SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PMC-Sierra, Inc.
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(Name of Registrant as specified in its charter)
- ------------------------------------------------
(Name of person(s) filing proxy statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ________
(2) Aggregate number of securities to which transaction applies: ___________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined: ______________
_______________________________________________
(4) Proposed maximum aggregate value of transaction: _______________________
(5) Total fee paid: ________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_______________________
(2) Form, Schedule or Registration Statement No.: ___________
(3) Filing Party: ___________________________
(4) Date Filed:______________________________
<PAGE>
PMC-SIERRA, INC.
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on May 27, 1998
--------------------------
The 1998 Annual Meeting of Stockholders of PMC-Sierra, Inc. (the
"Company") will be held on Wednesday, May 27, 1998 at 3:00 p.m. local time, at
the Clarion Hotel Villa located at 4331 Dominion Street, Burnaby, British
Columbia, Canada, to act on the following matters:
1. To elect directors of the Company to serve for the
ensuing year and until the next Annual Meeting or the
election of their successors.
2. To approve an amendment to the Company's 1994 Incentive
Stock Plan to increase the number of shares of Common
Stock reserved for issuance by 1,100,000 shares.
3. To approve an amendment to the Company's 1991 Employee
Stock Purchase Plan to increase the number of shares of
Common Stock reserved for issuance by 250,000 shares.
4. To approve an amendment to the Company's 1994 Incentive
Stock Plan to increase the number of shares of Common
Stock reserved for issuance on January 1 of each year
(beginning January 1, 1999) by the lesser of (i) 4% of
the outstanding shares on such date, (ii) 2,000,000
shares, or (iii) an amount determined by the Board of
Directors.
5. To approve an amendment to the Company's 1991 Employee
Stock Purchase Plan to increase the number of shares of
Common Stock reserved for issuance on January 1 of each
year (beginning January 1, 1999) by the lesser of (i) 1%
of the outstanding shares on such date, (ii) 500,000
shares, or (iii) an amount determined by the Board of
Directors.
6. To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares
of Common Stock by 50,000,000 shares to a total of
100,000,000 shares.
7. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the 1998 fiscal year.
8. To transact such other business as may properly come
before the meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1998
are entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
Robert L. Bailey,
President and Chief Executive Officer
Burnaby, British Columbia
Canada
April 23, 1998
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| IMPORTANT |
| |
| 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 returned a proxy. |
| |
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<PAGE>
PMC-SIERRA, INC.
--------------------------
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
--------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
PMC-Sierra, Inc. (the "Company") for use at the Annual Meeting of Stockholders
of the Company to be held on Wednesday, May 27, 1998 at 3:00 p.m., local time,
or at any adjournments thereof. The Annual Meeting will be held at the Clarion
Hotel Villa, which is located at 4331 Dominion Street, Burnaby, British
Columbia, Canada. The Company's principal office is located at 105-8555 Baxter
Place, Burnaby, British Columbia, V5A 4V7, Canada. Its telephone number at that
location is (604) 415-6000. The Company's principal subsidiary is a Canadian
corporation named PMC-Sierra, Ltd. ("LTD"). References in this proxy statement
to "PMC" or the "Company" mean the parent company, PMC-Sierra, Inc. References
to "LTD" mean PMC's principal subsidiary.
This proxy statement is being mailed to stockholders on or about April
23, 1998.
Record Date and Share Ownership
Only holders of Common Stock of record at the close of business on
March 31, 1998 (the "Record Date") are entitled to notice of and vote at the
Annual Meeting of Stockholders. At the Record Date, 30,139,902 shares of the
Company's Common Stock were issued and outstanding.
Stockholders' Proposals for 1999 Annual Meeting
Proposals to be presented by stockholders of the Company at the 1999
Annual Meeting must be received by the Company no later than December 21, 1998
for inclusion in the proxy statement and form of proxy relating to that meeting.
Revocability of Proxies
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's
Assistant Secretary at 105-8555 Baxter Place, Burnaby, British Columbia, V5A
4V7, Canada, a written notice of revocation or a duly executed proxy bearing a
later date, or (ii) attending the meeting and voting in person.
<PAGE>
Voting and Solicitation
Each share of Common Stock outstanding on the Record Date is entitled
to one vote. In addition, every stockholder, or the stockholder's proxy, who is
entitled to vote upon the election of directors may cumulate such stockholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of shares held by such stockholder, or
distribute the stockholder's votes on the same principle among as many
candidates as the stockholder may select, provided that votes cannot be cast for
more than five candidates. No stockholder or proxy, however, shall be entitled
to cumulate votes for a candidate unless such candidate's name has been placed
in nomination prior to the voting and the stockholder, or any other stockholder,
has given notice at the meeting, prior to the voting, of the stockholder's
intention to cumulate votes. If any stockholder gives such notice, all
stockholders may cumulate their votes for candidates in nomination.
The five nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to vote shall be elected as
directors. Proposal No. 6 requires the affirmative vote of a majority of the
shares of the Company's Common Stock outstanding on the Record Date.
Approval of each other matter requires the affirmative vote of a
majority of the Votes Cast. In addition, the affirmative votes must constitute
at least a majority of the required quorum, which is a majority of the shares
outstanding on the Record Date. "Votes Cast" is defined under Delaware law as
the shares of the Company's Common Stock represented and voting in person or by
proxy at the Annual Meeting. Votes that are cast against a proposal will be
counted for purposes of determining (i) the presence or absence of a quorum and
(ii) the total number of Votes Cast with respect to the proposal. While there is
no definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions in the counting of votes with respect to a proposal,
the Company believes that abstentions should be counted for purposes of
determining both (i) the presence or absence of a quorum and (ii) the total
number of Votes Cast with respect to the proposal (other than the election of
directors). In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions in this manner. Accordingly, abstentions will have
the same effect as a vote against the proposal. Broker non-votes will be counted
for purposes of determining the presence or absence of a quorum for the
transaction of business, but will not be counted for purposes of determining the
number of Votes Cast with respect to the particular proposal on which the broker
has expressly not voted. Accordingly, broker non-votes will not affect the
outcome of the voting on a proposal that requires a majority of the Votes Cast.
Votes Cast by proxy or in person at the Annual Meeting will be
tabulated by the Inspector of Elections (the "Inspector") with the assistance of
the Company's transfer agent. The Inspector will also determine whether a quorum
is present.
The cost of soliciting proxies will be borne by the Company. The
Company may retain the services of BankBoston, N.A. to solicit proxies, for
which the Company estimates that it would pay a fee not to exceed $7,000, plus
out-of-pocket expenses. The Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, in person or by telephone or facsimile.
Security Ownership of Certain Beneficial Owners And Management
The following table sets forth certain information known to the Company
regarding beneficial ownership of Common Stock of the Company as of February 28,
1998 by (i) all persons known to the Company to be the beneficial owners of more
than 5% of the Company's Common Stock, (ii) each executive officer named in the
Summary Compensation Table below, (iii) each of the Company's directors, and
(iv) all current directors and executive officers as a group.
<PAGE>
<TABLE>
<CAPTION>
Approximate
Name (1) Number of Shares Ownership
- -------------------------------------------------------------------------------- ---------------- ---------
<S> <C> <C> <C>
J.&W. Seligman & Co. Incorporated(2)(3)......................................... 2,950,000 9.7%
The Equitable Companies Incorporated(2)(4)...................................... 1,662,900 5.4%
The Capital Group Companies, Inc.(2)(5)......................................... 1,610,000 5.3%
Gregory D. Aasen(6)............................................................. 256,143 *
Robert L. Bailey (7)............................................................ 535,257 1.7%
James V. Diller(8).............................................................. 937,968 3.0%
Glenn C. Jones(9)............................................................... 352,918 1.1%
John W. Sullivan(10)............................................................ 19,750 *
Alexandre Balkanski(11)......................................................... 29,061 *
Colin Beaumont(12).............................................................. 19,000 *
Michael L. Dionne(13)........................................................... 9,373 *
Frank Marshall(14).............................................................. 16,250 *
All current directors and executive officers as a group(8 persons)(15).......... 1,822,809 5.8%
- -------------------------
<FN>
* Less than 1%.
(1) The beneficial owners named in the table have sole voting and investment
power with respect to the shares, except as indicated.
(2) Based on statements filed with the Securities and Exchange Commission
pursuant to Sections 13(d) or 13(g) of the Securities Exchange Act of
1934. The Company has not independently verified these statements or more
current holdings.
(3) J.&W. Seligman & Co. Incorporated has shared investing power as to all of
the shares, and shared voting power as to 2,498,000 shares with William C.
Morris. William C. Morris may be deemed to beneficially own the shares
since he is the majority owner of the outstanding securities of J.&W.
Seligman & Co. Incorporated. The address of J&W Seligman & Co.
Incorporated is 100 Park Avenue, 8th Floor, new York, New York 10006.
