(303) 299-8801
November 11, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: TouchStone Software Corporation (File No. 00-12969)
1996 Proxy Statement
Ladies/Gentlemen:
Enclosed for filing on behalf of TouchStone Software Corporation (the
"Company") pursuant to Rule 14a-6(a) of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, are five definitive copies of
(i) the Company's proxy statement including Exhibits A through D thereto
(designated document number "TOUCH1") (the "Proxy Statement") soliciting proxies
for use at the Company's 1996 annual meeting of shareholders, scheduled for
December 16, 1996, (ii) the Company's form of proxy (designated document number
"TOUCH2") which the Company intends to distribute to the Company's shareholders
with the Proxy Statement and (iii) a letter to shareholders (designated document
number "TOUCH3") which the Company intends to distribute to the Company's
shareholders with the Proxy Statement.
Please address any comments, questions or requests for additional
information to the undersigned at (303/299-8801).
Very truly yours,
Jeremy W. Makarechian
cc: NASDAQ NMS
Ronald R. Maas
<PAGE>
TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 16, 1996
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
TouchStone Software Corporation (the "Company") will he held on Monday, December
16, 1996, at 10:00 a.m., local time, at the Holiday Inn, 7667 Center Avenue,
Huntington Beach, California 92647 to act on the following matters:
1. To elect six directors of the Company to serve until the next Annual
meeting or the election of their successors.
2. To approve a change in the Company's state of incorporation from
California to Delaware.
3. To approve and adopt a new 1997 Stock Incentive Plan with the maximum
aggregate number of shares registered for issuance totalling 1,200,000 shares of
the Company's Common Stock.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only shareholders of record at the close of business on November 7, 1996
are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
Larry W. Dingus
Chairman of the Board of Directors
Huntington Beach, California
November 15, 1996
YOUR VOTE IS IMPORTANT
All Shareholders are cordially invited to attend in person. However, to
ensure your representation at the meeting, please mark, sign, date and return
the enclosed proxy card as soon as possible in the enclosed postage-paid
envelope. If you attend the meeting, you may vote in person even if you have
previously returned a proxy.
<PAGE>
TOUCHSTONE SOFTWARE CORPORATION
PROXY STATEMENT
1996 ANNUAL MEETING OF SHAREHOLDERS
General
The enclosed proxy is solicited on behalf of the Board of Directors of
TouchStone Software Corporation (the "Company" or TouchStone") for use at the
Annual Meeting of Shareholders to be held on December 16, 1996, at 10:00 a.m.,
local time, or at any adjournment or postponement thereof, for purposes set
forth herein. The Annual Meeting will he held at the Holiday Inn, 7667 Center
Avenue, Huntington Beach, California 92647.
The Company's telephone number is (714) 969-7746. This Proxy Statement and
the accompanying proxy card are being mailed to shareholders on or about
November 15, 1996.
Proxies
If any shareholder is unable to attend the Annual Meeting, such shareholder
may vote by proxy. The enclosed proxy is solicited by the Company's Board of
Directors, (the "Board of Directors" or the "Board") and, when the proxy card is
returned properly completed, it will be voted as directed by the shareholder on
the proxy card. Shareholders are urged to specify their choices on the enclosed
proxy card. If a proxy card is signed and returned without choices specified, in
the absence of contrary instructions, the shares of Common Stock represented by
such proxy will be voted "FOR" Proposals 1, 2 and 3, and will be voted in the
proxy holders' discretion as to other matters that may properly come before the
Annual Meeting. Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before its use by (i) delivering to the Company
at the Company's principal executive office, 2124 Main Street, Suite 250,
Huntington Beach, California 92648, Attention: Chief Financial Officer, a
written notice of revocation or duly executed proxy bearing a later date, or
(ii) attending the Annual Meeting and voting in person.
The cost of soliciting proxies will be borne by the Company. The Company
has retained The Financial Relations Board and Kissel-Blake, Inc. to assist in
the solicitation of proxies at an estimated fee of $5,000 plus reimbursement of
reasonable expenses. In addition, the Company expects to reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners. Proxies
may be solicited by certain of the Company's directors, officers and regular
employees in person or by telephone or facsimile. No additional compensation
will be paid to directors, officers or other regular employees for such
services.
Share Ownership and Voting
Only holders of Common Stock of record at the close of business on November
7, 1996, the record date and time fixed by the Board of Directors, are entitled
to vote at the meeting. At the record date, approximately 7,769,735 shares of
the Company's Common Stock were issued and outstanding, held by 3,261
shareholders of record.
Each share of Common Stock outstanding on the record date is entitled to
vote. A majority of the shares of Common Stock will constitute a quorum for the
transaction of business at the Annual Meeting. Cumulative voting may be used in
the election of directors. Under cumulative voting, each shareholder may cast
for a single candidate, or distribute among the candidates as such shareholder
chooses, a number of votes equal to the number of candidates (six at this
meeting) multiplied by the number of shares held by such shareholder. Cumulative
voting will apply only to those candidates whose names have been placed in
nomination prior to voting. No shareholder shall be entitled to cumulate votes
unless the shareholder has given notice at the meeting, prior to the voting, of
the shareholder's intention to cumulate the shareholder's votes. If any one
shareholder gives such notice, all shareholders may cumulate their votes for
candidates in nomination. Except to the extent that a shareholder withholds
votes from the nominees, the proxy holders named in the accompanying form of
proxy, in their sole discretion, will vote such proxy for, and, if necessary,
exercise cumulative voting rights to secure, the election of the nominees listed
below as directors of the Company.
An affirmative vote of a majority of the shares of Common Stock present and
voting at the meeting is required for approval of all items being submitted to
the shareholders for their consideration, other than the approval of the change
of the jurisdiction of incorporation of the Company from California to Delaware,
for which the affirmative vote of a majority of the outstanding shares of Common
Stock is required. An automated system administered by the Company's transfer
agent tabulates shareholder votes. Abstentions and broker non-votes each are
included in determining the number of shares present and voting at the Annual
Meeting and each is tabulated separately. Abstentions are counted in tabulations
of the votes cast on proposals presented to shareholders, whereas broker
non-votes are not counted for purposes of determining whether a proposal has
been approved. American Securities Transfer & Trust, Inc. ("AST"), the transfer
agent and registrar for the Common Stock, has been approved by the Board of
Directors to serve as Inspector of Election at the Meeting. All proxies and
ballots delivered to AST shall be kept confidential by AST.
The Annual Report of the Company for the fiscal year ended December 31,
1995 was previously mailed to all of the Company's shareholders in June 1996.
Any shareholders entitled to notice of and to vote at the Annual Meeting who
have not previously received a copy of the Annual Report may obtain one by
contacting the Company at (714) 969-7746. The Annual Report is not incorporated
into this Proxy Statement and is not considered proxy soliciting material.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of October 15, 1996, by (a) each person known by the Company to
own beneficially more than 5% of the outstanding Common Stock; (b) the Chief
Executive Officer of the Company; (c) each of the four other most highly
compensated executive officers of the Company (determined at fiscal year-end
1995); (d) each director of the Company; and (e) all directors and executive
officers as a group. Except as otherwise indicated, the address of each holder
identified below is in care of the Company, 2124 Main Street, Suite 250,
Huntington Beach, California 92648.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Approximate
Name Owned(1) Percent Owned
<S> <C> <C>
Larry W. Dingus(2) . . 291,957 3.7%
Larry S. Jordan. . 208,000 2.7%
Ronald R. Maas(3). . 381,610 4.9%
C. Shannon Dingus(4) 721,518 9.1%
Kenneth C. Welch III(5) 238,574 3.0%
Richard W. Brail 0 *
All executive officers and
directors asa group
(6 persons)(6) 1,841,659 22.6%
<FN>
_______________
*Less than 1%
(1) Except as indicated in the footnotes to this table, the
shareholders named in the table are known to the Company to have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property
laws where applicable. As of October 15, 1996, an aggregate of
7,767,235 shares of Common Stock were outstanding.
(2) Includes options to purchase 134,883 shares exercisable on or
before December 15, 1996.
(3) Includes options to purchase 80,000 shares exercisable on or
before December 15, 1996.
(4) Includes options to purchase 134,300 shares exercisable on or
before December 15, 1996.
(5) Includes options to purchase 52,000 shares exercisable on or
before December 15, 1996.
(6) Includes officers' and directors' shares listed above.
</FN>
</TABLE>
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of six directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the six nominees to the Board of Directors named below. Each of the nominees
is a current member of the Company's Board of Directors. If a nominee is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the proxy holders to fill
such vacancy. However, it is not expected that any nominee will be unable or
will decline to serve as a director. If a nomination is made to elect an
individual to the vacant position on the Board, the proxy holders will propose a
nominee to fill such position and vote all proxies received by them in
accordance with cumulative voting to assure the election of as many of the
Company's nominees as possible. If shareholders nominate persons other than the
Company's nominees for election as directors, the proxy holders will vote all
proxies received by them in accordance with cumulative voting to assure the
election of as many of the Company's nominees as possible. The term of office of
each person elected as a director will continue until the next Annual Meeting of
Shareholders or until the director's successor has been elected.
The Company's Board of Directors recommends that shareholders vote FOR the
nominees listed below:
Director
Name of Nominee Age Principal Occupation Since
Larry W. Dingus. 52 Chairman of the Board of Directors 1982
Larry S. Jordan. 52 President and Chief Executive 1996
Officer of the Company
Ronald R. Maas 50 Executive Vice President, Chief 1993
Financial Officer and Secretary
C. Shannon Dingus 49 Chief Technology Officer 1982
Kenneth C. Welch III 39 Independent Software Consultant 1993
Richard W. Brail 54 President and Chief Executive 1995
Officer of Best Golf, Inc.
Business Experience of Nominees for Election as Directors
Larry W. Dingus, age 52, has served as Chairman of the Company's Board of
Directors since the Company was founded in September 1982, and served as
Secretary of the Company from 1989 to October 1995. He resigned as President of
the Company on February 15, 1988, and as Chief Executive Officer of the Company
on February 16, 1989, posts he had held since September 1982.
Larry Jordan, age 52, joined the Company in January 1996 as President and
Chief Operating Officer. In June 1996, Mr. Jordan replaced C. Shannon Dingus as
Chief Executive Officer of the Company. Prior to joining the Company, Mr. Jordan
was with FileNet Corporation, a leading developer of workflow and document
imaging software, from 1984 to 1996, holding the position of Senior Vice
President of Sales since 1992.
Ronald R. Maas, age 50, joined the Company in 1991 as Vice President of
Finance and Operations and Chief Financial Officer. In 1993, Mr. Maas was
promoted to Executive Vice President of the Company, and was elected to the
Company's Board of Directors. In October 1995 he was elected Corporate
Secretary. Prior to joining the Company, Mr. Maas served from March 1990 through
January 1991 as the Controller of Bell & Howell Quintar Company, a manufacturer
of computer peripheral equipment.
C. Shannon Dingus, age 49, has served as the Company's Chief Technology
Officer since June 1996. Between February 1989 and June 1996, Ms. Dingus served
as the Company's Chief Executive Officer. She served as the Company's President
from March 1988 until January 1996. She served as the Company's Vice President
of Marketing from September 1982 until January 1986, when she became the
Company's Executive Vice President, and since September 1982, she has also
served as a Director.
Kenneth C. Welch III, age 39, has been a Director of the Company since
August 1993. From September 1985 to the present, he has worked as an independent
software consultant in the Washington DC area. From September 1982 to May 1985
he served as the Company's Vice President of Development, and was a Director of
the Company from September 1982 to August 1986.
Richard W. Brail, age 54, joined the Company's Board of Directors in April
1995. He has been the President and Chief Executive Officer of Best Golf, Inc.
since September 1994. From July 1991 to May 1994, Mr. Brail served as the
President of Helio Computers, Inc. of Irvine, California. From 1985 until 1991,
he provided services to the Company and other computer companies as the owner of
a computer sales and marketing company.
Executive Officers and Key Employees
The following table sets forth the name, age and business experience during
at least the last five years of each of the executive officers of the Company.
The executive officers serve at the pleasure of the Board of Directors of the
Company. Biographical information with respect to each of the Company's
executive officers is set forth under the caption "ELECTION OF DIRECTORS" above.
Name Age Position
Larry S. Jordan 52 President and Chief Executive Officer
Ronald R. Maas 50 Executive Vice President,
Chief Financial Officer and Secretary
C. Shannon Dingus 49 Chief Technology Officer
In addition to its executive officers, the following individuals are
considered to be key employees of the Company:
Charles D'Angelo joined the Company in May 1996 as Vice President of Sales.
Prior to joining the Company, Mr. D'Angelo served as Vice President of Sales and
Marketing for Zenographics, a developer and producer of advanced printing tools
for Windows. From 1992 to 1995, Mr. D'Angelo was Director of Sales for Digitalk,
Inc., a producer of object-oriented software solutions for the client/server
market.
Mary Bartlett joined the Company as Director of Operations in May of 1995.
In January of 1996, she was promoted to Vice President of Operations. From 1992
to May 1995, Ms. Bartlett was self-employed as a business broker in Arizona.
From 1989 to 1992, Ms. Bartlett was Operations Manager for PDS, Inc., a software
vendor.
Susan Kennedy joined the Company in August 1995 as Director of Marketing
and was promoted to Vice President of Marketing in February 1996. From June 1994
to March 1995, Ms. Kennedy was a founder and Director of Marketing at Rememory
Corporation, a developer of NetWare backup Systems. Rememory Corporation was
acquired by Stac Electronics in March 1995. From March to August 1995, she held
various marketing management positions at Conner Peripherals (previously Archive
Corp.)
Board Meetings and Committees
The Board of Directors of the Company held two regularly scheduled meetings
and two special meetings during the 1995 fiscal year or otherwise took action by
written consent. Each of the nominees who was a director during the entire
fiscal year attended or participated in 75% or more of the aggregate number of
meetings of the Board of Directors and the committees of the Board on which the
director served. The Board of Directors has an Audit Committee and a
Compensation Committee.
The Audit Committee, which consisted of non-employee directors Dingus,
Welch and Brail in fiscal 1995, held one regularly scheduled meeting in the last
fiscal year. The principal functions of the Audit Committee are to recommend
engagement of the Company's independent auditors, to review and approve the
services performed by the Company's independent auditors and to review the
Company's accounting principles, its internal control structure, policies and
procedures.
The Compensation Committee, which also consisted of non-employee directors
Dingus, Welch and Brail in fiscal 1995, held one regularly scheduled meeting
during the last fiscal year. The Compensation Committee reviews and makes
recommendations to the Board concerning the Company's executive compensation
policy, bonus plans and incentive option plans, and approves the granting of
stock options to officers.
The Board of Directors continues to meet as a whole to nominate the
individuals to be proposed by the Board of Directors for election as directors
of the Company, and has no separate nominating committee.
Compensation of Directors
All non-employee directors of the Company were entitled to the following
compensation for fiscal year 1995: (i) $1,200 per year paid in quarterly
installments (pro-rated for directors who served as such for only part of a
year) and (ii) $100 per Board meeting and committee meeting attended. The
Company also reimburses its non-employee directors for reasonable expenses
incurred in attending Board meetings.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than ten percent of the Company's Common Stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended December 31, 1995 all filing requirements
applicable to its officers, directors, and greater than ten percent beneficial
owners were complied with.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation paid or accrued by the Company to the Company's Chief Executive
Officer and each of the two other most highly compensated executive officers of
the Company whose combined annual salary and bonus exceed $100,000 (determined
as of December 31, 1995) (hereinafter referred to as the "named executive
officers") for the fiscal years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Other Securities All
Annual Restricted Underlying Other
Compensation Stock Awards Options/SARs Compens-
Name and Principal Position(1) Year Salary($) Bonus ($) ($) ($) (#) ation($)
<S> <C> <C> <C> <C> <C> <C> <C>
Larry W. Dingus .............. 1995 $ 71,489 $ 73,289 0 0 0 0
Chairman of the
Board of Directors ........... 1994 95,333 73,683 0 0 138,300 0
1993 86,000 17,641(2) 0 0 80,000 0
Ronald R. Maas ............... 1995 $ 85,862 $ 43,444 0 0 0 0
Vice President of Finance,
Chief Financial Officer, ..... 1994 83,800 47,449 0 0 92,467 0
Secretary and Director ....... 1993 78,300 8,376(3) 0 0 78,000 0
C. Shannon Dingus ............ 1995 $125,750 $ 88,911 0 0 0 0
Chief Technology Officer,
Former Chief ................. 1994 112,400 89,657 0 0 138,300 0
Executive Officer and Director 1993 100,000 17,641(4) 0 0 80,000 0
<FN>
_______________
(1) Mr. Jordan assumed the duties of President in January 1996.
