six
12.
<PAGE>
months prior to the date of acceleration shall be permitted if such acceleration
would cause the Plan to fail to qualify for the exemption provided by Rule
16b-3.
(b) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(c) Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
shareholders of the Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or option
granted pursuant thereto shall confer upon any eligible employee or optionee any
right to continue in the employ of the Company or any Affiliate (or to continue
acting as a consultant, sales representative or director) or shall affect the
right of the Company or any Affiliate to terminate the employment or consulting
or sales representative relationship or directorship of any eligible employee or
optionee with or without cause. In the event that an optionee is permitted or
otherwise entitled to take a leave of absence, the Company shall have the
unilateral right to (i) determine whether such leave of absence will be treated
as a termination of employment for purposes of paragraph 5(g) hereof and
corresponding provisions of any outstanding options, and (ii) suspend or
otherwise delay the time or times at which the shares subject to the option
would otherwise vest.
13.
<PAGE>
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(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; or (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise then to the extent
permitted by applicable law: either (i) any surviving corporation shall assume
any options outstanding under the Plan or shall substitute similar options for
those outstanding under the Plan, or (ii) at the discretion of the Board or the
Committee, (A) such options shall continue in full force and effect (B) the time
during which such options may be exercised shall be accelerated and the options
terminated if not exercised prior to such event provided that no acceleration of
options held by officers or directors of the Company and granted less than six
months prior to the date of acceleration shall be permitted if such acceleration
would cause the plan to fail to qualify for the exemption provided by Rule 16b-3
or (C) such options shall be terminated if not exercised prior to such event.
14.
<PAGE>
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to satisfy the requirements of Section 422A(b) of
the Code or to comply with the requirements of Rule 16b-3); or
(iii) Modify the Plan in any other way if such
modification requires shareholder approval in order for the Plan to satisfy the
requirements of Section 422A(b) of the Code or to comply with the requirements
of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide optionees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee incentive stock
options and/or to bring the Plan and/or incentive stock options granted under it
into compliance therewith.
(c) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
15.
<PAGE>
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board or approved by the shareholders of the Company,
whichever is earlier. No options may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
16.
<PAGE>
APENDIX E
ZITEL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS--FEBRUARY 27, 1997
Jack H. King or Henry C. Harris, or either of them, each with the power of
substitution and revocation, are hereby authorized to represent the undersigned,
with all powers which the undersigned would possess if personally present, to
vote the Common Stock of the undersigned at the annual meeting of shareholders
of ZITEL CORPORATION to be held at the Milpitas Holiday Inn, 777 Bellew Drive,
Milpitas, California 95035, at 3:00 p.m. local time on February 27, 1997 and at
any postponements or adjournments of that meeting, as set forth below, and in
their discretion upon any business that may properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL 1, IN FAVOR OF THE
MATTERS DESCRIBED IN PROPOSALS 2, 3 AND 4, AND, AS SAID PROXIES DEEM ADVISABLE,
ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD
(EXCEPT AS INDICATED) AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED BELOW
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through such nominee's name.)
William R. Lonergan, Jack H. King, Catherine P. Lego, William M. Regitz and
Robert H. Welch.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
2. TO APPROVE AN INCREASE TO THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 20,000,000 TO 40,000,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. TO APPROVE THE 1990 STOCK OPTION PLAN, AS AMENDED, TO INCREASE THE NUMBER OF
SHARES THAT MAY BE ISSUED FROM 4,650,000 TO 5,450,000, AN INCREASE OF 800,000
SHARES.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. TO APPROVE A CHANGE IN THE STATE OF INCORPORATION FROM CALIFORNIA TO
DELAWARE.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated: _____________________, 19__
___________________________________
___________________________________
(Please sign exactly as your name
appears hereon indicating your
official title when signing in a
representative capacity.)