(4) Includes shares of Common Stock held by Alpha Assurance Via Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage
Assurances Mutuelle as a group and AXA-UAP, of which AXA US Growth Fund
L.L.C. has sole voting and investing power with respect to 50,000 shares
of Common Stock. Alliance Capital Management L.P., a subsidiary of The
Equitable Companies Incorporated, has sole voting power with respect to
435,700 shares of Common Stock, shared voting power with respect to
1,160,500 shares of Common Stock and sole investing power with respect to
1,612,900 shares of Common Stock and operates under independent management
and makes independent voting and investment decisions. The address of The
Equitable Companies Incorporated is 1290 Avenue of the Americas, New York,
New York 10104; Alpha Assurances Vie Mutuelle is 100-101 Terrasse
Boieldien 92042 Paris La Defense France; AXA Assurances I.A.R.D. Mutuelle
and AXA Assurances Vie Mutuelle is 21, Rue de Chateaudun 75009 Paris
France; AXA Courtage Assurance Mutuelle is 26 rue Louis Le Grand 75002
Paris France; and AXA-UAP is 23 Avenue Matignon 75008 Paris France.
(5) Includes 1,060,000 shares beneficially held by Capital Research Management
Company, a wholly owned subsidiary of The Capital Group Companies, Inc.,
as to which The Capital Group Companies, Inc. has sole investing power but
disclaims beneficial ownership. The address of The Capital Group
Companies, Inc. is 333 South Hope Street, Los Angeles, California 90071.
(6) Includes 60,416 shares subject to options exercisable within 60 days after
February 28, 1998, 8,000 shares held by Mr. Aasen's wife and 13,100 shares
held by Mr. Aasen's two sons. Also includes 92,980 shares issuable upon
redemption of LTD Special Shares, 62,383 shares issuable upon redemption
of LTD Special Shares held by Mr. Aasen's wife and 16,552 shares issuable
upon redemption of LTD Special Shares held by Mr. Aasen's two sons.
(7) Includes 75,000 shares subject to options exercisable within 60 days after
February 28, 1998. Also includes 352,955 shares issuable upon redemption
of LTD Special Shares, and 18,332 shares issuable upon redemption of LTD
Special Shares subject to options exercisable within 60 days after
February 28, 1998.
(8) Includes 387,500 shares subject to options exercisable within 60 days
after February 28, 1998 and 38,191 shares issuable upon redemption of LTD
Special Shares subject to options exercisable within 60 days after March
15, 1997. Mr. Diller's address is c/o PMC-Sierra, Inc., 105-8555 Baxter
Place, Burnaby, British Columbia, V5A 4V7, Canada.
<PAGE>
(9) Includes 341,562 shares subject to options exercisable within 60 days
after February 28, 1998. Mr. Jones' address is c/o PMC-Sierra, Inc.,
105-8555 Baxter Place, Burnaby, British Columbia, V5A 4V7, Canada.
(10) Includes 18,750 shares subject to options exercisable within 60 days of
February 28, 1998.
(11) Includes 29,061 shares subject to options exercisable within 60 days after
February 28, 1998. Mr. Balkanski's address is c/o C-Cube Microsystems,
1778 McCarthy Boulevard, Milpitas, California 94062.
(12) Includes 5,000 shares subject to option exercisable within 60 days after
February 28, 1998. Mr. Beaumont's address is c/o Beaumont and Associates,
Inc., 6770 Jubilee Road, Unit #2, Halifax, Nova Scotia, B3H 2H8.
(13) Includes 9,373 shares subject to options exercisable within 60 days after
February 28, 1998. Mr. Dionne's address is c/o PMC-Sierra, Inc., 105-8555
Baxter Place, Burnaby, British Columbia, V5A 4V7, Canada.
(14) Includes 11,250 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Marshall's address 14585 Big Basin Way, Saratoga,
California 95070.
(15) Includes 596,350 shares subject to options exercisable within 60 days
after February 28, 1998 held by the current executive officers and
directors listed above. Also includes 56,523 shares issuable upon
redemption of LTD Special Shares subject to options exercisable within 60
days after February 28, 1998 and 524,870 shares issuable upon redemption
of LTD Special Shares held by two executive officers listed above. See
notes (6) through (8) and (10) through (14) above.
</FN>
</TABLE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Company's Bylaws provide for a board of five directors at the time
of the Annual Meeting. It is planned that a board of five directors will be
elected at the Annual Meeting. Unless otherwise instructed, the proxy holders
will vote the proxies received by them for the five nominees of the Board of
Directors named below, all of whom are presently directors of the Company. Mr.
Dionne, a current director, has declined, for personal reasons, to stand for
reelection to the Board of Directors. If any 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 the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a director.
If stockholders 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 Stockholders or until
the director's successor has been elected.
The Board of Directors unanimously recommends a vote FOR the nominees
listed below:
Name of Nominee Age Principal Occupation Director
Since
- --------------------- --- ------------------------------------------- --------
Robert L. Bailey..... 40 President and Chief Executive Officer, PMC 1996
Alexandre Balkanski.. 37 President and Chief Executive Officer, 1993
C-Cube Microsystems, Inc.
Colin Beaumont....... 58 Management Consultant 1997
James V. Diller...... 62 Chairman of the Board of Directors, PMC 1983
Frank J. Marshall.... 51 Private Investor and Management Consultant 1996
Mr. Bailey has been a director of the Company since October 1996. Mr.
Bailey has served as the Company's President and Chief Executive Officer since
July 1997. Prior to his present position, Mr. Bailey has served as President,
Chief Executive Officer and director of LTD since December 1993. Prior to
joining LTD, Mr. Bailey was employed by AT&T-Microelectronics from August 1989
to November 1993 where he served as Vice President of Integrated Microperipheral
Products. Mr. Bailey was formerly employed at Texas Instruments in various
management assignments from June 1979 to August 1989.
<PAGE>
Dr. Balkanski has been a director of the Company since August 1993. In
July 1988, Dr. Balkanski co-founded C-Cube Microsystems, Inc., a developer of
integrated circuits and software. Dr. Balkanski has held a variety of senior
management positions with C-Cube, and is currently its President, Chief
Executive Officer and a director. He also serves as a member of the board of
directors of CKS Group, Inc.
Mr. Beaumont has been a director of the Company since April 1997. Mr.
Beaumont is a management consultant and is a board member of Plaintree Systems,
Incorporated. In 1995 Mr. Beaumont retired from Nortel where he was the Chief
Engineer of BNR, the largest commercial research and development facility in
Canada. Mr. Beaumont has served as a director of LTD since 1992.
Mr. Diller, a founder of the Company, served as the Company's Chief
Executive Officer from 1983 to July 1997 and as President from 1983 to July
1993. Mr. Diller has served as a director of the Company since the Company's
formation in 1983. Mr. Diller was named as the Chairman of the Company's Board
of Directors in July 1993. Mr. Diller served as Chief Financial Officer of the
Company from its formation until July 1987. He has served on the Board of LTD
since its formation. He is currently a non-officer employee of the Company, and
also serves on the board of directors of Elantec Semiconductor, Inc.
Mr. Marshall has been a director of the Company since April 1996. Mr.
Marshall is currently a private investor and management consultant. Previously,
Mr. Marshall was Vice President, General Manager of Cisco Systems Inc.'s Core
Products Business Unit. Mr. Marshall has also served as Vice President of
Engineering for Cisco Systems Inc. from April 1992 to July 1995. He also serves
on the board of directors of Covad Communications Inc. and Vina-Technologies
Inc. Mr. Marshall also serves on the technical advisory board of several high
technology companies, is a member of the technical advisory Board of Interwest
Partners and is a Venture Partner at Sequoia Capital.
Vote Required
The five nominees for director receiving the highest number of
affirmative votes of the shares entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum, but have no other legal effect
under Delaware law.
Board Meetings and Committees
The Board of Directors of the Company held four meetings during the
1997 fiscal year. All nominees who were Board members in 1997 attended 75% or
more of the meetings of the Board of Directors and of the committees of the
Board on which the director served held during their membership period except
Mr. Beaumont, who attended one of the two Board meetings held since being
appointed to the Board of Directors in April 1997. The Board of Directors has an
Audit Committee, Compensation Committee, Stock Option Committee and Plan
Committee. The Board does not have a nominating committee.
The Audit Committee, which consists of Mr. Dionne and Mr. Marshall,
generally meets on the same date as the Board of Directors, and in addition held
one meeting and took action by written consent on one occasion in 1997. The
Audit Committee recommends engagement of the Company's independent auditors,
approves the services performed by the Company's independent auditors and
reviews the Company's accounting principles and its system of internal
accounting controls.
<PAGE>
The Compensation Committee, which consists of Mr. Diller and Mr.
Balkanski, generally meets on the same date as the Board of Directors, and in
addition held two meetings in 1997. The Compensation Committee reviews and makes
recommendations to the Board concerning the Company's executive compensation
policy, bonus plans and equity incentive plans.
The Stock Option Committee, which consists of Mr. Bailey and any other
one director, took action by written consent on several occasions but did not
hold any meetings in 1997. The Stock Option Committee has authority to grant
stock options to purchase up to 25,000 shares to individuals not subject to
Section 16 of the Securities Exchange Act of 1934.