Accordingly his compensation is not reflected in the following table.
(2) Amount reported for 1993 excludes $18,340 representing a bonus
paid in 1994.
(3) Amount reported for 1993 excludes $11,480 representing a bonus
paid in 1994.
(4) Amount reported for 1993 excludes $20,960 representing a bonus
paid in 1994.
</FN>
</TABLE>
<PAGE>
Option Grants in Last Fiscal Year
The Company did not grant stock options or stock appreciation rights in
1995 to any of the executive officers identified in the Summary Compensation
Table set forth above.
Option Grants in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth information regarding options exercised
during the year ended December 31, 1995 by the executive officers of the Company
identified above, as well as the aggregate value of unexercised options held by
such executive officers at December 31, 1995. The Company has no outstanding
stock appreciation rights, either freestanding or in tandem with options.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money
Acquired Options/SARs at FY-End (#) Options/SARs at FY-End ($)(2)
on Value
Exercise Realized
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Larry W. Dingus 0 0 134,883 0 447,542 0
Ronald R. Maas 0 0 88,467 0 295,150 0
C. Shannon Dingus 0 0 134,300 0 445,507 0
<FN>
(1) Market value on the date of exercise, less option exercise price.
(2) Market value of shares covered by in-the-money options on December
31, 1995, less option exercise price. Options are in-the- money if the
market value of the shares covered thereby is greater than the option
exercise price.
</FN>
</TABLE>
Employment Contracts, Termination of Employment and Change of Control
Arrangements
The Company has entered into an employment agreement with each of its three
executive officers. Mr. Maas and Ms. Dingus have one year agreements that
automatically renew on January 1 of each year and Mr. Jordan has a three-year
agreement that automatically renews for a one-year term each year on January 16,
commencing January 16, 1999. Each agreement provides that, upon termination of
employment with the Company for any reason other than for cause, the executive
officer will continue to receive compensation at the level in effect on the date
of termination of employment for the remainder of the year or nine months,
whichever is longer. In the event that the termination of employment of any of
the executive officers occurs following a change in control of the Company, the
exercisability of all stock options and warrants held by the terminated officer
will automatically be accelerated, and the purchase price of all shares of the
Company's Common Stock issuable upon exercise of such options and warrants can
be paid by the terminated executive pursuant to a promissory note due and
payable in two years.
Bonus Plan
For each of the years ended December 31, 1993, 1994 and 1995, the Company's
Board of Directors established a plan to provide additional incentive to
management. Under such plans, the Company's executive officers, including
directors who are also employees, and other key employees of the Company
received bonuses based upon the Company's profitability in addition to their
base cash compensation.
The Company also established a bonus plan for the year ending December 31,
1996 (the "1996 Bonus Plan"). Under the 1996 Bonus Plan, participants selected
by the Board of Directors were eligible to receive bonuses (which, in the case
of any individual participant, shall not exceed that participant's base salary
for the year) determined quarterly based upon the Company's net income after
taxes for the quarter, with 60% of the earned bonus payable following the end of
the quarter. The 40% balance of the earned bonus will be deferred until the end
of the year, and then will be payable only if the maximum payable to all
participants in the 1996 Bonus Plan, as a group, is that amount which equals
18.5% of the Company's pre-tax income for any quarter or the full year, as
appropriate. Each of the executive officers of the Company identified above was
selected as a participant in the 1996 bonus plan.
Employee Stock Purchase Plan
In August 1994, the Company's Board of Directors adopted an employee stock
purchase plan pursuant to which an aggregate of 260,900 shares of Common Stock
were sold to a total of 21 employees, including 20,000 shares purchased by each
of Mr. Dingus, Ms. Dingus and Mr. Maas. Each participating employee was entitled
to purchase, for cash, promissory notes, or through semi-monthly payroll
deductions, up to 20,000 shares of Common Stock at $.22 per share, which price
was equal to 85% of the most recent bid price per share of the Common Stock. In
addition, each participant received a warrant to purchase, at any time prior to
August 14, 1997, one additional share of Common Stock, at the same price per
share, for every share purchased under the employee stock purchase plan. In
1994, Mr. Dingus, Ms. Dingus and Mr. Maas each purchased 20,000 shares of the
Company's Common Stock by providing non-interest bearing notes to the Company in
the principal amount of $4,400 each. These notes were paid in full in August
1995.
Certain Relationships and Related Transactions
Mr. Dingus and Ms. Dingus are related by reason of marriage.
In 1995 and 1994, the Company paid royalties aggregating approximately
$27,000 and $67,000 to Custom Software, Inc., a software programming company
whose majority stockholder is Sigmund A. Fidyke III, a former officer of the
Company.
In 1991, Mr. Dingus participated in the Company's $200,000 subordinated
debt financing, providing the Company with a personal loan of $10,000 for two
years at 15% interest and receiving options to purchase a total of 3,334 shares
of the Company's Common Stock at an average price of $.20 per share. In 1992,
Mr. Dingus, a member of his family, and Mr. Maas participated in the Company's
$45,000 subordinated note financing, lending the Company $15,000, $20,000, and
$10,000, respectively. In consideration of these loans, Messrs. Dingus and Maas
were granted warrants to purchase 5,000 and 3,333 shares of Common Stock,
respectively, at $.30 per share. Additionally, in connection with the Company's
bank line of credit, Mr. Dingus and Mr. Maas were required to accept only
payments of interest from November 1993 until May 1, 1994 by virtue of the
subordination provisions of their subordinated notes. In consideration for the
Company's failure to make principal payments when due, Mr. Dingus was issued
11,120 shares of Common Stock and Mr. Maas was issued 4,810 shares of Common
Stock. At December 31, 1994, the principal amounts due Messrs. Dingus and Maas
under these subordinated notes were approximately $15,800 and $6,800,
respectively. All of these amounts were paid in March 1995.
During the years ended December 31, 1993 and 1994, Mr. Dingus, Ms. Dingus
and Mr. Maas were each granted options to purchase a total of 34,000 of the
Company's Common Stock in consideration for their guarantees of borrowings under
the Company's bank line of credit.
In August, 1994, three-year warrants to purchase an aggregate of 56,733
shares of Common Stock at $.26 per share were issued to holders of outstanding
stock options who agreed to exercise their options at an earlier date than
otherwise required, including warrants to purchase 14,883, 14,300, 8,467, and
2,000 shares issued to Mr. Dingus, Ms. Dingus, Mr. Maas and Mr. Welch,
respectively.
During the year ended December 31, 1994, Mr. Dingus, Ms. Dingus, and Mr.
Maas gave the Company promissory notes in the respective principal amounts of
$46,357, $43,349, and $28,244 as payment of the purchase price for 297,668,
286,000 and 169,333 shares of the Company's Common Stock, respectively, acquired
upon exercise of stock options. Certain of these notes originally bore interest
at the rate of 8% per annum and were due and payable in August 1995, while
others bore interest at the annual rate of 3.5% and were not payable until
August 1998. Prior to the end of 1994, the interest rate on the 8% notes was
reduced to 3.5% per annum, and the maturity of those notes was extended to
August 1998. Each of these promissory notes was paid in full in August 1995.
Limitation of Directors' and Officers' Liability and Indemnification
The Company's Bylaws provide that the Company may indemnify its officers
and directors, employees and other agents in certain circumstances. As described
more fully in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, the Company and Larry W. Dingus, C. Shannon Dingus,
Ronald R. Maas, Kenneth C. Welch III, Donald C. Watters, and Sigmund Fidyke III
have been named as defendants in three purported class and derivative actions
alleging violations of federal securities laws and various state statutes
sounding in fraud. The cases have been consolidated and a proposed settlement
has been reached which has received preliminary approval from the Court. The
basic terms of the settlement call for the establishment of a settlement fund
consisting of $500,000 cash and 200,000 newly issued shares of the Company's
stock. The Company is informed that notice of the terms of the settlement has
been mailed to the class. A hearing is scheduled in December 1996 for final
Court approval of the settlement.
In accordance with the Company's Bylaws and California law, the Company has
agreed to advance all expenses incurred in defending such actions upon receipt
from each of the individual defendants of a written undertaking to repay the
expenses advanced by the Company for their respective accounts if it is
determined ultimately that any of them is not entitled to be indemnified by the
Company. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
<PAGE>
PROPOSAL NO. 2
REINCORPORATION IN DELAWARE
Introduction
For the reasons set forth below, the Board of Directors believes that the
best interests of the Company and it shareholders will be served by changing the
state of incorporation of the Company from California to Delaware (the
"Reincorporation Proposal" or the "Proposed Reincorporation"). Shareholders are
urged to read carefully the following sections of this Proxy Statement,
including the related exhibits, before voting on the Reincorporation Proposal.
Throughout the Proxy Statement, the term "TouchStone California" refers to the
existing California corporation and the term "TouchStone Delaware" refers to the
new Delaware corporation, a wholly owned subsidiary of TouchStone California,
which is the proposed successor to TouchStone California. The Reincorporation
Proposal will be effected by merging TouchStone California into TouchStone
Delaware. Upon completion of the merger, TouchStone California will cease to
exist and TouchStone Delaware will continue to operate the business of the
Company under the name TouchStone Software Corporation.
Pursuant to the Agreement and Plan of Merger, a copy of which is attached
hereto as Exhibit A (the "Merger Agreement"), each outstanding share of
TouchStone California Common Stock, $.001 par value, will automatically be
converted into one share of TouchStone Delaware Common Stock, par value $0.001,
upon the effective date of the merger. Each stock certificate representing
issued and outstanding shares of TouchStone California Common Stock will
continue to represent the same number of shares of Common Stock of TouchStone
Delaware. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING
STOCK CERTIFICATES FOR STOCK CERTIFICATES OF TOUCHSTONE DELAWARE. However,
shareholders may exchange their certificates if they so choose. The Common Stock
of TouchStone California is listed for trading on the Nasdaq National Market,
and after the merger TouchStone Delaware's Common Stock will continue to be
traded on the Nasdaq National Market without interruption, under the same symbol
("TSSW") employed by the Company prior to the merger.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of TouchStone California is required for approval of the
Merger Agreement and the other terms of the Proposed Reincorporation. See "Vote
Required for the Reincorporation Proposal." The Proposed Reincorporation has
been unanimously approved by TouchStone California's Board of Directors. If
approved by the shareholders, it is anticipated that the merger will become
effective as soon as practicable (the "Effective Date") following the Annual
Meeting of Shareholders. However, pursuant to the Merger Agreement, the merger
may be abandoned or the Merger Agreement may be amended by the Board of
Directors (except that the principal terms may not be amended without
shareholder approval) either before or after shareholder approval has been
obtained and prior to the Effective Date of the Proposed Reincorporation if, in
the opinion of the Board of Directors of either company, circumstances exist
which make it inadvisable to proceed under the original terms of the Merger
Agreement.
Shareholders of TouchStone California will have no dissenters' rights of
appraisal with respect to the Rein-
corporation Proposal. See "Significant Differences Between the Corporation
Laws of California and Delaware Appraisal Rights."
The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Certificate of Incorporation of TouchStone Delaware
(the "Certificate of Incorporation") and the Bylaws of TouchStone Delaware,
copies of which are attached hereto as Exhibit A, B and C, respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE CERTIFICATE OF INCORPORATION AND THE
BYLAWS OF TOUCHSTONE DELAWARE AND ALL PROVISIONS THEREOF.
Vote Required for the Reincorporation Proposal
Approval of the Reincorporation Proposal, which will also constitute
approval of (i) the Merger Agreement, the Certificate of Incorporation and the
Bylaws of TouchStone Delaware, (ii) the assumption of TouchStone California's
employee benefit plans and stock option and purchase plans by TouchStone
Delaware, (iii) the assumption of TouchStone California's shareholder rights
plan by TouchStone Delaware and (iv) revisions in the Company's indemnification
agreements with its officers and directors to take full advantage of Delaware
law, will require the affirmative vote of the holders of a majority of the
outstanding shares of TouchStone California entitled to vote.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSED REINCORPORATION IN DELAWARE.
THE EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE IS THE SAME AS THAT OF A VOTE
AGAINST THE REINCORPORATION PROPOSAL.
Principal Reasons for the Proposed Reincorporation
Well Established Principles of Corporate Governance. As the Company plans
for the future, the Board of Directors and management believe that it is
essential to be able to draw upon well established principles of corporate
governance in making legal and business decisions. There is substantial judicial
precedent in the Delaware courts as to the legal principles applicable to
measures that may be taken by a corporation and as to the conduct of the Board
of Directors under the business judgment rule. The Company believes that its
shareholders will benefit from the well established principles of corporate
governance that Delaware law affords.
Prominence, Predictability and Flexibility of Delaware Law. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based and the Company believes
that shareholders will benefit from the responsiveness of Delaware corporate law
to their needs and to those of the corporation they own. For many years Delaware
has followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal and
business needs of corporations organized under its laws. Many corporations have
initially chosen Delaware for their state of incorporation or have subsequently
changed their corporate domicile to Delaware in a manner similar to that
proposed by the Company. Because of Delaware's prominence as the state of
incorporation for many major corporations, both the legislature and courts in
Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to corporate legal affairs.
Increased Ability to Attract and Retain Qualified Directors. Both
California and Delaware law permit a corporation to include a provision in its
certificate of incorporation which reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and money
required to respond to such claims and to defend such litigation can be
substantial. It is the Company's desire to reduce these risks to its directors
and officers and to limit situations in which monetary damages can be recovered
against directors so that the Company may continue to attract and retain
qualified directors who otherwise might be unwilling to serve because of the
risks involved. The Company believes that, in general, Delaware law provides
greater protection to directors than California law and that Delaware case law
regarding a corporation's ability to limit director liability is more developed
and provides more guidance than California law.
Anti-takeover Implications
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. The Reincorporation Proposal is not being proposed
in order to prevent such a change in control, nor is it in response to any
present attempt known to the Board of Directors to acquire control of the
Company, obtain representation on the Board of Directors or take significant
action which affects the Company.
Certain effects of the Reincorporation Proposal may be considered to have
anti-takeover implications. Section 203 of the Delaware General Corporation Law,
from which TouchStone Delaware does NOT intend to opt out, restricts certain
"business combinations" with "interested shareholders" for three years following
the date that a person becomes an interested shareholder, unless the Board of
Directors approves the business combination. See "Significant Differences
Between the Corporation Laws of California and Delaware Shareholder Approval of
Certain Business Combinations." Unlike the Bylaws of TouchStone California, the
Certificate of Incorporation and Bylaws of TouchStone Delaware do not permit
cumulative voting. Cumulative voting entitles each shareholder to cast a number
of votes that is equal to the number of voting shares held by such shareholder
multiplied by the total number of directors to be elected, and to cast all such
votes for one nominee or distribute such votes among up to as many candidates as
there are positions to be filled. Without cumulative voting, a shareholder or
group of shareholders must hold a majority of the voting shares to cause the
election of one or more nominees. The elimination of cumulative voting could be
viewed as having an anti-takeover effect in that it can make it more difficult
for a minority shareholder to gain a seat on the Board. Furthermore, certain
changes to the relative rights of shareholders and management which have
anti-takeover implications may be implemented under Delaware law. Certain of
these changes, including the elimination of the right of shareholders
controlling at least ten percent (10%) of the voting shares to call a special
meeting of shareholders and the elimination of the right of shareholders to
remove a director other than for cause, will be implemented as part of the
Proposed Reincorporation. In addition, certain changes which reduce shareholder
participation in important corporate decisions and which could be instituted in
California without reincorporating in Delaware will also be implemented as part
of the Proposed Reincorporation. These changes include the elimination of the
right of shareholders to act by written consent and the establishment of
procedural requirements for shareholders wishing to nominate directors or
present proposals for shareholder consideration. There can be no assurance that
the Board of Directors will not adopt any further anti-takeover measures
available under Delaware law (some of which may not require shareholder
approval). For a detailed discussion of all of the changes which will be
implemented as part of the Proposed Reincorporation, see "The Charters and
Bylaws of TouchStone California and TouchStone Delaware." For a discussion of
these and other differences between the laws of California and Delaware, see
"Significant Differences Between the Corporation Laws of California and
Delaware."
Despite the belief of the Board of Directors as to the benefits to
shareholders of the Reincorporation Proposal, it may be disadvantageous to the
extent that it has the effect of discouraging a future takeover attempt which is
not approved by the Board of Directors, but which a majority of the shareholders
may deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over the then current market value or over
their cost basis in such shares. As a result of such effects of the
Reincorporation Proposal, stockholders who might wish to participate in a tender
offer may not have an opportunity to do so. In addition, to the extent that such
provisions enable the Board of Directors to resist a takeover or a change in
control of the Company, they could make it more difficult to change the existing
Board of Directors and management.
Shareholder Rights Plan
In the discharge of its fiduciary obligations to its shareholders, the
Board of Directors has evaluated the Company's vulnerability to potential
unsolicited bidders. On September 20, 1996, the Board adopted a shareholder
rights plan. Shareholder rights plans have generally been accepted by Delaware
courts, while their validity under California law is much less certain.
TouchStone Delaware will assume the shareholder rights plan of TouchStone
California in the Proposed Reincorporation and the Certificate of Incorporation
sets forth the rights, preferences and privileges of the Series A Participating
Preferred Stock issuable pursuant to such plan. Certain types of "poison pill"
defenses 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.
Under the TouchStone Shareholder Rights Plan, the stockholders will receive
one Preferred Stock Purchase Right (collectively, the "Rights") for each
outstanding share of TouchStone Delaware Common Stock. The Rights will be
exercisable only if a person or group acquires 15% or more of the TouchStone
Delaware Common Stock or announces a tender offer the consummation of which
would result in ownership by a person or group of 15% or more of the Company's
Common Stock. Each Right will entitle stockholders to buy one-thousandth of a
share of Series A Participating Preferred Stock at an exercise price of $15 upon
the occurrence of certain events. If, after the Rights become exercisable,
TouchStone Delaware is acquired in a merger or other business combination
transaction, or sells 50% or more of its assets or earnings power, each Right
will entitle its holder to purchase, at the Right's then-current price, a number
of the acquiring company's common shares having a market value at the time of
twice the Right's exercise price. In addition, if a person or group acquires 15%
or more of the TouchStone Delaware outstanding Common Stock, otherwise than
pursuant to a tender offer for all shares which is determined by the Board of
Directors to be fair and in the best interests of the Company and its
stockholders, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then-current exercise price,
a number of TouchStone Delaware's common shares (or cash, other securities or
property) having a market value of twice the Right's exercise price. Following
the acquisition by a person or group of beneficial ownership of 15% or more of
the TouchStone Delaware Common Stock and prior to an acquisition of 50% or more
of the TouchStone Delaware Common Stock, the Board of Directors may exchange the
Rights (other than Rights owned by such person or group), in whole or in part,
at an exchange ratio of one share of Common Stock (or one one- thousandth of a
share of Series A Participating Preferred Stock) per Right. At any time prior to
ten days after a person or group has acquired beneficial ownership of 15% or
more of the TouchStone Delaware Common Stock, the Rights are redeemable for one
cent per Right at the option of the Board of Directors. The Rights are intended
to enable all stockholders to realize the long-term value of their investment in
the Company. The Rights will not prevent a takeover, but should encourage anyone
seeking to acquire the Company to negotiate with the Board of Directors prior to
attempting a takeover.
The Board of Directors believes that unsolicited takeover attempts may be
unfair or disadvantageous to the Company and its stockholders because a
non-negotiated takeover bid may be timed to take advantage of temporarily
depressed stock prices or may be designed to foreclose or minimize the
possibility of more favorable competing bids. In addition, a non-negotiated
takeover bid may involve the acquisition of only a controlling interest in the
corporation's stock, without affording all stockholders the opportunity to
receive the same economic benefits. By contrast, in a transaction in which an
acquiror must negotiate with an independent board of directors, the board can
and should take account of the underlying and long-term values of assets, the
possibilities for alternative transactions on more favorable terms, possible
advantages from a tax-free reorganization, anticipated favorable developments in
the Company's business not yet reflected in the stock price and equality of
treatment of all stockholders.
Possible Disadvantages
Despite the unanimous belief of the Board of Directors that the
Reincorporation Proposal is in the best interests of TouchStone California and
its shareholders, it should be noted that Delaware law has been criticized by
some commentators on the grounds that it does not afford minority shareholders
the same substantive rights and projections as are available in a number of
other states. For a comparison of shareholders' rights and the powers of
management under Delaware and California law, see "Significant Differences
Between the Corporation Laws of California and Delaware." In addition, the
Reincorporation Proposal includes certain permitted changes to the Restated
Articles of Incorporation (the "Articles of Incorporation") and Bylaws of the
Company which alter the relative rights of shareholders and management and which
reduce shareholder participation in important corporate decisions. Furthermore,
there may be circumstances in which TouchStone California could recover damages
from a director for actions or omissions that result in damage to the Company,
in which TouchStone Delaware will not be able to recover from such director due
to the broader protection afforded under TouchStone Delaware's Certificate of
Incorporation and Bylaws. In this regard it should be noted that the current
directors of the Company will benefit from the director liability provision
contained in TouchStone Delaware's Certificate of Incorporation and Bylaws, as
to actions or omissions by them after the Proposed Reincorporation is
consummated, and accordingly have a personal interest in approval of the
Reincorporation Proposal. At present, there is no material pending litigation or
proceeding involving a director, officer, employee or agent for which
indemnification is sought, and the Company is not aware of any material
threatened litigation or proceeding that may result in a claim for
indemnification. For a detailed discussion of the changes which will be
implemented as part of the Proposed Reincorporation, see "The Charters and
Bylaws of TouchStone California and TouchStone Delaware."
No Change in the Name, Board Members, Business, Management, Employee Plans
or Location of Principal Facilities of the Company
The Reincorporation Proposal will effect only a change in the legal
domicile of the Company and other changes of a legal nature, certain of which
are described in this Proxy Statement. The Proposed Reincorporation will NOT
result in any change in the name, business, management, fiscal year, assets or
liabilities or location of the principal facilities of the Company. The six
directors who are elected at the Annual Meeting of Shareholders will become the
directors of TouchStone Delaware. All employee benefit, stock option and
purchase plans of TouchStone California will be continued by TouchStone
Delaware, and each option or right issued pursuant to such plans will
automatically be converted into an option or right to purchase the same number
of shares of TouchStone Delaware Common Stock, at the same price per share, upon
the same terms, and subject to the same conditions, as set forth in such plans.
Shareholders should note that approval of the Reincorporation Proposal will also
constitute approval of the assumption of these plans by TouchStone Delaware.
Other employee benefit arrangements of TouchStone California will also be
continued by TouchStone Delaware upon the terms and subject to the conditions
currently in effect. As noted above, after the merger the shares of Common Stock
of TouchStone Delaware will continue to be traded, without interruption, in the
same principal market and under the same symbol ("TSSW") as the shares of Common
Stock of TouchStone California prior to the merger.
The Charters and Bylaws of TouchStone California and TouchStone Delaware
The provisions of the TouchStone Delaware Certificate of Incorporation and
Bylaws are similar to those of the TouchStone California Articles of
Incorporation and Bylaws in many respects. However, the Reincorporation Proposal
includes the implementation of certain provisions in the TouchStone Delaware
Certificate of Incorporation and Bylaws which alter the rights of shareholders
and the powers of management and which reduce shareholder participation in
important corporate decisions. These provisions have anti-takeover implications
and are described in detail below. Approval by shareholders of the Proposed
Reincorporation will constitute an approval of the inclusion in the TouchStone
Delaware Certificate of Incorporation and Bylaws of each of the provisions
described below. In addition, certain other changes altering the rights of
shareholders and powers of management could be implemented in the future by
amendment of the Certificate of Incorporation following shareholder approval and
certain such changes could be implemented by amendment of the Bylaws of
TouchStone Delaware without share-holder approval. For a discussion of such
changes, see "Significant Differences Between the Corporation Laws of California
and Delaware." This discussion of the Certificate of Incorporation and Bylaws of
TouchStone Delaware is qualified by reference to Exhibits B and C hereto,
respectively.
Elimination of Shareholder Actions by Written Consent and Right to Call
Special Meetings. The Certificate of Incorporation and Bylaws of TouchStone
Delaware will provide that shareholders may act only at an annual or special
meeting of shareholders and not by written consent. Although the Bylaws of
TouchStone California provide for shareholder actions by written consent, the
Company has not used this method of obtaining shareholder approval since
becoming a public company in 1984, and because of the large number of
shareholders of the Company and its current practice of soliciting proxies and
holding meetings, the Company does not expect to use this procedure in the
future. In addition, the Bylaws of TouchStone Delaware provide that special
meetings of shareholders can be called only by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer. Shareholders are not
permitted to call a special meeting or to require that the Board call a special
meeting of shareholders. Moreover, the business permitted to be conducted at any
special meeting of shareholders is limited to the business brought before the
meeting by or at the discretion of the Board of Directors.
Reasons for Elimination of Shareholder Action by Written Consent and Right
to Call Special Meetings. The provisions prohibiting shareholder action by
written consent would ensure that all shareholders of the Company get the
opportunity to participate in determining any proposed shareholder action and
would prevent the holders of a majority of the voting power of the Company from
using the written consent procedure to take shareholder action. Persons
attempting unfriendly takeovers of corporations have attempted to use written
consent procedures in order to deal directly with shareholders and avoid
negotiations with the boards of directors of such companies. The provisions
regarding the elimination of the right of shareholders to call a special meeting
would mean that a shareholder could not force shareholder consideration of a
proposal over the opposition of the Board of Directors by calling a special
meeting of shareholders prior to such time as the Board believed such
consideration to be appropriate. By eliminating the use of the written consent
procedure and the ability of shareholders to call a special meeting, the Company
intends to encourage persons seeking to acquire control of the Company to
initiate such an acquisition through arm's-length negotiations with the
Company's management and Board of Directors.
Possible Disadvantages of Elimination of Shareholder Actions by Written
Consent and Right to Call Special Meetings. The provisions restricting
shareholder action by written consent and the elimination of the shareholders'
ability to call special meetings may have the effect of delaying consideration
of a shareholder proposal until the next annual meeting unless a special meeting
is called by the Board of Directors. Because elimination of the procedures for
shareholders to act by written consent or to call special meetings could make
more difficult an attempt to obtain control of the Company, such action could
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company. Because tender offers for
control usually involve a purchase price higher than the prevailing market
price, the provisions restricting shareholder action by written consent and the
elimination of the shareholders' ability to call special meetings may have the
effect of preventing or delaying a bid for the Company's shares which could be
beneficial to the Company and its shareholders. Elimination of the written
consent procedure also means that a meeting of shareholders would be required in
order for the Company's shareholders to replace the Board. The restriction on
the ability of shareholders to call a special meeting means that a proposal to
replace the Board could be delayed until the next annual meeting. These
provisions thus will make the removal of directors more difficult. In addition,
elimination of the written consent procedure may lengthen the amount of time
required to take shareholder actions since certain actions by written consent
are not subject to the minimum notice requirement of a shareholders' meeting.
Board of Directors Allowed to Consider Non-Financial and Long-Term Factors
in Evaluating Acquisition Proposals. The Certificate of Incorporation of
TouchStone Delaware will provide that, in connection with the exercise of its
judgment in determining what is in the best interests of the Company in
evaluating a tender offer, exchange offer, merger proposal or sale of the
Company, the Board of Directors may consider a variety of factors in addition to
the interests of the Company's stockholders including, without limitation, (i)
whether the proposed transaction might violate federal or state laws, (ii) the
value of the consideration being offered in the proposed transaction in relation
to the market price for the Company's stock over a period of years, in addition
to the premium over the current market price, and the estimated price that might
be achieved based on the Company's financial condition and future prospects, and
(iii) the social, legal and economic effects upon employees, suppliers,
customers and others having similar relationships with the Company and the
communities in which the Company conducts its business.
Reasons for Allowing Board of Directors to Consider Non-Financial and
Long-Term Factors in Evaluating Acquisition Proposals. The provision allowing
the Company's Board of Directors to consider non-financial and long-term factors
in evaluating acquisition proposals would ensure that the Board of Directors
would have maximum flexibility in the exercise of its business judgment in
determining what is in the best interests of the Company and its stockholders.
In particular, this provision would assist the Board of Directors in preventing
an unfriendly potential acquiror from taking advantage of a short-term drop in
the price of the Company's stock to acquire the Company at a price that does not
reflect the long-term value of the Company. This provision also bolsters the
authority of the Board of Directors to "just say no" to acquisition proposals
which are not in the long-term best interests of the Company.
Possible Disadvantages of Allowing Board of Directors to Consider
Non-Financial and Long-Term Factors in Evaluating Acquisition Proposals. The
provision allowing the Board of Directors to consider non-financial and
long-term factors in evaluating acquisition proposals may have the effect of
allowing the Board of Directors to reject an acquisition proposal which may
appear to be in the short term best interest of the Company's stockholders,
based on the fact that the value of the proposed consideration represents a
premium over the then-current market price of the Company's stock. By expressly
allowing the Board of Directors to consider long-term factors, however, the
Company intends to encourage persons seeking to acquire control of the Company
to make an offer which fairly reflects the long-term value of the Company,
instead of taking advantage of short-term market fluctuations.
Two-thirds Voting Provisions Regarding Certain Actions. The TouchStone
Delaware Certificate of Incorporation contains a requirement of approval of two
thirds of the shareholders to alter, amend or repeal certain articles of the
TouchStone Delaware Certificate of Incorporation. The provisions of the
Certificate of Incorporation subject to the greater percentage vote requirement
are Article VII, concerning the election of directors without a written ballot;
Article VIII, concerning the size of and removal from the Board of Directors;
Article IX, concerning alteration or amendment of the Bylaws; Article X,
concerning indemnification of directors; Article XI, concerning terms of
directors, filling of vacancies on the Board of Directors and the elimination of
cumulative voting; Article XIII, concerning shareholder actions by written
consent; Article IV, concerning factors which the Board of Directors may
consider in evaluating a third party offer to acquire the Company; and Article
XV, concerning this two thirds voting requirement.
The "supermajority" voting provisions are an essential part of the overall
structure being proposed to encourage individuals or groups who desire to
propose takeover bids or similar transactions to negotiate with the Board of
Directors. For example, the "supermajority" voting provisions in the TouchStone
Delaware Certificate of Incorporation and Bylaws prevent a shareholder or group
of shareholders with less than two thirds of the outstanding voting stock from
amending the Certificate of Incorporation or Bylaws to delete the provision
which requires shareholders to act only at annual or special meetings and not by
written consent. This provision prevents a shareholder with a majority of the
voting power of the Company from avoiding the requirements of the provision by
simply repealing it. To the extent that this supermajority requirement adds to
the effectiveness of the other provisions discussed herein, it would also
incorporate the possible disadvantages discussed herein regarding such
provision.
Elimination of Cumulative Voting. Unlike the Bylaws of TouchStone
California, the Certificate of Incorporation and Bylaws of TouchStone Delaware
do not permit cumulative voting. Cumulative voting entitles each shareholder to
cast a number of votes that is equal to the number of voting shares held by such
shareholder multiplied by the total number of directors to be elected, and to
cast all such votes for one nominee or distribute such votes among up to as many
candidates as there are positions to be filled. (For a further description of
the mechanics of cumulative voting, see the section entitled "Share Ownership
and Voting" on page 1 of this Proxy Statement.) Without cumulative voting, a
shareholder or group of shareholders must hold a majority of the voting shares
to cause the election of one or more nominees. Cumulative voting may enable a
minority shareholder or group of shareholders to elect at least one
representative to the Board. For example, in each election of directors under
cumulative voting rules where five directors are to be elected, a shareholder or
group holding greater than 16.7% of the voting shares is guaranteed the ability
to elect one director. If the Reincorporation Proposal is adopted, in all future
elections of the Board of Directors, commencing with the Annual Meeting to be
held in 1997, the holders of a majority of the shares actually voted (assuming
that a quorum is present) will be guaranteed the right to elect all of the
directors being elected at that time.
Reasons for Elimination of Cumulative Voting. The Board of Directors
believes that each director elected to the Board should represent the interests
of all shareholders. The elimination of cumulative voting should help ensure
that each director acts in the best interests of all shareholders, because
shareholders holding a majority of the voting shares will have the power to
elect every director to be elected at any annual meeting. The election of the
Board by holders of a majority of the voting stock is not a departure from the
manner in which the Company's directors have been elected in the past. Even
though the Company has always permitted cumulative voting, such voting has never
been used in the election of a director to the Company's Board.
Possible Disadvantages of Elimination of Cumulative Voting. The elimination
of cumulative voting will make it more difficult for a minority shareholder or
group of shareholders to elect a representative to the Board of Directors. In
addition, it should be noted that the elimination of cumulative voting may also
have certain anti- takeover effects. It may, under certain circumstances,
discourage or render more difficult a merger, tender offer proxy contest or
acquisition of large blocks of the Company's shares by persons who would not
make such acquisition without assurance of the ability to place a representative
on the Board of Directors; deter or delay the assumption of control by a holder
of a large block of the Company's shares; or render more difficult the
replacement of incumbent directors and management. The Board is not aware that
any existing shareholder or group of shareholders intend to exercise cumulative
voting rights at the Annual Meeting.