The Plan Committee, which consists of Mr. Balkanski and Mr. Marshall,
was established in October 1997 and did not hold any meetings in 1997. The Plan
Committee has authority to grant options to individuals subject to Section 16 of
the Securities Exchange Act of 1934.
Board Compensation
Non-employee directors receive an annual retainer of $12,000 per year
plus $1,000 per board meeting attended for their services as members of the
Board of Directors. Non-employee directors are automatically granted options to
purchase 20,000 shares of the Company's Common Stock upon nomination and
thereafter 5,000 per year pursuant to the provisions of the Company's 1994
Incentive Stock Plan. Accordingly, in April 1997 Mr. Marshall received an
automatic annual grant of an option to purchase 5,000 shares of Common Stock at
an exercise price of $16.75 per share, and Mr. Beaumont was granted an option to
purchase 20,000 shares of Common Stock at an exercise price of $15.8125 per
share upon being appointed to the Board of Directors. In June 1997, Mr.
Balkanski and Mr. Dionne each received automatic annual grants of options to
purchase 5,000 shares of Common Stock at an exercise price of $24.00 per share.
These options become exercisable as to 1/4 of the shares subject to the option
after one year; thereafter, 1/48 of the shares subject to the option become
exercisable at the end of each calendar month.
The Company has agreed to indemnify each director against certain
claims and expenses for which the director might be held liable in connection
with past or future services to the Company and its subsidiaries. In addition,
the Company maintains an insurance policy insuring its officers and directors
against such liabilities.
Certain Transactions
During the year ended December 28, 1997, members of the Board of
Directors of the Company and executive officers of the Company received grants
of options as set forth under "Board Compensation" and "Executive Compensation."
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Company's Common Stock, to
file certain reports regarding ownership of, and transactions in, the Company's
securities with the Securities and Exchange Commission (the "SEC"). Such
officers, directors and 10% stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms that they file.
<PAGE>
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that during fiscal 1997 all the reporting persons complied with Section 16(a)
filing requirements except that Mr. Bailey reported on a Form 5 in February 1998
the acquisition of Common Stock of the Company in February 1997 upon redemption
of LTD Special Shares, and Mr. Aasen reported on a Form 5 in March 1998 the
acquisition by his wife of Common Stock of the Company in December 1997 upon
redemption of LTD Special Shares.
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO THE
1994 INCENTIVE STOCK PLAN
TO INCREASE BY 1,100,000 THE NUMBER OF SHARES
RESERVED FOR ISSUANCE
The Company's 1994 Incentive Stock Plan (the "1994 Plan") was adopted
by the Board of Directors in January 1994 and approved by the stockholders in
May 1994. In February 1998 the Board of Directors approved an amendment to the
1994 Plan to increase the number of shares reserved for issuance by 1,100,000
shares to a new total of 5,200,000 shares.
At the annual meeting, the stockholders are being requested to consider
and approve the proposed amendment to the 1994 Plan to increase the number of
shares of Common Stock reserved for issuance by 1,100,000 shares. The proposed
increase in the number of shares of Common Stock reserved for issuance under the
1994 Plan is for the purpose of establishing a reserve for stock option grants
to new employees or consultants that may be hired, granting stock options to
employees in connection with their continued services with the Company, and
granting stock options to employees of businesses that the Company may seek to
acquire in the future.
Summary of the 1994 Plan
General. The purpose of the 1994 Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors,
consultants, sales representatives and distributors of the Company and to
promote the success of the Company's business. Options and stock purchase rights
may be granted under the 1994 Plan. "Incentive Stock Options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may
be granted only to employees. As of February 28, 1998, options to purchase
3,163,578 shares of Common Stock had been granted and are outstanding under the
1994 Plan, 325,211 shares were available for future grant, options to purchase
611,211 shares had been exercised and 20,000 shares had been issued as a stock
bonus. As of February 28, 1998, approximately 228 persons were eligible to
participate in the 1994 Plan and the closing price of the Company's Common Stock
as last reported on the Nasdaq National Market was $36.00.
Administration. The 1994 Plan may generally be administered by the
Board or the Committee appointed by the Board (as applicable, the
"Administrator"). The Stock Option Committee (comprised of Mr. Bailey and any
other director) has authority to grant options to purchase up to 25,000 shares
for each individual, but has no authority to grant options to persons subject to
Section 16 of the Exchange Act. The Plan Committee (comprised of Mr. Balkanski
and Mr. Marshall) has authority to grant options to persons subject to Section
16 of the Exchange Act. The Administrator determines the terms of options
granted, including the exercise price, number of shares subject to the option
and the exercisability thereof, and the terms of stock purchase rights.
<PAGE>
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the 1994 Plan to employees, directors and
consultants, sales representatives and distributors of the Company and any
parent or subsidiary of the Company. Incentive stock options may be granted only
to employees. The Administrator, in its discretion, selects the employees,
directors and consultants to whom options and stock purchase rights may be
granted, the time or times at which such options and stock purchase rights shall
be granted, and the number of shares subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for
federal income tax purposes of compensation paid to certain executive officers
of the Company. In order to preserve the Company's ability to deduct the
compensation income associated with options and stock purchase rights granted to
such persons, the 1994 Plan provides that no employee may be granted, in any
fiscal year of the Company, options and stock purchase rights to purchase more
than 800,000 shares of Common Stock.
Nontransferability. Options and stock purchase rights granted under the
1994 Plan are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee.
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
the option at the time the option is granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, that the exercise
price of an incentive stock option granted to a 10% stockholder may not be less
than 110% of the fair market value of the Common Stock on the date such option
is granted. The fair market value of the Common Stock is generally determined
with reference to the closing sale price for the Common Stock (or the closing
bid if no sales were reported) on the last market trading day prior to the date
the option is granted.
The market value of the Company Common Stock on March 31, 1998 was
$38.00 per share.
(b) Exercise Period. The Administrator determines when an option
granted thereunder will become exercisable. Options granted before March 1, 1996
generally become exercisable as to 1/48th of the shares subject to the option at
the end of each calendar month. Options granted after March 1, 1996 generally
become exercisable as to 1/4 of the shares subject to the option after one year;
thereafter, 1/48 of the shares subject to the option become exercisable as to at
the end of each calendar month. The Administrator determines when options may,
in its discretion, accelerate the vesting of any outstanding option.
(c) Form of Consideration. The means of payment for shares issued upon
exercise of an option are specified in each option agreement. The 1994 Plan
permits payment to be made by cash, check, promissory note, other shares of
Common Stock of the Company (with some restrictions), cashless exercises, a
reduction in the amount of any Company liability to the optionee, any other form
of consideration permitted by applicable law, or any combination thereof.
<PAGE>
(d) Term of Option. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% stockholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(e) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the 1994 Plan expire on
the earlier of (i) the date set forth in his or her notice of grant, or (ii) the
expiration date of such option. To the extent the option is exercisable at the
time of such termination, the optionee may exercise all or part of his or her
option at any time before termination.
(f) Death or Disability. If an optionee's employment or consulting
relationship with the Company terminates as a result of death or disability,
then all options held by such optionee under the 1994 Plan expire on the earlier
of (i) 12 months from the date of such termination, or (ii) the expiration date
of such option. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance) may
exercise all or part of the option at any time before such expiration to the
extent that the option was exercisable at the time of such termination.
(g) Other Provisions. The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator.
Terms of Options to Non-Officer Directors. Option grants to members of
the Board of Directors who are not employees or consultants of the Company
("non-officer directors") are automatic and non-discretionary. Upon initial
election, each non-officer director of the Company automatically receives an
option to purchase 20,000 shares of Common Stock. On June 1 in each calendar
year, each continuing non-officer director of the Company who first served as a
non-officer director prior to September 1, 1995 automatically receives an option
to purchase 5,000 shares of Common Stock, provided that such person has served
in such capacity for the prior 12 months. Each non-officer director of the
Company who first served as a non-officer director after September 1, 1995
automatically receives an option to purchase 5,000 shares on each anniversary
date of such person's election to the Board, provided such person continues to
serve as a non-officer director on such dates. Additionally, in September 1996
the Board granted to each non-officer director an option to purchase 5,000
shares. Options granted before March 1, 1996 become exercisable at the rate of
1/48th of the shares subject to the option at the end of each calendar month.
Options granted after March 1, 1996, become exercisable at the rate of 1/4 of
the total shares subject to the option after one year; thereafter, 1/48 of the
shares subject to the option vest at the end of each calendar month.
Terms of Stock Purchase Rights. Shares issued pursuant to stock
purchase rights can be subject to repurchase by the Company at the original
purchase price of the shares in the event that the person acquiring the shares
ceases to be employed by the Company or ceases to be a distributor for or
representative of the Company. The repurchase option lapses at a rate determined
by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock
of the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the 1994 Plan, the number and class of shares of stock subject to any
option or stock purchase right outstanding under the 1994 Plan, and the exercise
price of any such outstanding option or stock purchase right.
<PAGE>
In the event of a liquidation or dissolution of the Company, any
unexercised option or stock purchase right will terminate. The Administrator
may, in its discretion provide that each optionee shall have the right to
exercise all of the optionee's options and stock purchase rights, including
those not otherwise exercisable at a date fixed by the Administrator prior to
the consummation of the liquidation or dissolution.