Nominations of Director Candidates and Introduction of Business at
Shareholder Meetings.
There is no specific statutory requirement under either California law 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.
The Bylaws of TouchStone Delaware establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors (the "Nomination Procedure")
and with regard to certain matters to be brought before an annual meeting of
shareholders (the "Business Procedure"). The TouchStone California Bylaws do not
contain any provisions regarding advance notice of director nominations and
shareholder proposals.
The Nomination Procedure provides that only persons nominated by or at the
direction of the Board of Directors or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting, will be
eligible for election as directors. The Business Procedure provides that,
subject to any other applicable requirements, only such business may be
conducted at an annual meeting as has been brought before the meeting by or at
the direction of the Board of Directors or by a shareholder who has given timely
written notice to the Secretary of the Company of such shareholder's intention
to bring such business before the meeting. In all cases, to be timely, notice
must be received by the Company not less than 60 days prior to the meeting (or
if fewer than 70 days' notice or prior public disclosure of the meeting date is
given or made to shareholders, not later than the tenth day following the day on
which such notice was mailed or such public disclosure was made).
Under the Nomination Procedure, a shareholder's notice to the Company must
contain certain information about the nominee, including name, address, the
consent to be nominated and such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the shareholder proposing to
nominate that person, including name, address, a representation that the
shareholder is a holder of record of stock entitled to vote at the meeting and a
description of all arrangements or understandings between the shareholder and
each nominee. Under the Business Procedure, notice relating to the conduct of
business at an annual meeting other than the nomination of directors must
contain certain information about the business and about the shareholder who
proposes to bring the business before the meeting. If the Chairman or other
officer presiding at the meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director, or if he or she determines that other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any shareholder
of any nomination or business properly made or brought before the annual meeting
in accordance with the above-described procedures.
By requiring advance notice of nominations by shareholders, the Nomination
Procedure affords the Board of Directors an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the shareholders about such qualifications. By
requiring advance notice of proposed business, the Business Procedure provides
the Board with an opportunity to inform shareholders of any business proposed to
be conducted at a meeting and the Board's position on any such proposal,
enabling shareholders to better determine whether they desire to attend the
meeting or grant a proxy to the Board of Directors as to the disposition of such
business. In addition, the Business Procedure provides for a more orderly
procedure for conducting the annual meeting of shareholders. Although the
TouchStone Delaware Bylaws do not give the Board any power to approve or
disapprove shareholder nominations for the election of directors or any other
business desired by shareholders to be conducted at an annual meeting, the
TouchStone Delaware Bylaws may have the effect of precluding a nomination for
the election of directors or of precluding any other business at a particular
annual meeting if the proper procedures are not followed. In addition, the
procedures may discourage or deter a third party from conducting a solicitation
of proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such business or such attempt
might be beneficial to the Company and its shareholders.
Authorized Stock. The Articles of Incorporation of TouchStone California
authorize 23,000,000 shares of capital stock, $.001 par value, which consists of
20,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock. The
Certificate of Incorporation of TouchStone Delaware will provide for the same
number of shares of Common and Preferred Stock, each with par value of $.001.
The Articles of Incorporation of TouchStone California and the Certificate of
Incorporation of TouchStone Delaware each authorize the Board of Directors to
fix the rights, preferences, privileges and restrictions of one or more series
out of the authorized shares of Preferred stock (which would include dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences) without further vote or action by the shareholders. The Certificate
of Incorporation designates 100,000 shares of Preferred Stock as Series A
Participating Preferred Stock which shares are issuable upon exercise of certain
rights under the Company's Shareholder Rights Plan. Issuance of the Series A
Participating Preferred Stock or other authorized Preferred Stock with terms
giving it substantial voting power, conversion or other rights could have the
effect of (i) delaying, deferring or preventing a change in control of the
Company or (ii) otherwise modifying the rights of holders of the Company's
Common Stock under either California or Delaware law. See "Anti-takeover
Implications - Shareholder Rights Plan."
Monetary Liability of Directors. The Articles of Incorporation of
TouchStone California and the Certificate of Incorporation of TouchStone
Delaware both provide for the elimination of personal monetary liability of
directors to the fullest extent permissible under the laws of each corporation's
respective state of incorporation. The provision eliminating monetary liability
of directors set forth in the Certificate of Incorporation of TouchStone
Delaware is potentially more expansive in that it incorporates future amendments
to Delaware law with respect to the elimination of such liability.
Compliance With Delaware and California Law
California. Following the Annual Meeting of Shareholders, if this Proposal
is approved, the Company will submit the Merger Agreement to the office of the
California Secretary of State for filing.
Delaware. Following the Annual Meeting of Shareholders, if this Proposal is
approved, the Company will submit the Merger Agreement to the office of the
Delaware Secretary of State for filing.
Significant Differences Between the Corporation Laws of California and
Delaware
The General Corporation Laws of California and Delaware differ in many
respects. It is not practical to summarize all of such differences in this Proxy
Statement, but some of the principal differences which could materially affect
the rights of shareholders are discussed below.
Size of the Board of Directors. Under California law, the number of
directors of a corporation may be fixed in the articles of incorporation or
bylaws of a corporation, or a range may be established for the number of
directors, with the Board of Directors given authority to fix the exact number
of directors within such range. The Bylaws of TouchStone California establish a
range of five to seven for the number of directors of the Company, with the
exact number currently set at six. The provision setting forth the number of
directors in the Bylaws of TouchStone California may not be amended to reduce
the minimum number of directors below five if the votes cast against the
adoption of such amendment at a meeting, or the shares not consenting in the
case of action by written consent, are equal to more than 16 2/3% of the
outstanding shares entitled to vote.
Under Delaware law, the number of directors of a corporation, or the range
of authorized directors, may be fixed or changed by the board of directors
acting alone, by amendment to the corporation's bylaws, unless the directors are
not authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation, in which cases shareholder approval is required.
The Bylaws of TouchStone Delaware establish the number of directors at six, and
TouchStone Delaware's Certificate of Incorporation authorizes the Board of
Directors to make, alter, amend or repeal the Bylaws, and accordingly a majority
of TouchStone Delaware's Board of Directors will have the power to change the
authorized number of directors. The Board does not have this power under
California law.
Cumulative Voting. Under California law, if any shareholder has given
notice of his or her intention to cumulate votes for the election of directors,
any other shareholder of the corporation is also entitled to cumulate his or her
votes at such election. Under California law, corporations such as TouchStone
California that have 800 or more shareholders of record and have their stock
listed on the Nasdaq National Market may eliminate such cumulative voting rights
by adopting amendments to their articles and bylaws, which amendments must be
approved by the shareholders. Cumulative voting is not available under Delaware
law unless specifically provided for in a corporation's certificate of
incorporation. The Certificate of Incorporation does not provide for cumulative
voting and, therefore, the shareholders of TouchStone Delaware will no longer
have cumulative voting rights. The elimination of cumulative voting limits the
ability of minority shareholders to obtain representation on the Board of
Directors. For a more detailed description of the implications of the
elimination of cumulative voting, see "The Charters and Bylaws of TouchStone
California and TouchStone Delaware."
Classified Board of Directors. A classified board is one on which a certain
number, but not all, of the directors are elected on a rotating basis each year.
Under California law, directors generally are elected annually; however,
corporations such as TouchStone California that have 800 or more shareholders of
record and have their stock traded on the Nasdaq National Market may designate a
classified board by adopting amendments to their articles and bylaws which
amendments must be approved by the shareholders. Delaware law permits, but does
not require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. This method of electing directors makes a change in the
composition of the board of directors, and a potential change in control of a
corporation, a lengthier and more difficult process. The Certificate of
Incorporation and Bylaws of TouchStone Delaware do not provide for a classified
Board of Directors.
Written Consent of Shareholders. Both the California and Delaware General
Corporation Laws provide that the shareholders of a corporation may take action
by written consent without a meeting, unless the corporation's charter documents
provide otherwise. The Articles of Incorporation of TouchStone California do not
contain any provisions prohibiting actions by written consent and, accordingly,
the shareholders of TouchStone California may take action by written consent
without a meeting. The Certificate of Incorporation of TouchStone Delaware
explicitly prohibits shareholder actions by written consent. As a result, the
shareholders of TouchStone Delaware can take action only at a duly called
meeting of the shareholders. For a more detailed discussion of the implications
of the elimination of such shareholder consents, see "The Charters and Bylaws of
TouchStone California and TouchStone Delaware."
Power to Call Special Shareholders' Meetings. Under California law, a
special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, the holders of shares entitled to cast not
less than ten percent of the votes at such meeting and such additional persons
as are authorized by the articles of incorporation or the 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 Certificate of Incorporation and Bylaws of TouchStone
Delaware do not contain provisions granting shareholders the right to call a
special meeting of shareholders. Because the right of shareholders to call a
special meeting is not set forth in the Certificate of Incorporation or Bylaws
of TouchStone Delaware, shareholders will no longer be able to call a special
meeting of shareholders to vote on a transaction that is opposed by the Board of
Directors. For a more detailed discussion of the implications of the elimination
of such power to call special shareholder meetings, see "The Charters and Bylaws
of TouchStone California and TouchStone Delaware."
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states (but not California) have adopted special laws
designed to subject to shareholder approval certain kinds of ``unfriendly''
corporate takeovers, or other transactions involving a corporation and one or
more of its significant shareholders. Under Section 203 of the Delaware General
Corporation Law (``Section 203''), certain ``business combinations'' with
``interested shareholders'' of Delaware corporations are subject to a three-year
moratorium unless specified conditions are met. With certain exceptions, an
interested shareholder is a person or group who or which owns 15% or more of the
corporation's outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term ``business combination'' is defined
broadly to include mergers with or caused by the interested shareholder; sales
or other dispositions to the interested shareholder (except proportionately with
the corporation's other shareholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested shareholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested shareholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested shareholder (except proportionately as a shareholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such shareholder becomes an
interested shareholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested shareholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested shareholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested shareholder, the board approves
the business combination and it is also approved at a shareholder meeting by
sixty-six and two-thirds percent (66 2/3%) of the voting stock not owned by the
interested shareholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, such as the
Nasdaq National Market (as is TouchStone California and as TouchStone Delaware
would be) or are held of record by more than 2,000 shareholders. However, a
Delaware corporation may elect not to be governed by Section 203 by a provision
in its original certificate of incorporation or an amendment thereto or to the
bylaws, which amendment must be approved by majority shareholder vote and may
not be further amended by the board of directors. TouchStone Delaware does not
intend to opt out of Section 203; therefore, Section 203 will apply to
TouchStone Delaware.
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue. The Company believes that so long as the constitutionality
of Section 203 is upheld, Section 203 will encourage any potential acquiror to
negotiate with the Company's Board of Directors. Section 203 also has the effect
of limiting the ability of potential acquiror to make a two-tiered bid for
TouchStone Delaware in which all shareholders would not be treated equally.
Section 203 should also discourage certain potential acquirors unwilling to
comply with its provisions.
Removal of Directors. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director of a corporation that does not
have a classified board of directors or cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote. In the case of a Delaware corporation having cumulative voting, if less
than the entire board is to be removed, a director may not be removed without
cause unless the number of shares voted against such removal would not be
sufficient to elect the director under cumulative voting. A director of a
corporation with a classified Board of Directors may be removed only for cause,
unless the certificate of incorporation otherwise provides. The Certificate of
Incorporation of TouchStone Delaware does not provide for a classified Board of
Directors. However, the Certificate of Incorporation of TouchStone Delaware
specifically provides that directors of TouchStone Delaware may be removed from
office by shareholders only for cause. 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 Vacancies on the Board of Directors. Under California law, any
vacancy on the board of directors other than one created by removal of a
director may be filled by the board. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director may be filled by the board
only if so authorized by a corporation's articles of incorporation or by a bylaw
approved by the corporation's shareholders. TouchStone California's Bylaws
permit directors to fill vacancies created by removal of a director. Under
Delaware law, vacancies and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill such vacancy). The Bylaws of TouchStone Delaware
provide, consistent with the Bylaws of TouchStone California, that any vacancy
created by the removal of a director by the stockholders of TouchStone Delaware
or by court order may be filled only by the stockholders.
Loans to Officers and Employees. Under California law, any loan or guaranty
to or for the benefit of a director or officer of the corporation or its parent
requires approval of the shareholders unless such loan or guaranty is provided
under a plan approved by shareholders owning a majority of the outstanding
shares of the corporation. In addition, under California law, shareholders of
any corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone to approve loans or guaranties to or on
behalf of officers (whether or not such officers are directors) if the board
determines that any such loan or guaranty may reasonably be expected to benefit
the corporation. The Bylaws of TouchStone California authorize such loans or
guaranties. Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be expected to
benefit the corporation.
Indemnification and Limitation of Liability. California and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their articles of incorporation eliminating
the liability of a director to the corporation or its shareholders for monetary
damages for breach of the director's fiduciary duty of care. There are
nonetheless certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Articles of Incorporation of TouchStone California eliminate the
liability of directors to the Company 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 interest 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 Certificate of Incorporation of TouchStone Delaware 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 a director's liability for violation of, or
otherwise relieve TouchStone Delaware 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.
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 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.
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.
Indemnification is permitted by California law only for acts taken in good
faith and believed to be in the best interests of the corporation and its
shareholders, 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).
Reference is made to the discussion under the caption "Limitation of
Directors' and Officers' Liability and Indemnification" herein, for a discussion
of certain claims pending against officers and directors of the Company in their
capacity as such.
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,
therefore, the indemnification agreements entered into by TouchStone California
with its officers and directors may be assumed by TouchStone Delaware upon
completion of the Proposed Reincorporation. If the Proposed Reincorporation is
approved, the indemnification agreements will be amended to the extent necessary
to take full advantage of Delaware law, and a vote in favor of the Proposed
Reincorporation is also approval of such amendments to the indemnification
agreements. In particular, the indemnification agreements will be amended to
include within their purview future changes in Delaware law which expand the
permissible scope of indemnification of directors and officers of Delaware
corporations.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of TouchStone California made prior to the Proposed Reincorporation. In
considering the Reincorporation Proposal, the Board has recognized that the
individual directors have a personal interest in obtaining the application of
Delaware law, but that the expense to the Company might be greater after the
Proposed Reincorporation to the extent that any director or officer is actually
indemnified in circumstances where indemnification would not be available under
California law. 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
enhances the interests of the Company and its shareholders.
Inspections of Shareholders List. Both California and Delaware law allow
any shareholder to inspect the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholder list by persons holding an aggregate of five or more percent of a
corporation's voting shares, or shareholders holding an aggregate of 1% or more
of such shares who have filed a Schedule 14B with the Securities and Exchange
Commission relating to the election of directors. Delaware law does not provide
for any such absolute right of inspection, and no such right is granted under
the Certificate of Incorporation or Bylaws of TouchStone Delaware. Lack of
access to shareholder records, even though unrelated to the shareholder's
interest as a shareholder, could result in impairment of the shareholder's
ability to coordinate opposition to management proposals, including proposals
with respect to a change in control of the Company.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares) unless either the corporation's retained earnings immediately prior to
the proposed distribution equal or exceed the amount of the proposed
distribution or, immediately after giving effect to such distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1.25 times
its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be at least equal
to its current liabilities (or 1.25 times its current liabilities if the average
pre-tax and pre-interest expense earnings for the preceding two fiscal years
were less than the average interest expense for such years). Such tests are
applied to California corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital of the
corporation represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation.
To date, the Company has not paid cash dividends on its capital stock. It
is the present policy of the Board of Directors to retain earnings for use in
the Company's business, and therefore, the Company does not anticipate paying
cash dividends on its Common Stock in the foreseeable future.
Shareholder Voting. Both California and Delaware law generally require that
a majority of the shareholders of both acquiring and target corporations approve
statutory mergers. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise in
its certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the surviving
corporation outstanding before the merger is an identical outstanding or
treasury share after the merger, and (c) the number of shares to be issued by
the surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger. California law contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares. Should TouchStone Delaware authorize and
issue shares of a new class of capital stock, the holders thereof would vote
with the holders of the Common Stock on proposals not adversely affecting the
Common Stock. In such event the holders of Common Stock, if in the minority,
would be unable to control the outcome of a vote, and, if in the majority, would
be able to control the outcome of such a vote.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances Section
203 of the Delaware General Corporation Law does provide similar protection
against coercive two-tiered bids for a corporation in which the shareholders are
not treated equally. See "Shareholder Approval of Certain Business
Combinations."
California law also provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. Delaware law has
no comparable provision, and the shareholders of TouchStone Delaware might,
therefore, be deprived of an opportunity to consider such other proposal.
Amendment of Bylaws. Under California law, bylaws may be amended by
shareholders holding a majority of the outstanding shares, or by the board,
except that if the number or a range of directors are specified in the bylaws,
this provision can be changed only with the approval of the shareholders.
Shareholders can adopt or amend bylaw provisions to limit the ability of the
board to amend the bylaws. Under Delaware law, the bylaws may be amended only by
the shareholders, unless the corporation's certificate of incorporation confers
the power to amend the bylaws on the directors also. The TouchStone Delaware
Certificate of Incorporation authorizes directors to amend the Bylaws. As
permitted under Delaware law, the Certificate of Incorporation provides that
amendment of the Bylaws by shareholder vote requires the vote of shareholders
holding two thirds (2/3) of the outstanding voting stock of TouchStone Delaware.
Amendment of Certificate or Articles of Incorporation. Under both Delaware
and California law, the Company's Certificate or Articles of Incorporation may
be amended only if such amendment is approved by the Board and by a majority of
the shareholders. In addition, under both Delaware and California law, if a
corporation has more than one class or series of stock outstanding, certain
amendments that would affect the rights of such class or series require the vote
of a majority of the shares of such class or series. "Supermajority"
requirements (requirements of a vote of more than a majority of the shares) are
permitted under both California and Delaware law. However, California law
provides that, for a corporation with outstanding shares held of record by 100
or more persons, such provision (1) cannot require a vote higher than 66 2/3%,
(2) must be approved by at least as large a proportion of the outstanding shares
as the supermajority provision requires, and (3) automatically expires after two
years unless renewed pursuant to a shareholder vote. As permitted under Delaware
law, the Certificate of Incorporation provides that amendment of certain
provisions of the Certificate of Incorporation by shareholder vote requires the
vote of shareholders holding two thirds (2/3) of the outstanding voting stock of
TouchStone Delaware. The provisions of the Certificate of Incorporation subject
to the greater percentage vote requirement are Article VII, concerning the
election of directors without a written ballot; Article VIII, concerning the
size of and removal from the Board of Directors; Article IX, concerning
alteration or amendment of the bylaws; Article X, concerning indemnification of
directors; Article XI, concerning terms of directors, filling of vacancies on
the Board of Directors and the elimination of cumulative voting; Article XIII,
concerning shareholder actions by written consent; Article IV, concerning
factors which the Board of Directors may consider in evaluating a third party
offer to acquire the Company; and Article XV, concerning this two thirds voting
requirement.
Voting by Ballot. California law provides that the election of directors
may proceed in the manner described in a corporation's bylaws. TouchStone
California's Bylaws provide that the election of directors at a shareholders'
meeting may be by voice vote or ballot, unless prior to such vote a shareholder
demands a vote by ballot, in which case such vote must be by ballot. Under
Delaware law, the right to vote by written ballot may be restricted if so
provided in the certificate of incorporation. The Certificate of Incorporation
of TouchStone Delaware provides that election of directors by ballot is not
permitted unless authorized in the Bylaws. The Bylaws do not specifically
provide for election of directors by ballot.
Interested Director Transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, (a) either the shareholders or the Board
of Directors must approve any such contract or transaction after full disclosure
of the material facts, and in the case of board approval the contract or
transaction must also be "just and reasonable" (in California) or "fair" (in
Delaware) to the corporation, or (b) the contract or transaction must have been
just and reasonable or fair as to the corporation at the time it was approved.
In the latter case, California law explicitly places the burden of proof on the
interested director. Under California law, if shareholder approval is sought,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction. If
board approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors (except that interested directors may be counted for
purposes of establishing a quorum). Under Delaware law, if board approval is
sought, the contract or transaction must be approved by a majority of the
disinterested directors (even though less than a majority of a quorum).
Therefore, certain transactions that the Board of Directors of TouchStone
California might not be able to approve because of the number of interested
directors, could be approved by a majority of the disinterested directors of
TouchStone Delaware, although less than a majority of a quorum. The Company is
not aware of any plans to propose any transaction involving directors of the
Company which could not be so approved under California law but could be so
approved under Delaware law.
Shareholder Derivative Suits. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a shareholder may only bring a derivative
action on behalf of the corporation if the shareholder was a shareholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. California law also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
Appraisal Rights. Under both California and Delaware law, a shareholder of
a corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the "fair value" (Delaware) or
"fair market value" (California) of his or her shares, as determined by a court,
in lieu of the consideration he or she would otherwise receive in the
transaction. Under Delaware law, such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such shareholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares, or
(c) to shareholders of a corporation surviving a merger if no vote of the
shareholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger, and the
number of shares to be issued in the merger does not exceed 20% of the shares of
the surviving corporation outstanding immediately prior to the merger and if
certain other conditions are met.
The limitations on the availability of appraisal rights under California
law are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System (as are the shares of TouchStone California) generally do
not have such appraisal rights unless the holders of at least 5% of the class of
outstanding shares claim the right or the corporation or any law restricts the
transfer of such shares. California law also generally affords appraisal rights
in sale of asset reorganizations. Appraisal rights are unavailable, however, if
the shareholders of a corporation or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five sixths of the
voting power of the surviving or acquiring corporation or its parent entity (as
will be the case in the Reincorporation Proposal). Appraisal or dissenters'
rights are, therefore, not available to shareholders of TouchStone California
with respect to the Proposed Reincorporation.
Dissolution. Under California law, shareholders holding 50% or more of the
total voting power may authorize a corporation's dissolution, with or without
the approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation. Under Delaware law, unless the board
of directors approves the proposal to dissolve, in which case a simple majority
may approve the dissolution, the dissolution must be approved by shareholders
holding 100% of the total voting power of the corporation. In the event of such
a board-initiated dissolution, Delaware law allows a Delaware corporation to
include in its certificate of incorporation a supermajority voting requirement
in connection with dissolutions. TouchStone Delaware's Certificate of
Incorporation contains no such supermajority voting requirement, however, and a
majority of shares voting at a meeting at which a quorum is present would be
sufficient to approve a dissolution of TouchStone Delaware which had previously
been approved by its Board of Directors.
Application of the General Corporation Law of California to Delaware
Corporations
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e., corporations not organized under California law) are
placed in a special category if they have characteristics of ownership and
operation which indicate that they have significant contacts with California. So
long as a Delaware or other foreign corporation is in this special category, and
it does not qualify for one of the statutory exemptions, it is subject to a
number of key provisions of the California General Corporation Law applicable to
corporations incorporated in California. Among the more important provisions are
those relating to the election and removal of directors, cumulative voting,
classified boards of directors, standards of liability and indemnification of
directors, distributions, dividends and repurchases of shares, shareholder
meetings, approval of certain corporate transactions, dissenters and appraisal
rights and inspection of corporate records. See "Significant Differences Between
the Corporation Laws of California and Delaware" above.
Exemptions from Section 2115 are provided for corporations whose shares are
listed on a major national securities exchange such as the Nasdaq National
Market and which have 800 or more shareholders of record. TouchStone Delaware
will be exempt from Section 2115 following the Proposed Reincorporation because
the Common Stock of TouchStone Delaware will be traded on the Nasdaq National
Market and owned by more than 800 holders.
Certain Federal Income Tax Considerations
The Company has been advised by counsel that, for federal income tax
purposes, no gain or loss will be recognized by the holders of TouchStone
California shares as a result of the consummation of the Reincorporation, and no
gain or loss will be recognized by TouchStone California or TouchStone Delaware.
In addition, counsel has advised that each former holder of TouchStone
California shares will have the same basis in the TouchStone Delaware stock
received by such person pursuant to the Reincorporation as such holder had in
the TouchStone California shares held by such person at the time of consummation
of the Reincorporation, and such person's holding period with respect to such
TouchStone Delaware stock will include the period during which such holder held
the corresponding TouchStone California shares, provided the latter were held by
such person as capital assets at the time of consummation of the
Reincorporation.
State, local or foreign income tax consequences to shareholders may vary
from the federal tax consequences described above. SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE EFFECT OF THE REINCORPORATION PROPOSAL UNDER
APPLICABLE FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAX LAWS.
Delaware Franchise Tax
If the Company reincorporates in Delaware then, in addition to the
California franchise tax to which the Company is currently subject, the Company
will also be subject to the Delaware franchise tax. The Delaware franchise tax
is, in general, calculated based on the amount of a corporation's gross assets
(on an unconsolidated basis), and the number of authorized and issued shares of
stock of a corporation. Based on the Company's estimated gross assets, its
authorized shares under the TouchStone Delaware Certificate of Incorporation and
its currently issued shares, the Company's annual franchise tax in Delaware for
the first year would be approximately $115,000. In general, the Company's
Delaware franchise tax will increase as the Company's gross assets and
authorized shares increase, up to a maximum of $150,000.
Holding Period for Purposes of Rule 144
The Company has been advised by counsel that, for purposes of Rule 144
(which governs public resales of Company securities by affiliates of the Company
and certain resales of restricted securities), the holders of restricted
TouchStone Delaware shares will be able to "tack" (add together) the holding
period of their TouchStone California shares to the holding period of their
TouchStone Delaware shares. This means that, for purposes of Rule 144, a
shareholder will be deemed to have held such person's shares of TouchStone
Delaware since the date on which such shareholder acquired and paid for the
TouchStone California shares that were converted into TouchStone Delaware shares
as part of the Proposed Reincorporation.
The Board of Directors recommends that shareholders vote FOR this proposal.
<PAGE>
PROPOSAL NO. 3
APPROVAL OF 1997 STOCK INCENTIVE PLAN
General
The Company's shareholders are being asked to approve the 1997 Stock
Incentive Plan (the "1997 Plan") as the successor to the Company's existing 1996
Stock Option Plan (the "Predecessor Plan"). The 1997 Plan will become effective
immediately upon such shareholder approval, and all outstanding options under
the Predecessor Plan will be transferred to the 1997 Plan at that time. The
Predecessor Plan will terminate, and no further option grants or share issuances
will be made under the Predecessor Plan. However, all outstanding options under
the Predecessor Plan will continue to be governed by the terms and conditions of
the existing option agreements for those grants.
As of October 31, 1996, options for 58,200 shares of Common Stock were
outstanding under the Predecessor Plan, and 341,800 shares of Common Stock
remained available for future option grant. Upon approval of the 1997 Plan, only
shares available under the 1997 Plan will be eligible for grant or award.
The 1997 Plan is designed to serve as a comprehensive equity incentive
program to attract and retain the services of individuals essential to the
Company's long-term growth and financial success. Accordingly, officers and
other key employees, non-employee Board members and consultants and other
advisors in the service of the Company or any subsidiary corporation will have
the opportunity to acquire a meaningful equity interest through their
participation in the 1997 Plan.
The following is a summary of the principal features of the 1997 Plan and
does not purport to be a complete description of all the provisions of the 1997
Plan which is attached hereto as Exhibit D. The following is a summary of
certain provisions of the 1997 Plan, and is qualified, in its entirety, by
reference to the 1997 Plan.
Description of the 1997 Plan
Structure. The 1997 Plan contains five (5) separate equity incentive
programs: (i) a Discretionary Option Grant Program under which eligible
individuals in the Company's employ or service may, at the discretion of the
Plan Administrator, be granted options to purchase shares of Common Stock, (ii)
a Stock Issuance Program under which such individuals may, in the Plan
Administrator's discretion, be issued up to 1,200,000 shares of Common Stock
directly, through the purchase of such shares or as a bonus tied to the
performance of services or the attainment of financial or key project
milestones, (iii) a Salary Investment Option Grant Program under which executive
officers and other highly compensated employees may elect to invest a portion of
their base salary in special stock option grants, (iv) an Automatic Option Grant
Program under which eligible non-employee Board members will automatically
receive option grants to purchase shares of Common Stock at designated intervals
over their period of Board service and (v) a Director Fee Option Grant Program
pursuant to which non-employee Board members may apply a portion of the annual
retainer fee otherwise payable to them in cash to the acquisition of special
option grants. The principal features of each program are described below.
Administration. The Compensation Committee of the Board (the "Committee")
will serve as the initial Plan Administrator with respect to the Discretionary
Option Grant and Stock Issuance Programs. However, one or more additional Board
committees may be appointed to administer those programs with respect to certain
designated classes of individuals in the Company's service. The term "Plan
Administrator" as used in this summary will mean the Compensation Committee and
any other appointed committee acting within the scope of its administrative
authority under the 1997 Plan. Administration of the Salary Investment Option
Grant, Automatic Option Grant and Director Fee Option Grant Programs will be
self-executing in accordance with the express provisions of such programs.
Eligibility. Officers and employees, non-employee Board members and
independent consultants and advisors in the service of the Company or any parent
or subsidiary corporation (whether now existing or subsequently established)
will be eligible to participate in the Discretionary Option Grant and Stock
Issuance Programs, and officers and other highly compensated employees will be
eligible to participate in the Salary Investment Option Grant Program. Only
non-employee members of the Board will be eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
As of October 31, 1996, three executive officers, approximately 59 other
employees and three non- employee Board members were eligible to participate in
one or more of the programs under the 1997 Plan.
Share Reserve. The maximum number of shares of Common Stock reserved for
issuance under the 1997 Plan will initially be limited to 1,200,000. The shares
issuable under the 1997 Plan may be made available either from the Company's
authorized but unissued Common Stock or from Common Stock reacquired by the
Company, including shares purchased in the open market. In addition, shares
subject to any outstanding options under the Predecessor Plan which expire or
terminate prior to exercise and any unvested shares reacquired by the Company
pursuant to its repurchase rights under the 1997 Plan will be available for
subsequent issuance.
No one participant in the 1997 Plan may receive stock option grants,
separately exercisable stock appreciation rights and direct stock issuances for
more than 120,000 shares of Common Stock in the aggregate per calendar year;
except that such limit shall be 240,000 shares in the first year such
participant is eligible to receive an award under the 1997 Plan.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the 1997 Plan, the fair market value per share of
Common Stock on any relevant date under the 1997 Plan will be the closing
selling price per share of Common Stock on that date, as such price is reported
on the Nasdaq National Market. In the absence of a closing selling price,
reference will be made to the most recent bid price for the Common Stock. The
closing selling price of the Common stock on October 31, 1996 was $3.19 per
share.
Discretionary Option Grant Program
The options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options. Each granted option will have an exercise price per share not less than
eighty-five percent (85%) of the fair market value per share of Common Stock on
the option grant date, and no granted option will have a term in excess of ten
(10) years. The shares subject to each option will generally vest in a series of
installments over a specified period of service measured from the grant date.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The Plan Administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
Stock Appreciation Rights. Three types of stock appreciation rights are
authorized for issuance under the Discretionary Option Grant Program: (i) tandem
rights, which require the option holder to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of such option
for an appreciation distribution, (ii) stand-alone stock appreciation rights not
tied to an option grant but with a base price per share equal to the fair market
value per share of Common Stock on the grant date and (iii) limited rights which
would automatically be exercised upon the occurrence of a hostile take-over.
The appreciation distribution payable by the Company upon the exercise of a
tandem stock appreciation right will be equal in amount to the excess of (i) the
fair market value (on the exercise date) of the shares of Common Stock in which
the optionee is at the time vested under the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation distribution
may, at the Plan Administrator's discretion, be made in shares of Common Stock
valued at fair market value on the exercise date, in cash or in a combination of
cash and Common Stock.
The appreciation distribution payable by the Company upon the exercise of a
stand-alone stock appreciation right will be equal in amount to the excess of
(i) the fair market value (on the exercise date) of the shares of Common Stock
underlying the exercised right over (ii) the aggregate base price in effect for
that right. Such appreciation distribution may, at the Plan Administrator's
discretion, be made in shares of Common Stock valued at fair market value on the
exercise date, in cash or in a combination of cash and Common Stock.
One or more officers or directors of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, at the discretion of the
Committee, be granted limited stock appreciation rights in connection with their
option grants under the Discretionary Option Grant Program. Any option with such
a limited stock appreciation right in effect for at least six (6) months will
automatically be canceled, to the extent exercisable for one or more vested
option shares, upon the successful completion of a hostile tender offer for more
than 35% of the Company's outstanding voting stock. In return, the officer will
be entitled to a cash distribution from the Company in an amount per canceled
option share equal to the excess of (i) the highest price per share of Common
Stock paid in the tender offer over (ii) the option exercise price.