In connection with any merger, consolidation, acquisition of assets or
like occurrence involving the Company, each outstanding option or stock purchase
right will be assumed or an equivalent option or right substituted by the
successor corporation. The Administrator may, in lieu of such assumption or
substitution, give the optionee the right to exercise the option or stock
purchase right as to all the optioned stock, including shares not otherwise
exercisable. In such event, the Administrator shall notify the optionee that the
option or stock purchase right is fully exercisable for fifteen days from the
date of such notice and that the option or stock purchase right terminates upon
expiration of such period.
Amendment and Termination of the 1994 Plan. The Board may amend, alter,
suspend or terminate the 1994 Plan, or any part thereof, at any time and for any
reason. However, the Company will obtain stockholder approval for any amendment
to the 1994 Plan to the extent necessary to comply with Section 162(m) and
Section 422 of the Code, or any similar rule or statute. No such action by the
Board or stockholders may alter or impair any option or stock purchase right
previously granted under the 1994 Plan without the written consent of the
optionee. Unless terminated earlier, the 1994 Plan shall terminate ten years
from the date of its approval by the stockholders or the Board of the Company,
whichever is earlier.
Federal Income Tax Consequences
The summary below applies only with respect to optionees who are
required to file U.S. tax returns and to the Company only as affected by U.S.
tax laws.
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. Net capital gains on shares
held between 12 and 18 months are currently taxed at a maximum federal rate of
28%. Net capital gains on shares held for more than 18 months are capped at 20%.
Capital losses are allowed in full against capital gains and up to $3,000
against other income. If these holding periods are not satisfied, the optionee
recognizes ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of (i) the fair market value of the
shares at the date of the option exercise or (ii) the sale price of the shares.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% stockholder of the Company.
The Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period. Net capital
gains on shares held between 12 and 18 months are currently taxed at a maximum
federal rate of 28%. Net capital gains on shares held for more than 18 months
are capped at 20%. Capital losses are allowed in full against capital gains and
up to $3,000 against other income.
<PAGE>
Stock Purchase Rights. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's termination of
employment with the Company. At such times, the purchaser will recognize
ordinary income measured as the difference between the purchase price and the
fair market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and the beginning of any capital gain
holding period by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock on
the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% stockholder of the Company.
The foregoing is only a summary of the effect of federal income
taxation upon optionees, holders of stock purchase rights and the Company with
respect to the grant and exercise of options and stock purchase rights under the
1994 Plan. It does not purport to be complete, and does not discuss the tax
consequences of the employee's or consultant's death or the provisions of the
income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
Canadian Income Tax Consequences
This summary applies only with respect to individuals who are resident
of Canada and subject only to Canadian Income Tax.
An optionee who is granted a stock option does not recognize any income
or benefit at the time the option is granted.
Upon exercise of the option, a benefit equal to the amount, if any, by
which the value of the shares, at the time the employee acquired them, exceeds
the amount paid for the shares is deemed to be received by the employee as
employment remuneration and is included in taxable income. As the shares are
acquired at a price which is equal to their fair market value at the time the
option is granted, the optionee may deduct, in calculating taxable income in the
year of option exercise, an amount equal to one quarter of the benefit deemed to
have been received on that year, provided the employee deals at arm's length
with the Company at the time of the option grant and exercise.
<PAGE>
The cost for tax purposes of the shares acquired is deemed to be their
value at the time of acquisition and any gain or loss on a subsequent disposal
of the shares is measured by reference to that cost. On the assumption that the
shares are held as capital property, three quarters of any gain on disposal
would be included in income as a taxable capital gain, whereas three quarters of
any loss would qualify as an allowable capital loss, which can be used to offset
taxable capital gains.
The foregoing is only a summary of the effect of Canadian income
taxation upon optionees and the Company with respect to the grant and exercise
of options under the 1994 Plan. It does not purport to be complete, and does not
discuss the tax consequences of the employee's death or the provisions of the
income tax laws of any municipality, state or other country in which the
employee may reside.
Participation in the Option Plan. The grant of options and stock
purchase rights under the 1994 Plan to executive officers is subject to the
discretion of the Board or the Plan Committee. Options to purchase a total of
450,000 shares were granted during fiscal 1997 to executive officers under the
1994 Plan. There has been no determination by the Board or the Plan Committee
with respect to future awards under the 1994 Plan.
The grant of options under the 1994 Plan to non-officer directors is
described under "Terms of Options to Non-Officer Directors." Options to purchase
a total of 35,000 shares were granted during fiscal 1997 to non-officer
directors under the 1994 Plan. Directors Balkanski, Dionne and Marshall each
received an annual automatic grant of options to purchase 5,000 shares, and Mr.
Beaumont received an option to purchase 20,000 shares upon his election to the
Board of Directors in April 1997. Assuming that each of the Company's current
non-officer directors remains a director through May 27, 1998, options to
purchase 20,000 shares will be granted to non-officer directors in fiscal 1998.
Each of these options will be exercisable at a price equal to the fair market
value of the Company's Common Stock on the date of grant. It is not possible at
this time to determine the value of these option grants.
The following table sets forth information regarding grants made under
the 1994 Plan for the last fiscal year to (i) each executive officer named in
the Summary Compensation Table, (ii) all current executive officers as a group,
(iii) all non-officer directors as a group, and (iv) all employees as a group.
Future option grants to the individuals listed below are not presently
determinable, except for the automatic option grants to non-officer directors
described above.
Weighted Average
Options Exercise Price
Identity of Person or Group Granted(#) Per Share
- ----------------------------------------------- ------------ ----------------
James V. Diller................................ 100,000 $ 14.125
Robert L. Bailey............................... 150,000 $ 14.125
Colin Beaumont................................. 20,000 $ 15.8125
Glenn C. Jones................................. 25,000 $ 14.125
John W. Sullivan............................... 75,000 $ 16.875
Gregory Aasen.................................. 100,000 $ 14.125
Alexandre Balkanski............................ 5,000 $ 24.00
Michael L. Dionne.............................. 5,000 $ 24.00
Frank Marshall................................. 5,000 $ 16.75
All current executive officers as a group(1)... 325,000 $ 14.7596
All non-officer directors as a group........... 35,000 $ 18.2857
All employees as a group(2).................... 937,700 $ 18.8006
- ---------------------------------
(1) Includes Robert L. Bailey, Gregory D. Aasen and John W. Sullivan.
(2) Excludes former and current executive officers named above.
<PAGE>
Required Vote
At the Annual Meeting, the stockholders are being asked to approve this
amendment to the 1994 Plan. The affirmative vote of a majority of the Votes Cast
at the Annual Meeting will be required to approve this amendment to the 1994
Plan.
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.2.
PROPOSAL NO. 3:
AMENDMENT OF 1991 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE BY 250,000 THE NUMBER OF SHARES
RESERVED FOR ISSUANCE
The 1991 Employee Stock Purchase Plan, (the "Purchase Plan") was
adopted by the Board of Directors in February 1991 and approved by the
stockholders in April 1991. In February 1998 the Board of Directors approved an
amendment to increase the number of shares reserved for issuance by 250,000 to a
total of 1,310,000 shares.
At the Annual Meeting, the stockholders are being requested to consider
and approve the proposed amendment to the Purchase Plan to increase the number
of shares of Common Stock reserved for issuance by 250,000 shares. The Board
believes that the amendment will enable the Company to continue its policy of
widespread employee stock ownership as a means to motivate high levels of
performance.
Summary of the Purchase Plan
General. The purpose of the Purchase Plan is to provide employees with
an opportunity to purchase Common Stock of the Company through payroll
deductions in a manner that qualifies under Section 423 of the Internal Revenue
Code (the "Code").
Administration. The Purchase Plan may be administered by the Board of
Directors (the "Board") or a committee appointed by the Board. All questions of
interpretation or application of the Purchase Plan are determined by the Board
or its appointed committee, and its decisions are final, conclusive and binding
upon all participants.
<PAGE>
Eligibility. Any regular employee of the Company, employed throughout
the Offering Period (as defined below), is eligible to participate in an
Offering Period; provided, however, that no employee shall be granted an option
under the Purchase Plan (i) to the extent that, immediately after the grant,
such employee would own 5% of either the voting power or value of the stock of
the Company, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company accrues at a rate which
exceeds $25,000 worth of stock (determined at the fair market value of the
shares at the time such option is granted) for each calendar year. Eligible
employees become participants in the Purchase Plan by filing with the Company a
subscription agreement authorizing payroll deductions prior to the beginning of
each Offering Period unless a later time for filing the subscription agreement
has been set by the Board.
Participation in an Offering. The Purchase Plan is implemented by
offering periods lasting for 2 years (an "Offering Period"), with a new Offering
Period commencing on or about January 1 and July 1 of each year. Common Stock
may be purchased under the Purchase Plan every 6 months (a "Purchase Period"),
unless the participant withdraws or terminates employment earlier. No more than
120,000 shares may be sold under the Purchase Plan in any Purchase Period. To
the extent the fair market value of the Common Stock on any exercise date in an
Offering Period is lower than the fair market value of the Common Stock on the
first day of the Offering Period, then all participants in such Offering Period
will be automatically withdrawn from such Offering Period immediately after the
exercise of their options on such exercise date and automatically re-enrolled in
the immediately following Offering Period as of the first day thereof. The Board
may change the duration of the Purchase Periods or the length or date of
commencement of an Offering Period. To participate in the Purchase Plan, each
eligible employee must authorize payroll deductions pursuant to the Purchase
Plan. Such payroll deductions may not exceed 10% of a participant's
compensation. Once an employee becomes a participant in the Purchase Plan, the
employee will automatically participate in each successive Offering Period until
such time as the employee withdraws from the Purchase Plan or the employee's
employment with the Company terminates. At the beginning of each Offering
Period, each participant is automatically granted options to purchase shares of
the Company's Common Stock. The option expires at the end of the Purchase Period
or upon termination of employment, whichever is earlier, but is exercised at the
end of each Purchase Period to the extent of the payroll deductions accumulated
during such Purchase Period. The number of shares subject to the option may not
exceed the number of shares determined by dividing $12,500 by the fair market
value of a share on the Enrollment Date on the first day of the Purchase Period.
Purchase Price, Shares Purchased. Shares of Common Stock may be
purchased under the Purchase Plan at a price not less than 85% of the lesser of
the fair market value of the Common Stock on (i) the first day of the Offering
Period or (ii) the last day of Purchase Period. The "fair market value" of the
Common Stock on any relevant date will be the closing price per share as
reported on The Nasdaq National Market System. The number of shares of Common
Stock a participant purchases in each Purchase Period is determined by dividing
the total amount of payroll deductions withheld from the participant's
compensation during that Purchase Period by the purchase price.
Termination of Employment. Termination of a participant's employment
for any reason, including disability or death, cancels his or her option and
participation in the Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the Purchase Plan.
<PAGE>
Adjustment Upon Change in Capitalization, Change in Control. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, combination, reclassification or other
change in the capital structure of the Company effected without the receipt of
consideration, appropriate proportional adjustments shall be made in the number
and class of shares of stock subject to the Purchase Plan, the number and class
of shares of stock subject to options outstanding under the Purchase Plan, and
the exercise price of any such outstanding options. Any such adjustment shall be
made by the Board, whose determination shall be conclusive. Notwithstanding the
above, in connection with any merger or acquisition of assets involving the
Company, each option shall be assumed or an equivalent option substituted by
such successor corporation unless the Board determines, in lieu of such
assumption or substitution, to shorten any Offering Periods or Purchase Periods
then in progress to a new exercise date and notify each participant that his or
her option shall be exercised automatically on the new exercise date, unless
prior to such date the participant has withdrawn from the Offering Period.
Amendment and Termination of the Plan. The Board of Directors may at
any time terminate or amend the Purchase Plan. An Offering Period may be
terminated by the Board of Directors at the end of any Purchase Period if the
Board determines that termination of the Purchase Plan is in the best interests
of the Company and its stockholders. No amendment shall be effective unless it
is approved by the holders of a majority of the Votes Cast at a duly held
stockholders' meeting, if such amendment would require stockholder approval in
order to comply with Section 423 of the Code.
Withdrawal. Generally, a participant may withdraw from an Offering
Period at any time without affecting his or her eligibility to participate in
future Offering Periods. However, once a participant withdraws from a particular
offering, that participant may not participate again in the same offering.
Federal Tax Information for Purchase Plan. This summary applies only
with respect to participants who are required to file U.S. tax returns and to
the Company only as affected by U.S. tax laws. The Purchase Plan, and the right
of participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition
of the shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold or
otherwise disposed of more than 2 years from the first day of the Offering
Period or more than 1 year from the date of transfer of the stock to the
participant, then the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (ii) an amount equal to 15%
of the fair market value of the shares as of the first day of the Offering
Period. Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of this holding
period, the participant will recognize ordinary income generally measured as the
excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. The Company is not entitled to a deduction for amounts taxed
as ordinary income or capital gain to a participant except to the extent of
ordinary income is recognized by participants upon a sale or disposition of
shares prior to the expiration of the holding period(s) described above.
Canadian Tax Information for Purchase Plan. This summary applies apply
with respect to individuals who are resident of Canada and subject only to
Canadian Income Tax. An employee who enrolls in the Purchase Plan does not
recognize any income or benefit at the time of enrollment. When shares are
purchased under the terms of the Purchase Plan, a benefit equal to the amount by
which the value of the shares at the time they are acquired exceeds the price
paid for the shares is deemed to be received by the employee and is included in
taxable income as employment remuneration. The cost of the shares for tax
purposes is deemed to be equal to their value at the time of acquisition and any
gain or loss on a subsequent disposal of the shares is measured by reference to
that cost. On the assumption that the shares are held as capital property, three
quarters of any loss would qualify as an allowable capital loss, which can be
used to offset taxable capital gains.
<PAGE>
The foregoing is only a summary of the effect of federal and Canadian
income taxation upon the participant and the Company with respect to the shares
purchased under the Purchase Plan. Reference should be made to the applicable
provisions of the Code. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
other country in which the participant may reside.
Required Vote
At the Annual Meeting, the stockholders are being asked to approve this
Amendment to the Purchase Plan. The affirmative vote of a majority of the Votes
Cast at the Annual Meeting will be required to approve this amendment to the
Purchase Plan.
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.3.
PROPOSAL NO. 4
AMENDMENT OF COMPANY'S 1994 INCENTIVE STOCK PLAN
TO INCREASE SHARES RESERVED FOR ISSUANCE
ON AN ANNUAL BASIS
The Company's 1994 Incentive Stock Plan (the "1994 Plan") was adopted
by the Board of Directors in January 1994 and approved by the stockholders in
May 1994. In February 1998 the Board of Directors approved an amendment to the
1994 Plan to increase the number of shares reserved for issuance by 1,100,000
shares to a new total of 5,200,000 shares as set forth in Proposal No. 2.
At the Annual Meeting, the stockholders are being requested to consider
and approve the proposed amendment to the 1994 Plan to increase the number of
shares of Common Stock reserved for issuance on January 1 of each year
(beginning on January 1, 1999) by the lesser of (i) 4% of the outstanding shares
on such date, (ii) 2,000,000 shares, or (iii) a lesser amount determined by the
Board of Directors.
Summary of the 1994 Plan
See Proposal No. 2.
Required Vote
At the Annual Meeting, the stockholders are being asked to approve this
amendment to the 1994 Plan. The affirmative vote of the holders of a majority of
the Votes Cast at the Annual Meeting will be required to approve this amendment
to the 1994 Plan.
<PAGE>
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.4.
The proposed increase in the number of shares of Common Stock reserved
for issuance under the 1994 Plan is for the purpose of establishing a reserve
for stock option grants to new employees and consultants, granting stock options
to employees in connection with their continued services with the Company and
granting options to employees and consultants of businesses that the Company may
seek to acquire in the future.
The Board believes that approving an automatic annual increase in the
number of shares reserved for issuance under the 1994 Plan will reduce expenses,
improve management planning, enhance predictability for the stockholders, and
avoid potential adverse accounting consequences. The Board believes that this
proposal is consistent with the Company's historic use of stock options and
actions taken by other technology companies.
PMC's management currently expends significant time each year analyzing
stock option grants in the prior year and projecting a number of shares which
may be used during the next fiscal year as incentives for new and continuing
employees and consultants. The Company has in the past incurred material
expenses in this analysis and in seeking stockholder approval for each year's
proposed increase. In some instances, due to a high percentage of broker
non-votes, management has also been required to expend significant time
communicating with institutional stockholders to seek approval for proposed plan
increases.
This process has also introduced an element of uncertainty into the
Company's ability to plan its equity incentive budgets. For example, at times,
growth in the number of employees, or in the number of shares required to
attract and maintain employees, has demonstrated that the Company's incentive
plans will be depleted before the next planned annual stockholder meeting. In
addition, in the past, the Company's management has had difficulty setting
employees' expectations about future equity incentive grants in light of the
need for future stockholder approval of a plan increase. Management believes
that in order to achieve its goals for growth, greater predictability in terms
of the number of shares to be added to the 1994 Plan is necessary.
PMC's stockholders would benefit from greater predictability in stock
option plan increases. Since the Company's initial public offering in 1991, the
percentage of outstanding shares added to the option plan each year has varied
from 1.7% to 6.7%. This proposal, while not limiting increases for other
reasons, is intended to establish a baseline for stockholders to estimate future
dilution from option grants.
Due to changes in the accounting rules in the last few years, the
Company has effectively lost the opportunity to increase the number of shares
reserved for issuance under the 1994 Plan and grant stock options subject to
stockholder approval (which is generally required under Nasdaq rules). While in
the past this could be done if the optionee understood the risk of losing the
option if the stockholders did not approve the plan increase, under current
accounting treatment this course of action can result in significant non-cash
compensation expense being recognized by the Company if the Company's stock
price increases between the date of the contingent option grant and the date on
which stockholder approval is obtained.