Salary Investment Option Grant Program
The Plan Administrator will have complete discretion in implementing the
Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Plan Administrator an irrevocable
authorization directing the Company to reduce his or her base salary for the
upcoming calendar year by an amount not less than Ten Thousand Dollars
($10,000). Each individual who files a proper salary reduction authorization
will be granted a stock option under the Salary Investment Grant Program on the
first trading day in January of the calendar year for which that salary
reduction is to be in effect.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
The exercise price per share will be equal to one-third of the fair market
value per share of Common Stock on the option grant date, and the number of
option shares will be determined by dividing the total dollar amount of the
authorized reduction in the participant's base salary by two-thirds of the fair
market value per share of Common Stock on the option grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
equal the dollar amount of the optionee's base salary invested in the option.
The option will become exercisable for the option shares in a series of
twelve successive equal monthly installments upon the optionee's completion of
each calendar month of service in the calendar year for which the salary
reduction is in effect.
Each option will remain outstanding for vested shares until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the expiration of
the three (3)-year period measured from the date the optionee's service
terminates.
Stock Issuance Program
Shares may be issued under the Stock Issuance Program directly without any
intervening stock option grant. The purchase price for such shares will be equal
to the fair market value of those shares on the date of issuance and may be paid
in cash or by promissory note. Alternatively, the shares may be issued as a
bonus for past services or the attainment of specific performance goals, with no
cash payment required of the recipient. In no event will more than 1,200,000
shares of Common Stock be issued under the program, subject to adjustment for
stock splits, stock dividends and other similar changes to the Company's capital
structure.
Bonus shares will be fully vested upon issuance. All other shares issued
under the program will be subject to a vesting schedule tied to the performance
of service or the attainment of designated financial or key project milestones.
The Plan Administrator will have the sole and exclusive authority,
exercisable upon a participant's termination of service, to vest any or all
unvested shares of Common Stock at the time held by that participant, to the
extent the Plan Administrator determines that such vesting provides an
appropriate severance benefit under the circumstances.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member on or after the 1996 Annual Shareholders Meeting,
whether through election by the shareholders or appointment by the Board, will
receive, at the time of such initial election or appointment, an automatic
option grant for 10,000 shares of Common Stock, provided such individual was not
previously in the Company's employ. In addition, on the date of each Annual
Shareholders Meeting, beginning with the 1996 Annual Meeting, each individual
re-elected to serve as a non-employee Board member will automatically be granted
at that meeting a stock option to purchase 10,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There will be no limit on the number of such 10,000-share option
grants any one non-employee Board member may receive over his or her period of
Board service, and non-employee Board members who have previously served in the
Company's employ will be fully eligible for one or more 10,000-share option
grants.
Each option granted under the Automatic Option Grant Program will be
subject to the following terms and conditions:
The exercise price per share will be equal to 100% of the fair market value
per share of Common Stock on the automatic grant date.
Each option will have a maximum term equal to the lesser of (i) ten (10)
years measured from the grant date or (ii) twelve (12) months following
termination of Board service.
Each option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service
prior to vesting in those shares.
The shares subject to each initial 10,000 share grant will vest in four (4)
successive equal annual installments over the optionee's period of Board
service, with the first such installment to vest upon the completion of one (1)
year of Board service measured from the automatic grant date. The shares subject
to each annual 10,000 share grant will vest in two (2) successive equal annual
installments over the optionee's period of Board service, with the first such
installment to vest upon the completion of one year of Board service measured
from the automatic grant date.
The shares subject to each outstanding automatic option grant will
immediately vest should the optionee die or become permanently disabled while a
Board member or should any of the following events occur while the optionee
continues in Board service: (i) an acquisition of the Company by merger or asset
sale or (ii) the successful completion of a hostile tender offer for more than
thirty five percent (35%) of the outstanding voting securities or a change in
the majority of the Board occasioned by one or more contested elections for
Board membership.
Director Fee Option Grant Program
Each non-employee Board member will have the right to apply all or a
portion of his total retainer fee otherwise payable in cash each year (currently
$1,200) to the acquisition of a special option grant under the Director Fee
Option Grant Program. The grant will automatically be made on the first trading
day in January following the filing of the stock-in-lieu-of-cash election and
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date. The number of shares subject to
the option will be determined by dividing the amount of the retainer fee applied
to the program by two-thirds of the fair market value per share of Common Stock
on the grant date. As a result, the total spread on the option (the fair market
value of the option shares on the grant date less the aggregate exercise price
payable for those shares) will be equal to the portion of the retainer fee
invested in that option.
The option will become exercisable for the option shares in a series of
twelve (12) successive equal monthly installments upon the optionee's completion
of each month of Board service during the calendar year of the option grant. The
option will remain exercisable for such shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the end of the three
(3)-year period measured from the date of the optionee's cessation of Board
service. The option will become immediately exercisable for all the option
shares should the optionee die or become permanently disabled while a Board
member or should any of the following events occur while the optionee continues
in Board service: (i) an acquisition of the Company by merger or asset sale or
(ii) the successful completion of a hostile tender offer for more than thirty
five percent (35%) of the outstanding voting securities or a change in the
majority of the Board occasioned by one or more contested elections for Board
membership.
General Provisions
Vesting Acceleration. In the event that the Company is acquired by merger
or asset sale, each outstanding option under the Discretionary Option Grant
Program which is not to be assumed or replaced by the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are transferred to the successor
corporation. The Plan Administrator will have complete discretion to grant one
or more options under the Discretionary Option Grant Program which will become
fully exercisable for all option shares in the event those options are assumed
in the acquisition. The Plan Administrator will have similar discretion to grant
options which will become fully exercisable for all the option shares upon a
change in control of the Company. The Plan Administrator may also provide for
the automatic vesting of any outstanding shares under the Stock Issuance Program
upon similar terms and conditions.
Each option outstanding under the Salary Reduction Option Grant, Automatic
Option Grant and Director Fee Option Grant Programs will also automatically
accelerate in the event of an acquisition or a hostile change in control of the
Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance. The Plan Administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options or the purchase of shares under the 1997 Plan. The Plan Administrator
will determine the terms of any such assistance. However, the maximum amount of
financing provided any participant may not exceed the cash consideration payable
for the issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares.
Changes in Capitalization. In the event any change is made to the
outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 1997 Plan, including the separate limitation
applicable to the Stock Issuance Program, (ii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the 1997
Plan per calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members and (iv) the number and/or class
of securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
Each outstanding option which is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would otherwise have been issued, in consummation
of such Corporate Transaction, to the option holder had the option been
exercised immediately prior to the Corporate Transaction. Appropriate
adjustments will also be made to the option price payable per share and to the
class and number of securities available for future issuance under the Option
Plan on both an aggregate and a per-participant basis.
Amendment and Termination. The Board may amend or modify the 1997 Plan in
any or all respects whatsoever. However, the Board may not, without the approval
of the Company's shareholders, increase the maximum number of shares issuable
under the 1997 Plan (except in connection with certain changes in
capitalization), and certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 1997 Plan will in all events
terminate on December 16, 2006. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
Federal Income Tax Consequences
Option Grants
Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two (2) years after the option grant date and more than one (1) year after
the exercise date. If either of these two holding periods is not satisfied, then
a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Right.
No taxable income is recognized upon the receipt of a stock appreciation
right. The holder will recognize ordinary income, in the year in which the right
is exercised, equal to the excess of the fair market value of the underlying
shares of Common Stock on the exercise date over the base price in effect for
the exercised right, and the holder will be required to satisfy the tax
withholding requirements applicable to such income.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable year
of the Company in which such ordinary income is recognized.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1997 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
New Plan Benefits
As of the date of this Proxy Statement, no options had been granted under
the 1997 Plan.
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise of
options granted under the 1997 Plan with exercise prices equal to the fair
market value of the option shares on the grant date will not result in any
charge to the Company's reported earnings. However, the Company must disclose,
in footnotes and pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as a compensation expense.
In addition, the number of outstanding options under the 1997 Plan may be a
factor in determining the Company's earnings per share on a fully-diluted basis.
Vote Required for Approval of the TouchStone Software Corporation 1996
Stock Incentive Plan
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1996 Meeting is
required for approval of the 1997 Plan. If such approval is obtained, then the
1997 Plan will become effective immediately. Should such stockholder approval
not be obtained, then the 1997 Plan will not be implemented, and the Predecessor
Plan will remain in effect, and options will continue to be granted under that
plan, until the existing reserve of Common Stock available for issuance under
the Predecessor Plan has been issued.
The Board of Directors recommends that the shareholders vote FOR this
proposal.
<PAGE>
INDEPENDENT AUDITORS
Selection of the independent auditors will be made by the Board of
Directors upon consultation with the Audit Committee. The Company's independent
auditors for the fiscal year ended December 31, 1995 were Deloitte & Touche LLP.
The Board of directors will vote upon the selection of auditors for the current
fiscal year at a future Board meeting. Representatives of Deloitte & Touche LLP
are expected to attend the Annual Meeting and be available to respond to
appropriate questions.
SHAREHOLDERS PROPOSALS FOR 1997 ANNUAL MEETING
Proposals to be presented by shareholders of the Company at the 1997 Annual
Meeting must be received by the Company at its principal executive office not
less than 30 days nor more than 60 days prior to the scheduled date of the
meeting (or, if less than 40 days' notice or prior public disclosure of the date
of the meeting is given, the 10th day following the earlier of (i) the day such
notice was mailed or (ii) the day such public disclosure was made) to be
considered for inclusion in the proxy statement and form of proxy relating to
the 1997 Annual Meeting of Stockholders.
Under Rule 14a-8 adopted by the Commission under the Exchange Act,
proposals of stockholders must conform to certain requirements as to form and
may be omitted from the proxy statement and proxy under certain circumstances.
In order to avoid unnecessary expenditures of time and money by stockholders,
stockholders are urged to review this rule and, if questions arise, to consult
legal counsel prior to submitting a proposal.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1995 was previously mailed to all of the Company's shareholders in
June 1996. Any shareholders entitled to notice of and to vote at the Annual
Meeting who have not previously received a copy of the Annual Report may obtain
one by contacting the Company at (714) 969-7746. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy soliciting
material.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY SHAREHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1995, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO CORPORATE COMMUNICATIONS, TOUCHSTONE
SOFTWARE CORPORATION, 2124 MAIN STREET, SUITE 250, HUNTINGTON BEACH, CALIFORNIA
92648.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
By Order of the Board of Directors
Larry W. Dingus
Chairman of the Board of Directors
Dated: November 15, 1996
<PAGE>
TOUCHSTONE SOFTWARE CORPORATION
1996 ANNUAL MEETING OF SHAREHOLDERS
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY
The undersigned shareholder of TouchStone Software Corporation hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement for the 1996 Annual Meeting of Shareholders of TouchStone Software
Corporation to be held on December 16, 1996 and hereby appoints Larry S. Jordan
and Ronald R. Maas and each of them, proxy and attorney-in-fact, with full power
of substitution, on behalf and in the name of the undersigned, to represent at
such meeting and at any adjournment or postponement thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of Directors FOR all nominees listed below WITHHOLD AUTHORITY
(check one box only)(except as marked to the contrary below) to vote for all
nominees listed below
Larry W. Dingus, C. Shannon Dingus, Ronald R. Maas, Kenneth C. Welch,
Richard R. Brail and Larry S. Jordan.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
check the "FOR" box above and write that nominee's name on the space provided
below.)
(TO BE COMPLETED AND SIGNED ON THE OTHER SIDE)
FRONT OF PROXY CARD
<PAGE>
BACK OF PROXY CARD
2. Proposal to approve a change in the Company's state of incorporation
from California to Delaware.
___FOR ___AGAINST ___ABSTAIN
3. Proposal to adopt the 1997 Stock Incentive Plan.
___FOR ___AGAINST ___ABSTAIN
4. In their discretion, the proxies are authorized to vote for the election
of such substitute nominee(s) as such proxies may select in the event that one
or more of the nominees named in Item 1 above becomes unable to serve, and upon
such other business as may properly come before the meeting or any adjournment
or postponement thereof.
The submission of this proxy if properly executed revokes all prior proxies
given by the undersigned.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted FOR
items 1, 2 and 3.
Please sign exactly as name appears on this card.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated ________________________________________, 1996
__________________________________________________
(Signature of Stockholder)
__________________________________________________
(Signature of Stockholder) (if held jointly)
Note: Please sign, date and mail this proxy
promptly in the enclosed postage-paid envelope.
<PAGE>
EXHIBITS
Exhibit A - Agreement and Plan of Merger
Exhibit B - Delaware Certificate of Incorporation
Exhibit C - Delaware Bylaws
Exhibit D - 1997 Stock Incentive Plan
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF TOUCHSTONE SOFTWARE CORPORATION,
A DELAWARE CORPORATION,
AND
TOUCHSTONE SOFTWARE CORPORATION,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of December __, 1996 (the
"Agreement") is between TouchStone Software Corporation, a Delaware corporation
("TouchStone Delaware"), and Touchstone Software Corporation, a California
corporation ("TouchStone California"). TouchStone Delaware and TouchStone
California are sometimes referred to herein as the "Constituent Corporations."
R E C I T A L S
A. TouchStone Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 23,000,000
shares, 20,000,000 of which are designated "Common Stock," $.001 par value, and
3,000,000 of which are designated "Preferred Stock," $.001 par value. As of
December __, 1996, 100 shares of Common Stock were issued and outstanding, all
of which were held by TouchStone California. No shares of Preferred Stock were
outstanding.
B. TouchStone California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 23,000,000
shares, 20,000,000 of which are designated "Common Stock," $.001 par value, and
3,000,000 of which are designated "Preferred Stock," $.001 par value. As of
December __, 1996, __________ shares of Common Stock and no shares of Preferred
Stock were outstanding.
C. The Board of Directors of TouchStone California has determined that, for
the purpose of effecting the reincorporation of TouchStone California in the
State of Delaware, it is advisable and in the best interests of TouchStone
California that TouchStone California merge with and into TouchStone Delaware
upon the terms and conditions herein provided.
D. The respective Boards of Directors of TouchStone Delaware and TouchStone
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, TouchStone Delaware and TouchStone California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
TouchStone California shall be merged with and into TouchStone Delaware (the
"Merger"), the separate existence of TouchStone California shall cease and
TouchStone Delaware shall be, and is herein sometimes referred to as, the
"Surviving Corporation," and the name of the Surviving Corporation shall be
TouchStone.
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(a) This Agreement and Merger shall have been adopted and approved by the
stockholders of each Constituent Corporation in accordance with the requirements
of the Delaware General Corporation Law and the California General Corporation
Law;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the Delaware General Corporation Law shall
have been filed with the Secretary of State of the State of Delaware; and
(d) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the California General Corporation Law
shall have been filed with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of TouchStone California shall cease and TouchStone Delaware,
as the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and TouchStone California's Board of Directors, (iii) shall succeed, without
other transfer, to all of the assets, rights, powers and property of TouchStone
California in the manner more fully set forth in Section 259 of the Delaware
General Corporation Law, (iv) shall continue to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of the
debts, liabilities and obligations of TouchStone California in the same manner
as if TouchStone Delaware had itself incurred them, all as more fully provided
under the applicable provisions of the Delaware General Corporation Law and the
California General Corporation Law.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
TouchStone Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of TouchStone Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of TouchStone
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 TouchStone California Common Shares. Upon the Effective Date of the
Merger, each share of TouchStone California Common Stock, $.001 par value,
issued and outstanding immediately prior thereto shall by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such
shares or any other person, be converted into and exchanged for one fully paid
and nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
3.2 TouchStone California Options and Stock Purchase Rights. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
continue the stock option plans and all other employee benefit plans of
TouchStone California. Each outstanding and unexercised option, or other right
to purchase, or security convertible into, TouchStone California Common Stock
shall become an option, or right to purchase, or a security convertible into the
Surviving Corporation's Common Stock on the basis of one share of the Surviving
Corporation's Common Stock for each share of TouchStone California Common Stock
issuable pursuant to any such option, or stock purchase right or convertible
security, on the same terms and conditions and at an exercise or conversion
price per share equal to the exercise or conversion price per share applicable
to any such TouchStone California option, stock purchase right or other
convertible security at the Effective Date of the Merger. Any outstanding
options, purchase rights for or securities convertible into the Preferred Stock
of TouchStone California shall become an option, or right to purchase or a
security convertible into the Preferred Stock of the Surviving Corporation on
the same terms and conditions and at an exercise or conversion price per share
equal to the exercise or conversion price per share applicable to such
TouchStone California option, stock purchase right or other convertible security
at the Effective Date of the Merger.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, stock purchase rights and
convertible securities equal to the number of shares of TouchStone California
Common Stock so reserved immediately prior to the Effective Date of the Merger.