The Company believes that this proposed annual increase is consistent
with the average increases in the Company's equity plans which have been
presented to and approved by the stockholders since the Company's initial public
offering in 1991. In addition, based on a limited search of other technology
companies with annual automatic increases in their equity incentive plans, the
Company believes that this proposal is consistent with the plans of these
comparable companies.
<PAGE>
PROPOSAL NO. 5
AMENDMENT OF COMPANY'S 1991 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE SHARES RESERVED FOR ISSUANCE
ON AN ANNUAL BASIS
General. The 1991 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors in February 1991 and approved by the
stockholders in April 1991. Including the 250,000 shares reserved for issuance
by the Board in February 1998, a total of 1,310,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan. The purpose of the Purchase
Plan is to provide employees with an opportunity to purchase Common Stock of the
Company through payroll deductions in a manner that qualifies under Section 423
of the Internal Revenue Code (the "Code").
At the Annual Meeting, the stockholders are being requested to consider
and approve the proposed amendment to the Purchase Plan to increase the number
of shares of Common Stock reserved for issuance on January 1 of each year
(beginning on January 1, 1999) by the lesser of (i) 1% of the outstanding shares
on such date, (ii) 500,000 shares, or (iii) an amount determined by the Board of
Directors.
Summary of the Purchase Plan
See Proposal No. 3.
Required Vote
At the Annual Meeting, the stockholders are being asked to approve this
amendment to the Purchase Plan. The affirmative vote of a majority of the Votes
Cast at the Annual Meeting will be required to approve this amendment to the
Purchase Plan.
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.5.
See Recommendation for Proposal No. 4.
PROPOSAL NO. 6:
AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK
In March 1998 the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock of the Company, $0.001 par value per share, from
50,000,000 to 100,000,000 (the "Amendment").
The additional Common Stock to be authorized by adoption of the
Amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed Amendment would not affect the rights
of the holders of currently outstanding Common Stock of the Company, except to
the extent additional shares are actually issued. If the Amendment is adopted,
it will become effective upon filing of a Certificate of Amendment of the
Company's Certificate of Incorporation with the Secretary of State of the State
of Delaware.
<PAGE>
Prior to effectiveness of the Amendment, the Company has 50,000,000
authorized shares of Common Stock. Of this authorized number, 30,139,902 shares
were outstanding as of the Record Date, 5,647,928 shares were reserved for
issuance under the Company's equity compensation plans (after taking into
account the amendments to such plans submitted to the stockholders for approval
under Proposals No. 2 and 3), 25,000 shares were reserved for issuance upon
exercise of a warrant issued to an investment banking firm and 1,405,637 shares
were reserved for issuance upon redemption of LTD special shares (including
shares issuable upon exercise of options to purchase LTD special shares),
leaving 12,806,533 shares unreserved, unissued and available for issuance as of
the Record Date.
Purpose and Effect of the Amendment
The principal purpose of the Amendment is to provide the Company with
the flexibility to issue Common Stock for proper corporate purposes which may be
identified in the future, such as to effect stock splits in the form of stock
dividends, make acquisitions through the use of stock, adopt additional equity
incentive plans or reserve additional shares for issuance under such plans, and
raise equity capital. The Board of Directors has not authorized or taken any
action with respect to the issuance of, and has no present agreement,
arrangement or intention to issue, any of the additional shares for which
approval is sought.
If the Board of Directors were to decide to approve a two-for-one stock
split in the form of a stock dividend, the number of shares of Common Stock
currently authorized would be insufficient. The Board may distribute stock
dividends in the future but has no present intention of doing so, and its
decision to approve a stock dividend will be based upon market and other factors
deemed relevant by the Board from time to time. The Company split its stock
two-for-one in October 1995. Under California law, the Board of Directors has
had the flexibility to respond to the growth of the Company's business in
approving the stock split without having to wait for stockholder approval.
Following the reincorporation into Delaware, the Board of Directors cannot split
the Company's stock by means of a stock dividend without stockholder approval if
the number of authorized shares available is insufficient. The increased reserve
of shares available for issuance may also be used in connection with potential
acquisitions of businesses. The Company has acquired other businesses using its
stock as consideration, such as the acquisition of LTD and of assets of Bipolar
Integrated Technology, Inc. The ability to use its stock as consideration
provides the Company with negotiation benefits and increases its ability to
acquire businesses. In addition, the increased reserve of shares available for
issuance may be used for new equity incentive plans which the Company may adopt
for grants to its employees, consultants and directors, including in connection
with potential acquisitions, and for reserving additional shares under the
Company's existing plans, including the increase on an annual basis of the
number of shares reserved for issuance under the 1994 Plan and the Purchase
Plan, if Proposals No. 4 and 5 are approved by the Company's stockholders.
The availability of additional shares of Common Stock is particularly
important in the event that the Board of Directors needs to undertake any of the
foregoing actions on an expedited basis and therefore needs to avoid the time
(and expense) of seeking stockholder approval in connection with the
contemplated action. If the Amendment is approved by the stockholders, the Board
of Directors does not intend to solicit further stockholder approval prior to
the issuance of any additional shares of Common Stock, except as may be required
by applicable law. In addition, under Nasdaq rules, stockholder approval is
required for any issuance of 20% or more of the Company's outstanding shares in
connection with acquisitions.
<PAGE>
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock or the stock ownership and voting rights of a person seeking to obtain
control of the Company. The Company is not presently aware of any pending or
proposed transaction involving a change in control of the Company. While it may
be deemed to have potential anti-takeover effects, the proposed Amendment is not
prompted by any specific effort or takeover threat currently perceived by
management.
Vote Required
The affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock will be required to approve this Amendment to the
Company's Certificate of Incorporation. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.6.
PROPOSAL NO. 7:
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's Board of Directors has selected Deloitte & Touch LLP,
Independent Auditors, to audit the financial statements of the Company for the
1998 fiscal year and recommends that the stockholders ratify such selection. In
the event of a negative vote, the Board of Directors will reconsider its
selection. Representatives of Deloitte & Touche LLP are expected to be present
at the meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
Changes in Accountants
During fiscal 1997, the Company reviewed its relationship with its
independent accountants. Following that review and a recommendation by the Audit
Committee, the Company's Board of Directors decided to change its independent
accountants. On April 14, 1997, the Company engaged Deloitte & Touche LLP ("DT")
to serve as the Company's independent accountants, replacing Ernst & Young LLP
("EY"), who had previously served in that capacity. EY has reported on the
Company's financial statements for the two fiscal years ended December 31, 1995
and December 31, 1996. Neither of the reports by either firm contained either an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
on any matters of accounting principle or practices, financial statement
disclosures, or auditing scope or procedure with EY in connection with that
firm's audits of fiscal 1995 and 1996 or through April 14, 1997, or with DT in
connection with that firm's audit of the fiscal year ended December 28, 1997,
which disagreements, if not resolved to the auditing firm's satisfaction, would
have caused them to make reference in such firm's report on the subject matter
of such disagreement.
<PAGE>
Vote Required
The affirmative vote of a majority of the Votes Cast will be required
to confirm the appointment of Deloitte & Touche LLP as independent auditors of
the Company for the 1998 fiscal year.
Recommendation
The Board of Directors unanimously recommends a vote FOR Proposal No.7.
<PAGE>
EXECUTIVE COMPENSATION
Compensation Tables
Summary Compensation Table. The following table sets forth the
compensation paid by any person for all services rendered in all capacities to
the Company, for each of the three fiscal years ending in fiscal 1997, to the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company in fiscal 1997:
<TABLE>
<CAPTION>
Long-Term
Compensation(1)
-----------------
Annual Compensation Securities All Other
----------------------- Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) Options(#) ($)(2)
- ----------------------------------------------- -------- ----------- ---------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Bailey(3)............................ 1997 211,415 459,837 150,000 7,751(6)
President and Chief Executive Officer 1996 209,438 221,424 50,000 25,569(7)
1995 200,868 124,936 -- 26,407(8)
Gregory Aasen.................................. 1997 147,810 186,102 100,000 198
Chief Operating Officer 1996 135,055 94,896 -- 63
1995 116,801 53,544 50,000 174
James V. Diller(3)............................. 1997 324,996 508,860 100,000 --
Chairman and Chief Executive Officer 1996 300,019 261,224 120,000 683
1995 281,683 339,641 100,000 683
John W. Sullivan(4)............................ 1997 87,916 84,552 75,000 27,003(9)
Vice President Finance
and Chief Financial Officer
Glenn C. Jones(5).............................. 1997 199,182 307,723 25,000 --
Senior Vice President, Finance and Chief 1996 182,021 116,100 75,000 683
Financial Officer 1995 167,632 169,820 50,000 683
- --------------------------------
<FN>
(1) The Company made no restricted stock awards during the periods presented.
(2) Life insurance premiums, except as indicated in Notes (6), (7), (8) and
(9).
(3) Mr. Diller retired as the Company's Chief Executive Officer in July 1997.
At this time Mr. Bailey was appointed as Chief Executive Officer.
(4) Mr. Sullivan joined the Company in April 1997 and was elected as Vice
President Finance and Chief Financial Officer in July 1997.
(5) Mr. Jones resigned as Senior Vice President, Finance and Chief Financial
Officer in July 1997.
(6) Includes $107 for life insurance premium and $7,644 for 1997 tax
preparation.
(7) Includes $96 for life insurance premium and $25,473 to reimburse interest
paid to LTD. See "Certain Transactions" in the Company's 1997 Proxy
Statement.
(8) Includes $170 for life insurance premium and $26,237 to reimburse interest
paid to LTD. See "Certain Transactions" in the Company's 1997 Proxy
Statement.
(9) Includes $110 for life insurance premium and $26,893 for relocation
expenses.
</FN>
</TABLE>
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth each
stock option grant made during fiscal 1997 to each of the executive officers
named in the Summary Compensation Table above:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------ Potential Realizable Value
Number of at Assumed Annual
Securities % of Total Rates of Stock
Underlying Options Granted Exercise or Price Appreciation
Options to Employees Base Price Expiration for Option Term(5)
Name Granted(1)(2) in Fiscal Year(3) ($/Sh)(4) Date 5%($) 10%($)
- ---------------------- ----------------- -------------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Bailey...... 150,000 10.8 14.125 01/22/2007 1,332,470 3,376,742
Gregory Aasen......... 100,000 7.2 14.125 01/22/2007 888,314 2,251,161
James V. Diller....... 100,000 7.2 14.125 01/22/2007 888,314 2,251,161
John W. Sullivan...... 75,000 5.4 16.875 04/30/2007 795,945 2,017,080
Glenn C. Jones........ 25,000 1.8 14.125 01/22/2007 222,078 562,790
- ---------------
<FN>
(1) The listed options become exercisable as to 1/4 of the shares subject to
the option one year after the date of grant and thereafter monthly as to
1/48 of the shares subject to the option with full vesting occurring on
the fourth anniversary of the date of grant.
(2) Under the terms of the Company's 1994 Incentive Stock Plan, the Board of
Directors retains discretion, subject to plan limits, to modify the terms
of outstanding options and to reprice the options.
(3) The Company granted options to purchase 1,387,700 shares of Common Stock
to employees in fiscal 1997.
(4) The exercise price and tax withholding obligations related to exercise may
in some cases be paid by delivery of other shares or by offset of the
shares subject to the option.
(5) The 5% and 10% assumed annualized rates of compound stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent the Company's estimate or a projection by
the Company of future Common Stock prices.
</FN>
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table sets forth, for each of the executive officers named
in the Summary Compensation Table above, stock options exercised during fiscal
1997 and the fiscal year-end value of unexercised options:
<TABLE>
<CAPTION>
Number of Securities Value(1) of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at Fiscal Year-End: Fiscal Year-End:
Name Exercise(1) Realized(1)(2)($) Exercisable/Unexercisable(3) Exercisable/Unexercisable($)
- ------------------------- ----------- ----------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert L. Bailey......... 1,010 16,099 42,290/176,042(4) 722,332/2,290,693
Gregory Aasen............ 700 11,158 25,000/125,000 289,063/1,632,812
James V. Diller.......... 255,796 3,182,500 414,023/191,668(5) 8,551,454/2,565,653
John W. Sullivan......... 0 0 0/75,000 0/801,563
Glenn C. Jones........... 1,212 19,319 315,416/74,584 6,808,167/1,103,083
- --------------------
<FN>
(1) Shares acquired includes shares purchased pursuant to the Company's
Employee Stock Purchase Plan. Value realized includes the difference
between the closing market price of the Common Stock on the purchase date
and the purchase price of the shares purchased.
(2) Market value of underlying securities at exercise date (for value
realized) or year-end (for value at year-end), minus the exercise price.
At December 28, 1997 the closing market price for the Company's stock was
$27.5625.
(3) Does not include outstanding LTD Special Shares redeemable for shares of
Common Stock of the Company.
(4) Includes 18,332 shares issuable upon redemption of LTD Special Shares
subject to options.
(5) Includes 38,191 shares issuable upon redemption of LTD Special Shares
subject to options.
</FN>
</TABLE>
<PAGE>
Compensation Committee Report on Executive Compensation
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors. Until October 1997, members of
the Compensation Committee were Michael L. Dionne and Alexandre Balkanski.
Current members are Alexandre Balkanski and James V. Diller.
Compensation Philosophy. Under the supervision of the Compensation
Committee of the Board of Directors, the Company has developed and implemented
compensation policies, plans and programs which seek to enhance the
profitability of the Company, and thus stockholder value, by aligning closely
the financial interests of the Company's senior managers with those of its
stockholders. In furtherance of these goals, annual base salaries are generally
set below competitive levels to emphasize annual and longer-term incentive
compensation. This is meant to attract, motivate and retain corporate officers
and other key employees to perform to the full extent of their abilities. Both
types of incentive compensation are variable and closely tied to corporate
performance in a manner that encourages continuing focus on profitability and
stockholder value.
Compensation for the Company's executive officers consists of a base
salary and annual and longer-term incentive compensation. The Committee
considers the total compensation (earned or potentially available) of each
executive officer in establishing each element of compensation.
Cash-Based Compensation. Each fiscal year the Committee reviews with
the Chief Executive Officer and approves, with appropriate modifications, an
annual base salary plan for the Company's senior executives (other than the
Chief Executive Officer). This base salary plan is based on industry, peer
group, and national surveys and performance judgements as to the past and
expected future contributions of the individual senior executives. The base
salaries are fixed at a level below the competitive amounts paid to senior
managers with comparable qualifications, experience and responsibilities at
other similarly sized high-technology companies.
Each executive officer, including the Chief Executive Officer, is
eligible to receive a quarterly cash bonus equal to a percentage of the
Company's operating group's pre-tax profits for the quarter. The percentages of
profits for each participant are determined annually by the Compensation
Committee based upon performance judgments as to the past and expected future
contributions of the individual senior executives. Increases to executive
officer base salaries in fiscal 1998 were determined by the Committee after
general consideration of total fiscal year 1997 compensation, industry and peer
group surveys, individual position and responsibilities and the individual's
total compensation package (including annual incentive and long-term incentive
compensation) in fiscal 1997 versus the proposed plan for fiscal 1998.
In fiscal 1997, the Company generally attained its performance goals
for pre-tax operating profit (excluding non-recurring charges), and bonuses
ranged in amount from approximately 49% to approximately 61% of total cash-based
compensation for the executive officers named in the Summary Compensation Table
(other than the former and the current Chief Executive Officer).
<PAGE>
The industry and peer group used by the Compensation Committee for
purposes of determining executive officer compensation is not the same peer
group used in connection with cumulative total stockholder return because the
Compensation Committee believes that the Company's most direct competitors for
executive talent are not necessarily all of the companies included in that peer
group. To construct the industry and peer group for executive officer
compensation, the Company chose companies in the semiconductor industry that (i)
have revenues comparable to the Company's revenues, or (ii) compete with the
Company for executive talent irrespective of revenue. Companies are included in
the latter group if their executives have skills and expertise similar to the
skills and expertise the Company requires of its executive officers.
Stock Options. During each fiscal year, the Stock Option Committee
considers the desirability of granting to executive officers awards under the
Company's 1994 Incentive Stock Plan, which allows for the grant of long-term
incentives in the form of stock options and stock purchase rights. The Stock
Option Committee believes stock option grants encourage the achievement of
superior results over time and align employee and stockholder interests. In
fixing the grants of stock options to executive officers (other than the Chief
Executive Officer) in the last fiscal year, the Stock Option Committee reviewed
with the Chief Executive Officer the recommended individual award, taking into
account scope of accountability, strategic and operational goals, and
anticipated performance requirements and contributions of the senior management
group. In addition, when hiring new executive officers, the Committee may
recommended a grant of options upon acceptance of employment. These grants are
made in order to retain qualified personnel and take into account the
compensation policies of the Company's competitors and the unique qualifications
of the new executives.
Chief Executive Officer Compensation. The Compensation Committee
reviews and fixes the total cash compensation of the Chief Executive Officer
based on similar competitive compensation data as for all executive officers and
the Compensation Committee's assessment of his past performance and its
expectation as to his future contributions in leading the Company and
positioning the Company for future growth. For fiscal 1997 the cash bonuses paid
to the Company's former and current Chief Executive Officers were approximately
61% and 69%, respectively, of each of their total cash-based compensation, based
on the pre-tax operating profit (excluding the non-recurring expenses) of the
Company. For fiscal 1997 the Company granted a stock option to purchase 100,000
shares of common stock to the former Chief Executive Officer and an option to
purchase 150,000 shares to the current Chief Executive Officer. Both options are
exercisable at $14.125 per share. The award to a Chief Executive Officer was
based, among other things, on a review of competitive compensation data from
several surveys, data from selected peer companies (based on company size,
revenue rate and relative number of outstanding shares) and information
regarding long-term compensation awards, as well as the Committee's perception
of past and expected future contributions to the Company's achievement of its
long-term performance goals.