3.3 TouchStone Delaware Common Stock. Upon the Effective Date of the
Merger, each share of TouchStone Delaware Common Stock, $.001 par value, issued
and outstanding immediately prior thereto shall, by virtue of the Merger and
without any action by TouchStone Delaware, the holder of such shares or any
other person, be cancelled and returned to the status of authorized but unissued
shares.
3.4 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of TouchStone
California Common Stock may, at such stockholder's option, surrender the same
for cancellation to Manufacturers Hanover Trust Company, as exchange agent (the
"Exchange Agent"), and each such holder shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding certificate
theretofore representing shares of TouchStone California Common Stock shall be
deemed for all purposes to represent the number of whole shares of the Surviving
Corporation's Common Stock into which such shares of TouchStone California
Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of TouchStone California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
If any certificate for shares of TouchStone Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and that the person
requesting such transfer pay to the Exchange Agent any transfer or other taxes
payable by reason of issuance of such new certificate in a name other than that
of the registered holder of the certificate surrendered or establish to the
satisfaction of TouchStone Delaware that such tax has been paid or is not
payable.
IV. GENERAL
4.1 Covenants of TouchStone Delaware. TouchStone Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of the California
General Corporation Law;
(b) File any and all documents with the California Franchise Tax Board
necessary for the assumption by TouchStone Delaware of all of the franchise tax
liabilities of TouchStone California; and
(c) Take such other actions as may be required by the California General
Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
TouchStone Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of TouchStone California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
actions as shall be appropriate or necessary in order to vest or perfect in or
conform of record or otherwise by TouchStone Delaware the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of TouchStone California and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of TouchStone Delaware are fully authorized in the name and on behalf
of TouchStone California or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either TouchStone California or of
TouchStone Delaware, or of both, notwithstanding the approval of this Agreement
by the shareholders of TouchStone California or by the sole stockholder of
TouchStone Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not: (1)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (2) alter
or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of either
Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation
in the State of Delaware is located at 32 Loockerman Square, Suite L-100, City
of Dover, County of Kent and the registered agent of the Surviving Corporation
at such address is The Prentice- Hall Corporation System, Inc.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 2124 Main Street,
Suite 250, Huntington Beach, California 92648, and copies thereof will be
furnished to any stockholder of either Constituent Corporation, upon request and
without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
4.9 Adoption and Approval by Stockholders. This Agreement and Merger have
been approved by the stockholders of the Constituent Corporations in accordance
with the requirements of the Delaware General Corporation Law and the California
General Corporation Law.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of TouchStone Software Corporation, a
Delaware corporation, and TouchStone Software Corporation, a California
corporation, is hereby executed on behalf of each of their respective officers
thereunto duly authorized.
TOUCHSTONE SOFTWARE CORPORATION,
a Delaware corporation
By: ______________________________
Larry S. Jordan
President and
Chief Executive Officer
ATTEST:
______________________________
Ronald R. Maas
Chief Financial Officer and
Secretary
TOUCHSTONE SOFTWARE CORPORATION,
a California corporation
By: ______________________________
Larry S. Jordan
President and
Chief Executive Officer
ATTEST:
______________________________
Ronald R. Maas
Chief Financial Officer and
Secretary
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
TOUCHSTONE SOFTWARE CORPORATION
I.
The name of the corporation is TouchStone Software Corporation (the
"Corporation").
II.
The address of the Corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent and the name
of its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
IV.
The Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of all classes of stock which the Corporation has authority to issue is
Twenty-Three Million (23,000,000) shares, consisting of Twenty Million
(20,000,000) shares of Common Stock, each having a par value of one-tenth of one
cent ($.001) (the "Common Stock") and Three Million (3,000,000) shares of
Preferred Stock, each having a par value of one-tenth of one cent ($.001) (the
"Preferred Stock").
As to the Preferred Stock of the Corporation, One Hundred Thousand
(100,000) shares shall be designated as "Series A Preferred Stock." The Board of
Directors shall have the power to issue any additional shares of Preferred Stock
from time to time in one or more series. The Board of Directors is hereby
authorized to fix or alter from time to time the voting powers and such
designations, preferences and relative, participating, optional or other special
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.
The Board of Directors is further authorized to increase or decrease (but
not below the number of shares of any such series then outstanding) the number
of shares of any series, the number of which was fixed by it, subsequent to the
issue of shares of such series then outstanding, subject to the limitations and
restrictions stated in the resolution of the Board of Directors originally
fixing the number of shares of such series. If the number of shares of any
series is so decreased, then the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
The relative rights, preferences and limitations of the Series A Preferred
Stock are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall be One
Hundred Thousand (100,000), none of which have been issued as of the date
hereof. 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 Series A 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 Series A
Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior right of the holders of any shares of
any series of Preferred Stock ranking prior and superior to the shares of Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred 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 last day of September, December, March and June
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 Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to, subject to
the provision for adjustment hereinafter set forth, 1,000 times the aggregate
per share amount of all cash dividends, and 1,000 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 of the Corporation (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 Series A Preferred Stock. In the event the Corporation
shall at any time after October 4, 1996 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under 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.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(C) Dividends shall begin to accrue until paid in full on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, 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 Series A 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 from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A 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 Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the shareholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying 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 or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
(C) Except as required by law, holders of Series A 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.
Section 4. Certain Restrictions.
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Preferred Stock unless concurrently therewith it shall declare
a dividend on the Series A Preferred Stock as required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock;
(ii) declare or pay dividends on, 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 Series A Preferred Stock, except dividends paid
ratably on the Series A 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 on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Participating Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity 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 Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of Series A
Participating Preferred Stock, or any shares of stock ranking on a parity with
the Series A Participating 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.
(C) 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 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Participating
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 to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Participating Preferred Stock shall have
received $1,000.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalization with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full to the Series A Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment 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.
Section 7. 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 the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 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 after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Participating 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.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
Section 10. 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 Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock, voting together
as a single class.
Section 11. Fractional Shares. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
V.
The name and mailing address of the incorporator are as follows:
Lezli E. Beach
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
VI.
The Corporation is to have perpetual existence.
VII.
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
VIII.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation. Subject to
the rights of the holders of any series of Preferred Stock, no director shall be
removed without cause. Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
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.
IX.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation. Subject to Section 6.1 of the Bylaws, the Bylaws
may also be altered or amended or new Bylaws adopted by the affirmative vote of
least two- thirds (2/3) of the combined voting power of all the then-outstanding
shares of the Corporation entitled to vote.
X.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
XI.
Each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director. No stockholder will be permitted to cumulate votes at
any election of directors.
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.
XII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
XIII.
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 and no action shall be taken by the stockholders by written consent in
lieu of a meeting.
XIV.
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 the capital stock
required by law or this Certificate of Incorporation, the affirmative vote of
the holders of at least two- thirds (2/3) of the combined voting power of all of
the then-outstanding shares of the Corporation entitled to vote shall be
required to alter, amend or repeal Articles VII, VIII, IX, X, XI, XIII, XIV, XV
or any provision thereof.
XV.
The Board of Directors of the Corporation, when evaluating any offer of
another party, to make a tender or exchange offer for any shares of the capital
stock of the Corporation entitled to vote generally in the election of directors
(hereinafter referred to as the "Voting Stock") or to consummate any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, liquidation or dissolution of the Corporation, shall, in connection
with the exercise of its judgment in determining what is in the best interests
of the Corporation as a whole, be authorized to give due consideration to such
factors as the Board of Directors determines to be relevant, including, without
limitation:
(i) the interests of the Corporation's stockholders;
(ii) whether the proposed transaction might violate federal or state laws;
(iii) not only the consideration being offered in the proposed transaction,
in relation to the then current market price for the outstanding capital stock
of the Corporation, but also the market price for the capital stock of the
Corporation over a period of years, the estimated price that might be achieved
in a negotiated sale of the Corporation as a whole or in part or through orderly
liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and the Corporation's financial condition
and future prospects; and
(iv) the social, legal and economic effects upon employees, suppliers,
customers and others having similar relationships with the Corporation, and the
communities in which the corporation conducts its business.
In connection with any such evaluation, the Board of Directors is
authorized to conduct such investigations and to engage in such legal
proceedings as the Board of Directors may determine.
XVI.
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 Article XIV, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
EXHIBIT C
BYLAWS
OF
TOUCHSTONE SOFTWARE CORPORATION
(a Delaware corporation)
ARTICLE 1 - Offices
1.1 Registered Office. The registered office of the corporation shall be
fixed in the Certificate of Incorporation of the corporation.
1.2 Other Offices. The corporation 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 2 - Meetings of Stockholders
2.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
principal executive office of the corporation.
2.2 Annual Meeting. Annual meetings of the stockholders, commencing with
the year 1996, shall be held at such date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting.
At the meeting, directors shall be elected, and any other proper business may be
transacted.
2.3 Special Meetings. Special meetings of stockholders may be called, for
any purpose or purposes, only 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, on such date, and at such time as the Board of Directors
shall fix.
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 telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 2.4 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 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.
2.4 Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. The notice of an annual meeting shall state those matters which the
Board of Directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his or her
address as it appears on the records of the corporation.
2.5 Advance Notice of Stockholder Nominees and Stockholder Business. (a) 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 1943, as amended (the "1934 Act"), in his or her
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 (a). 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 (a), and, if he or she should so determine, such
chairman shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (b) 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 (b). 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 2.5. Such stockholder'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 (a) of this Section
2.5. 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 (b). 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 or she should so determine, such chairman shall so declare at
the meeting, and the defective nomination shall be disregarded.
(c) For purposes of this Section 2.5, "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.
2.6 Quorum. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy duly
authorized, shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) by vote of the holders of a majority of the shares
represented thereat present in person or represented by proxy duly authorized,
shall have power to adjourn the meeting in accordance with Section 2.7 of these
Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the statutes or the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of the question. The
stockholders present at a duly called or held meeting at which a quorum is
initially present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the stock
required to initially constitute a quorum.
2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another time
and place, unless these Bylaws otherwise require, 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 that 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.
2.8 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners, and to voting trusts and other voting agreements).
Except as may otherwise be provided in the Certificate of Incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. No stockholder will be permitted to cumulate votes at
any election of directors.
2.9 Validation of Meetings; Waiver of Notice; Consent. The transactions of
any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. The waiver of notice or consent or approval need not
specify either the business to be transacted or the purpose of any annual or
special meeting of stockholders. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting. 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.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 Stockholder Action by Written Consent Without a Meeting. The
stockholders of the corporation may not take action by written consent without a
meeting. Any such actions must be taken at a duly called annual or special
meeting.
2.11 Record Date for Stockholder Notice; Voting; Giving Consents. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days or less than ten (10) days before the
date of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any transfer
of any shares on the books of the corporation after the record date.
If the Board of Directors does not so fix a record date, 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 business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business 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
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 7.5
of these Bylaws.
2.12 Proxies. Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.13 Inspectors of Election. Before any meeting of stockholders, the Board
of Directors may appoint an inspector or inspectors of election to act at the
meeting or its adjournment. If no inspector of election is so appointed, then
the chairman of the meeting may, and on the request of any stockholder or
stockholder's proxy shall, appoint an inspector or inspectors of election to act
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting pursuant to the request of one (1) or
more stockholders or proxies, then the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, then the chairman of the meeting may, and
upon the request of any stockholder or a stockholder's proxy shall, appoint a
person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in anyway arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
2.14 Organization. The Chairman of the Board of Directors, or if a Chairman
has not been appointed or is absent, the President, or in the absence of the
President, the most senior Vice President present, shall call the meeting of the
stockholders to order, and shall act as chairman of the meeting. In the absence
of the Chairman of the Board, the President, and all of the Vice Presidents, the
stockholders shall appoint a chairman for such meeting. 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 any meeting of stockholders shall determine the order of
business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. 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 the
rules of parliamentary procedure. The Secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
2.15 List of Stockholders Entitled to Vote. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Such list shall presumptively determine the identify
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE 3 - Directors
3.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
3.2 Number; Election; Tenure and Qualification.
The Board of Directors shall consist of one or more members. The initial
number of directors shall be six (6), and thereafter shall be fixed from time to
time by resolution of the Board of Directors.
Each director shall be elected by the stockholders at the annual meeting
and shall hold office until the next annual meeting and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal. No reduction in the authorized number of directors shall
have the effect of removing any director before that director's term of office
expires. Directors need not be stockholders of the corporation.
3.3 Resignation and Vacancies. Any director may resign effective on giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of one or more directors is
effective at a future time, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until then next annual meeting of the stockholders and until a successor has
been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.4 Removal of Directors. Subject to the rights of the holders of any
series of Preferred Stock, no director shall be removed without cause. Subject
to any limitations imposed by law or the Certificate of Incorporation, the Board
of Directors, or any individual director, may be removed from office at any time
with cause by the affirmative vote of holders of at least 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.
3.5 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
3.6 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
3.7 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be given to each director in person,
by telephone, by facsimile transmission or by telegram sent to his or her
business or home address at least 48 hours in advance of the meeting, or by
written notice mailed to his or her business or home address at least three (3)
days in advance of the meeting. A notice or waiver of notice of a meeting of the
Board of Directors need not specify the purposes of the meeting.
3.8 Meetings by Telephone Conference Calls. Directors or any members of any
committee designated by the directors may participate in a meeting of the Board
of Directors or such committee 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 by such means shall constitute
presence in person at such meeting.
3.9 Quorum. A majority of the authorized number of directors shall
constitute a quorum at all meetings of the Board of Directors. In the event
one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one- third
(1/3) of the number of directors so fixed constitute a quorum.
3.10 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these Bylaws. A meeting at which a
quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.11 Waiver of Notice. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the
meeting or an approval of the minutes thereof, whether before or after the
meeting, or (ii) who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to such directors. All such
waivers, consents, and approvals shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not
specify the purpose of any regular or special meeting of the Board of
Directors.
Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given unless the meeting is adjourned for more
than twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.7 of these Bylaws, to the directors who were not present
at the time of the adjournment.
3.13 Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
3.14 Committees. The Board of Directors may, by resolution passed by a
majority of the authorized number of directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he, she 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. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise deter-mine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these Bylaws for the Board of Directors.
3.15 Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.16 Approval of Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section 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 4 - Officers
4.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Chief Financial Officer and such other officers with
such other titles as the Board of Directors shall determine, including a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents and Assistant Secretaries. The Board of Directors may appoint, or may
empower the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
4.2 Election. The President, Chief Financial Officer and Secretary shall be
elected by the Board of Directors at its first meeting following the annual
meeting of stock-holders.
4.3 Qualification. The President need not be a director. No officer need be
a stockholder. Any two or more offices may be held by the same person.
4.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his or her earlier death,
resignation or removal.
4.5 Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Subject to the rights, if any, of any officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the Board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
4.6 Vacancies. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Chief Financial
Officer and Secretary. Each such successor shall hold office for the unexpired
term of his or her predecessor and until such successor is elected and
qualified, or until his or her earlier death, resignation or removal.
4.7 Chairman of the Board and Vice Chairman of the Board. If the Board of
Directors appoints a Chairman of the Board, he or she shall, when present,
preside at all meetings of the Board of Directors. He or she shall perform such
duties and possess such powers as are usually vested in the office of the
Chairman of the Board or as may be vested in him by the Board of Directors. If
the Board of Directors appoints a Vice Chairman of the Board, he or she shall,
in the absence or disability of the Chairman of the Board, perform the duties
and exercise the powers of the Chairman of the Board and shall perform such
other duties and possess such other powers as may from time to time be vested in
him by the Board of Directors.
4.8 President. The President shall be the chief operating officer of the
corporation. He or she shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business of the corporation. Unless
otherwise provided by the directors, he or she shall preside at all meetings of
the stockholders and of the Board of Directors (except as provided in Section
4.7 above). The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
4.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
4.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
4.11 Chief Financial Officer. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
4.12 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the Board of Directors or
the stockholders.
4.13 Bonded Officers. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his or her duties and for the restoration to the
corporation of all property in such officer's possession or under such officer's
control belonging to the corporation.
4.14 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 5 - Capital Stock
5.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
5.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable
securities laws or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
5.3 Transfers. Subject to the restrictions, if any, stated or noted on the
stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these Bylaws.
5.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
ARTICLE 6 - Indemnification
6.1 Indemnification of Directors, Officers, Employees and other Agents. The
corporation shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of Delaware, as that Section may be amended and supplemented
from time to time, indemnify any director or officer which it shall have power
to indemnify under that Section against any expenses, liabilities or other
matters referred to in or covered by that Section. The indemnifi-
cation provided for in this Article (i) shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any bylaw,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director or officer and (iii) shall inure to the benefit of the heirs,
executors and administrators of such a person. The corporation's obligation to
provide indemnification under this Article shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he or she is or
was a director of the corpora-tion (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6.1 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this Bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of the
corporation to indemnify any person, other than a director, made a party to any
action, suit or proceeding by reason of the fact that such person, his or her
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article of all such persons who are
determined by the corporation or otherwise to be or to have been "fiduciaries"
of any employee benefit plan of the corporation which may exist from time to
time, such Section 145 shall, for the purposes of this Article, be interpreted
as follows: an "other enterprise" shall be deemed to include such an employee
benefit plan, including, without limitation, any plan of the corporation which
is governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974," as amended from time to time; the corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his or her duties to the corporation also imposes duties on,
or otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to such Act of Congress shall be deemed "fines";
and action taken or omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
6.2 Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.3 Indemnification Contracts. The Board of Directors is authorized to
cause the corporation to enter into indemnification contracts with any director,
officer, employee or agent of the corporation or any person serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
employee benefit plans, providing indemnification rights to such person. Such
rights may be greater than those provided in this Article 6.
ARTICLE 7 - General Provisions
7.1 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
7.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
7.3 Execution of Instruments. The President or the Chief Financial Officer
shall have power to execute and deliver on behalf and in the name of the
corporation any instru-
ment requiring the signature of an officer of the corporation, except as
otherwise provided in these Bylaws, or where the execution and delivery of such
an instrument shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
7.4 Checks; Drafts; Evidences of Indebtedness. From time to time, the Board
of Directors shall determine by resolution which person or persons may sign or
endorse all checks, drafts, other orders for payment of money, notes or other
evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
7.5 Record Date for Purposes Other than Notice and Voting. For purposes of
determining 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 other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided by law.
If the Board of Directors does not so fix a record date, then 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 applicable
resolution or the sixtieth (60th) day before the date of that action, whichever
is later.
7.6 Voting of Securities. Except as the directors may otherwise designate,
the President, any Vice President, the Secretary or Chief Financial Officer may
waive notice of, and act as, or appoint any person or persons to act as, proxy
or attorney-in-fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
7.7 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
7.8 Reliance Upon Books and Records. A member of the Board of Directors, or
a member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon records of the corporation and upon such information, opinions, reports or
statements presented to the corporation by any of the corporation's officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the corporation.
7.9 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
These Bylaws are subject to the provisions of the Certificate of Incorporation
and applicable law.
7.10 Severability. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
7.11 Certification and Inspection of Bylaws. The original or a copy of
these Bylaws, as amended or otherwise altered to date, certified by the
Secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the stockholders of the corporation, at all
reasonable times during office hours.
ARTICLE 8 - Amendments
The Bylaws may be altered or amended or new Bylaws may be adopted by the
affirmative vote of sixty-six and two-thirds percent 66 2/3% of the voting power
of all of the then-outstanding shares entitled to vote. The Board of Directors
shall also have the power, if such power is conferred upon the Board of
Directors in the Certificate of Incorporation, to adopt, amend or repeal the
Bylaws.
ARTICLE 9 - Dissolution
If it should be deemed advisable in the judgment of the Board of Directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's being
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent becoming effective in accordance
with Section 103 of the General Corporation Law of Delaware, the corporation
shall be dissolved. If the consent is signed by an attorney, then the original
power of attorney or a photocopy thereof shall be attached to and filed with the
consent. The consent filed with the Secretary of State shall have attached to it
the affidavit of the Secretary or some other officer of the corporation stating
that the consent has been signed by or on behalf of all the stockholders
entitled to vote on a dissolution; in addition, there shall be attached to the
consent a certification by the Secretary or some other officer of the
corporation setting forth the names and residences of the directors and officers
of the corporation.
ARTICLE 10 - Custodian
10.1 Appointment of a Custodian in Certain Cases. The Court of Chancery,
upon application of any stockholder, may appoint one or more persons to be
custodians and, if the corporation is insolvent, to be receivers, of and for the
corporation when:
(i) at any meeting held for the election of directors the stockholders are
so divided that they have failed to elect successors to directors whose terms
have expired or would have expired upon qualification of their successors;
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the Board of Directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within a
reasonable time to take steps to dissolve, liquidate or distribute its assets.
10.2 Duties of Custodian. The custodian shall have all the powers and title
of a receiver appointed under Section 291 of the General Corporation Law of
Delaware, but the authority of the custodian shall be to continue the business
of the corporation and not to liquidate its affairs and distribute its assets,
except when the Court of Chancery otherwise orders and except in cases arising
under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of
Delaware.
EXHIBIT D
TOUCHSTONE SOFTWARE CORPORATION
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests of
TouchStone Software Corporation, a California corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
- the Discretionary Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock, and
- the Automatic Option Grant Program under which eligible non- employee
Board members shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders.
B. Administration of the Discretionary Option Grant Program with respect to
all other persons eligible to participate in that program may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer that program with respect to all such
persons. The members of the Secondary Committee may be Board members who are
Employees eligible to receive discretionary option grants under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant Program
and to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant Program
under its jurisdiction or any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.
F. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants made under that program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors o f any
Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide service s to
the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine which eligible
persons are to receive option grants under the Discretionary Option Grant
Program, the time or times when such option grants are to be made, the number of
shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times when
each option is to become exercisable, the vesting schedule (if any) applicable
to the option shares and the maxi mum term for which the option is to remain
outstanding.
C. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
non-employee Board members on the Plan Effective Date, (ii) those individuals
who first become non-employee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's
shareholders, and (iii) those individuals who continue to serve as non- employee
Board members at one or more Annual Shareholders Meetings held after the Plan
Effective Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
1,200,000 shares.
B. No one person participating in the Plan may receive stock options or
separately exercisable stock appreciation rights for more than 120,000 shares of
Common Stock in the aggregate per calendar year; provided, however, that the
limit shall be 240,000 shares during the first calendar year such person is
eligible to participate in the plan as an employee, non-employee director or
consultant.
C. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently cancelled or repurchased by the Corporation, at the
original issue price paid per share, pursuant to the Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants under the Plan.
However, should the exercise price of an option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised or which vest under the stock issuance, and not by the
net number of shares of Common Stock issued to the holder of such option or
stock issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two of the Plan shall not be
available for subsequent issuance under the Plan.
D. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
stock options or separately exercisable stock appreciation rights in the
aggregate under the Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
7
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Six and the
documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options held
by the Optio nee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option, but no such option shall be exercisable after
the expiratio n of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at the time
of death may be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descen t and
distribution.
(iii) Should the Optionee's Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately and cease
to be outstanding.
(iv) During the applicable post-Service exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's cessation
of Service, terminate and cease to be outstanding to the extent the option is
not otherwise at t hat time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service from the limited exercise period
otherwise in effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration of
the option term, and/or
(ii) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of Common
Stock for which such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested had the Optionee continued
in Service.
D. Shareholder Rights. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
designated as Non-Statutory Options when issued under the Plan shall not be
subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Shareholder. If any Employee to whom an Incentive Option is granted
is a 10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrato r at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the succe ssor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options or separately
exercisable stock appreciation rights under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate upon the consummation of a Corporate Transaction or in the event the
Optionee's Service subsequently terminates by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those options
are assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.
In addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee upon the consummation of a Corporate Transaction or at the time of such
Involuntary Termination shall immediately terminate, and the shares subject to
those terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate upon the consummation of a transaction resulting in a Change in
Control or in the event the Optionee's Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control. Each option
so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee upon the consummation of a transaction resulting in a Change in
Control or at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority, exercisable
in its sole discretion, to grant to selected Optionees or other individuals
eligible to receive option grants under the Discretionary Option Grant Program
stock appreciation rights.
B. Three types of stock appreciation rights shall be authorized for
issuance under the Plan: (i) tandem stock appreciation rights ("Tandem Rights"),
(ii) stand-alone stock appreciation rights ("Stand-alone Rights") and (iii)
limited stock appreciation rights ("Limited Rights").
C. The following terms and conditions shall govern the grant and exercise
of Tandem Right s under this Article Two.
1. One or more Optionees may be granted a Tandem Right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to elect
between the exercise of the underlying Article Two stock option for shares of
Common Stock or the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (i) the Fair Market Value
(on the option surrender date) of the number of shares in which the Optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
2. No such option surrender shall be effective unless it is approved by the
Plan Administrator, either at the time of the actual option surrender or at any
earlier time. If the surrender is so approved, then the distribution to which
the Optionee shall accordingly become entitled under this Section V may be made
in shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
3. If the surrender of an option is not approved by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ni ne (9) years after the date of the option grant.
D. The following terms and conditions shall govern the grant and exercise
of Stand-alone Rights under this Article Two:
1. One or more individuals eligible to participate in the Discretionary
Option Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Option Grant Program. The Stand-alone
Right shall cover a specified number of underlying shares of Common Stock and
shall be exercisable upon such terms and conditions as the Plan Administrator
may establish. Upon exercise of the Stand-alone Right, the holder shall be
entitled to receive a distribution from the Corporation in an amount equal to
the excess of (i) the aggregate Fair Market Value (on the exercise date) of the
shares of Common Stock underlying the exercised right over (ii) the agg regate
base price in effect for those shares.
2. The number of shares of Common Stock underlying each Stand-alone Right
and the base price in effect for those shares shall be determined by the Plan
Administrator in its sole discretion at the time the Stand-alone Right is
granted. In no event, however, may the base price per share be less than the
Fair Market Value per underlying share of Common Stock on the grant date.
3. The distribution with respect to an exercised Stand-alone Right may be
made in shares of Common Stock valued at Fair Market Value on the exercise date,
in cash, or partly in shares and partly in cash, as the Plan Administrato r
shall in its sole discretion deem appropriate.
E. The following terms and conditions shall govern the grant and exercise
of Limited Righ ts under this Article Two:
1. One or more Section 16 Insiders may, in the Plan Administrator's sole
discretion, be granted Limited Rights with respect to their outstanding options
under this Article Two.
2. Upon the occurrence of a Hostile Take-Over, the Section 16 Insider shall
have the unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each option with such a Limited Right to
the Corporation, to the extent the option is at the time exercisable for fully
vested shares of Common Stock. The Section 16 Insider shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to each surrendered option (or surrendered portion of such option)
over (ii) the aggregate exercise price payable for such vested shares. Such cash
distribution shall be made within five (5) days following the option surre nder
date.
3. The Plan Administrator shall pre-approve, at the time such Limited Right
is granted, the subsequent exercise of that right in accordance with the terms
of the grant and the provisions of this Section IV. No additional approval of
the Plan Administrator or the Board shall be required at the time of the actual
option surrender and cash distribution. Any unsurrendered portion of the option
shall continue to remain outstanding and become exercisable in accordance with
the terms of the instrument evidencing s uch grant.
F. The shares of Common Stock underlying any stock appreciation rights
exercised under this Section IV shall not be available for subsequent issuance
under the Plan.
8
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a non-employee
Board member on or after the Plan Effective Date shall automatically be granted,
on the date of such initial election or appointment, a Non-Statutory Option to
purchase 10,000 shares of Common Stock, provided that individual has not
previously been in the employ of the Corporation or an y Parent or Subsidiary.
2. On the date of each Annual Shareholders Meeting, beginning on the Plan
Effective Date, each individual who is re-elected to serve as an Eligible
Director shall automatically be granted a Non-Statutory Option to purchase
10,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months. There shall be no limit
on the number of such 10,000-share option grants any one Eligible Director may
receive over his or her period of Board service, and non-employee Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall be eligible to receive one or more such annual option grants
over their period of continued Boar d service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
C. Option Term. Each option shall have a maximum term equal to the lesser
of (i) ten (10) years measured from the option grant date or (ii) twelve (12)
months following termination of Board service.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 10,000-share grant shall vest,
and the Corporation's repurchase right shall lapse in four (4) successive equal
annual installments over the Optionee's period of Board service, with the first
such installment to vest upon the completion of one (1) year of Board service
measured from the automatic grant date. Each annual 10,000-share grant shall
vest, and the Corporation's repurchase right shall lapse, in two (2) successive
equal annual installments over the optionee's period of Board service measured
fro m the automatic grant date.
E. Termination of Board Service. The following provisions shall govern the
exercise of any options held by the Optionee upon his or her cessation of Board
service:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option.
(ii) During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of Common
Stock for which the option is exercisable at the time of the Optionee's
cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of
death or Permanent Disability, then all shares at the time subject to the option
shall immediately vest so that such option may, during the twelve (12)-month
exercise period following such cessation of Board service, be exercised for all
or any portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the expiration
of the option term. Upon the expiration of the twelve (12)-month exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the succe ssor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection w ith a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. This provision of the
Automatic Option Grant Program shall constitute advance approval by the Board of
any subsequent surrender of the option in accordance with the provisions of this
Section II.C, and no additional approval of the Board or any Plan Administrator
shall accordingly be required at the time of the actual option surrender and
cash dis tribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities s hall remain the same.
E. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any p art of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Optio n Grant Program.
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price under the Discretionary Option Grant Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee exceed the sum of (i) the aggregate option
exercise price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optio
nee in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options under the Plan shall be subject to the satisfaction
of all applicable Federal, state and lo cal income and employment tax
withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Discretionary Option Grant
Program with the right to use shares of Common Stock in satisfaction of all
or part of the Taxes incurred by such holders in connection with the
exercise of their options. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100% )) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised, one or more shares of Common
Stock previously acquired by such holder (other than in connection with the
option exercise triggering the Taxes) with an aggregate Fair Market Value
equal to the percentage of the Taxes (not to exceed one hundred percent
(100%)) designated by th e holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan and each of the equity incentive programs thereunder shall
become effective immediately upon the approval of the Corporation's
shareholders at the 1996 Annual Meeting. Options may be granted under the
Plan at any time on or after the date of such shareholder approval. If such
shareholder approval is not obtained, then this Plan shall not become
effective, and no options shall be granted and no shares shall be issued
under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants shall be made under the Predecessor Plan after
this Plan is approved by the shareholders at the 1996 Annual Meeting. All
options outstanding under the Predecessor Plan at the time of such
shareholder approval shall be incorporated into the Plan at that time and
shall be treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by
the terms of the documents evidencing such option, and no provision of the
Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such incorporated options with respect to
their acquisition of shares of Common St ock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) December 16,
2006, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully- vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such plan termination, all outstanding option grants
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with
respect to stock options at the time outstanding under the Plan unless the
Optionee consents to such amendment or modification. In addition, certain
amendments may require shareholder approval in accordance with applicable
laws and regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program that are in excess of the number of
shares then available for issuance under the Plan, provided any excess
shares actually issued under that program shall be held in escrow until
there is obtained shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance
under the Plan. If such shareholder approval is not obtained within twelve
(12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees the exercise or purchase price paid for
any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the
shares were held in escrow, and such shares shall thereupon be
automatically cancelled an d cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock upon the
exercise of any granted option shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the stock options granted under it and
the shares o f Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq
National Market, if applicable) on which Common Stock is then listed for
trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the
Optionee, which rights are hereby expressly reserved by each, to terminate
such person's Servi ce at any time for any reason, with or without cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related group
of persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation),
of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's shareholders which the Board
does not recommend such shareholders to accept, or
(ii) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of
the Corporation's assets in complete liquidation or dissolution of the
Corporation.
G. Corporation shall mean TouchStone Software Corporation, a California
corporation, and its successors.
H. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question, as such price is
reported on the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question, then the
Fair Market Value shall be determined by reference to the most recent bid price
as reported on the NASDAQ National Market or any successor system.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be deemed equal to the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
M. Hostile Take-Over shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than thirty-five
percent (35%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's shareholders which the Board does not recommend such
shareholders to accept.
N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in his
or her position with the Corporation which materially reduces his or her level
of responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any corporate-
performance based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation is
effected without the individual's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more. However, solely
for purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non- employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
V. Plan shall mean the Corporation's 1997 Stock Incentive Plan, as set
forth in this document.
W. Plan Administrator shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
X. Predecessor Plan shall mean the Corporation's pre-existing 1996 Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.
Y. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
Z. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
AA. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
BB. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
CC. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
DD. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
EE. Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.
FF. Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
GG. 10% Shareholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
6