Respectfully submitted by:
Alexandre Balkanski
James V. Diller
Michael L. Dionne
<PAGE>
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, Mr. Diller acted as the Company's President and
Chief Executive Officer until July 1997, and thereafter as an employee of the
Company.
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq National Market, and the line-of-business
index for semiconductors and related devices (SIC code 3674) published by Media
General Financial Services. The graph assumes the investment of $100 on December
31, 1992. The performance shown is not necessarily indicative of future
performance.
Comparison of 60-Month Cumulative Total Return*
Among PMC-Sierra, Inc.,
Nasdaq National Market Index and SIC Code Index 3674
(Graph omitted)
COMPANY 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
PMC-SIERRA, INC. 100 54.63 112.96 205.56 222.22 459.26
INDUSTRY INDEX 100 144.42 178.42 289.76 466.49 486.11
BROAD MARKET 100 119.95 125.94 163.35 202.99 248.30
* The total return on each of these investments assumes the reinvestment
of dividends, although dividends have never been paid on the Company's
Common Stock.
<PAGE>
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.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER, UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 28, 1997, INCLUDING, IF SO REQUESTED, THE FINANCIAL STATEMENTS,
SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO: INVESTOR
RELATIONS, PMC-SIERRA, INC., 105-8555 BAXTER PLACE, BURNABY, BRITISH COLUMBIA,
V5A 4V7, CANADA.
FOR THE BOARD OF DIRECTORS
Dated: April 23, 1997
<PAGE>
APPENDIX 1: FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PMC-SIERRA, INC
ANNUAL MEETING OF STOCKHOLDERS MAY 27, 1998
The undersigned stockholder of PMC-SIERRA, INC. (the "Company")
acknowledges receipt of the Notice of Annual Meeting of Stockholders and the
Proxy Statement each dated April 23, 1998, and the undersigned revokes all prior
proxies and appoints Robert L. Bailey and John W. Sullivan and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned to represent the undersigned and to
vote all shares of Common Stock of the Company which the undersigned would be
entitled to vote at the Annual Meeting of Stockholders to be held at the Clarion
Hotel Villa located at 4331 Dominion Street, Burnaby, British Columbia, Canada,
on May 27, 1998 at 3:00 p.m. local time, and at any adjournment thereof, and
instructs said proxies to vote as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS.
1. TO ELECT DIRECTORS OF THE COMPANY TO SERVE FOR THE ENSUING YEAR
AND UNTIL THE NEXT ANNUAL MEETING OR THE ELECTION OF THEIR
SUCCESSORS.
Nominees: James V. Diller, Robert L. Bailey, Frank Marshall,
Alexandre Balkanski, Colin Beaumont
|_| FOR |_| WITHHELD
|_| __________________________________________
If you wish to withhold authority to vote for any individual
nominee, write the name of the nominee on the line above
2. TO APPROVE AN AMENDMENT TO THE COMPANY'S 1994 INCENTIVE STOCK
PLAN ("STOCK PLAN") TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE BY 1,100,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S 1991 EMPLOYEE STOCK
PURCHASE PLAN ("ESPP") TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE BY 250,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
4. TO APPROVE AN ANNUAL INCREASE TO THE STOCK PLAN (BEGINNING
1/1/99) BY THE LESSER OF 4% OF THE OUTSTANDING SHARES, 2,000,000
SHARES OR AS DETERMINED BY THE BOARD.
|_| FOR |_| AGAINST |_| ABSTAIN
5. TO APPROVE AN ANNUAL INCREASE TO THE ESPP (BEGINNING 1/1/99) BY
THE LESSER OF 1% OF THE OUTSTANDING SHARES, 500,000 SHARES OR AS
DETERMINED BY THE BOARD.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
6. TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK BY 50,000,000 SHARES TO A TOTAL OF 100,000,000
SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
7. TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE 1998 FISCAL YEAR.
|_| FOR |_| AGAINST |_| ABSTAIN
8. TO TRANSACT SUCH OTHER BUSINESS, IN THEIR DISCRETION, AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
|_| FOR |_| AGAINST |_| ABSTAIN
Dated: ____________________, 1998
___________________________________________
Signature
___________________________________________
Signature
(Note: This Proxy should be marked, dated
and signed by the stockholder exactly as
his/her name is printed at the left and
returned promptly in the enclosed envelope.
A person signing as an executor,
administrator, trustee or guardian should
so indicate and specify his/her title. 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. If
shares are held by joint tenants or a
community property, all joint owners should
sign)
<PAGE>
APPENDIX 2
1994 INCENTIVE STOCK PLAN
PMC-SIERRA, INC.
1994 INCENTIVE STOCK PLAN
(as amended through April 20, 1998)
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan. The Plan also provides for
automatic grants of Nonstatutory Stock Options to Outside Directors.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with
Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating
to the administration of stock option plans under state
corporate and securities laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means PMC-Sierra, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor,
Sales Representative or Distributor engaged by the Company or a Parent or
Subsidiary to render services and who is compensated for such services, provided
that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
<PAGE>
(i) "Continuous Status as an Employee, Consultant or Outside
Director" means that the employment, consulting or director relationship with
the Company or any Parent or Subsidiary is not interrupted or terminated.
Continuous Status as an Employee, Consultant or Outside Director shall not be
considered interrupted in the case of: (i) any leave of absence approved by the
Company, including sick leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive Stock Options, no such leave
may exceed ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract (including certain Company policies) or statute;
provided, further, that on the ninety-first (91st) day of any such leave (where
reemployment is not guaranteed by contract or statute) the Optionee's Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option; or (ii) transfers
between locations of the Company or between the Company, its Parent, its
Subsidiaries or its successor.
(j) "Director" means a member of the Board or a member of
the board of directors of any Parent or Subsidiary of Company.
(k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "Distributor" means any person, whether an individual or
an entity, serving as a distributor for the Company or any Subsidiary who
(whether as an individual or an entity or through the individual fulfilling the
duties of the chief executive officer of the entity) (i) has five years
experience as a distributor, (ii) is experienced in representing semiconductor
manufacturers and (iii) sold at least $3,000,000 of the products it distributes
during the fiscal year immediately prior to the year in which stock is being
purchased under the Plan (or $3,000,000 during the current fiscal year to date).
(m) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a
Share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or exchange (or
the exchange with the greatest volume of trading in Common Stock) on the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
<PAGE>
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(q) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(s) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(v) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(w) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(x) "Optionee" means an Employee, Consultant or Outside
Director who holds an outstanding Option or Stock Purchase Right.
(y) "Outside Director" shall mean a Director who is not an
Employee of the Company.
<PAGE>
(z) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1994 Incentive Stock Plan.
(bb) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(cc) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "Sales Representative" means any person, whether an
individual or an entity, serving as a sales representative for the Company or
any Subsidiary who (whether as an individual or an entity or through the
individual fulfilling the duties of the chief executive officer of the entity)
(i) has five years experience as a sales representative, (ii) is experienced in
representing semiconductor manufacturers and (iii) sold at least $3,000,000 of
the products of the manufacturers it represents during the fiscal year
immediately prior to the year in which stock is being purchased under the Plan
(or $3,000,000 during the current fiscal year to date).
(ff) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 13 of the Plan.
(gg) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.
(hh) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 5,200,000 Shares plus an annual increase to
be added on January 1 of each year, beginning on January 1, 1999, equal to the
lesser of (i) 4% of the outstanding shares on such date, (ii) 2,000,000 shares,
or (iii) an amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock. However, should the Company reacquire
Shares which were issued pursuant to the exercise of an Option or Stock Purchase
Right, such Shares shall not become available for future grant under the Plan.
<PAGE>
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, and the original purchaser of such
Shares did not receive any benefits of ownership of such Shares, such Shares
shall become available for future grant under the Plan. For purposes of the
preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of
Directors, Officers and Employees.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
<PAGE>
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;
<PAGE>
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan);
(xi) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
<PAGE>
(xiii) to determine the terms and restrictions
applicable to Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility.
- -
(a) Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. Options may also be granted to Outside Directors but
only in accordance with the provisions of Section 5(b) hereof. Subject to
Section 5(b) with respect to Outside Directors, if otherwise eligible, an
Optionee who has been granted an Option or Stock Purchase Right may be granted
additional Options or Stock Purchase Rights.
(b) The provisions set forth in this Section 5(b) shall not
be amended more than once every six months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder. All grants of Options to Outside Directors under this Plan
shall be automatic and non-discretionary and shall be made strictly in
accordance with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors or shall be granted Options or to determine the number
of shares to be covered by Options granted to Outside Directors; provided,
however, that nothing in this Plan shall be construed to prevent an Outside
Director from declining to receive an Option under this Plan.
(ii) Options shall be granted to Outside Directors of
the Company as follows:
(A) A person who is first elected an Outside
Director of the Company after the date that this Plan is approved by the
stockholders of the Company shall upon election automatically receive an Option
to purchase 20,000 Shares.
(B) After the date that the Plan is approved
by the stockholders of the Company, (i) each Outside Director of the Company who
first served as an Outside Director prior to September 1, 1995 shall
automatically be granted an Option to purchase 5,000 shares on June 1, of each
year during the term of the Plan, provided such person continues to serve as an
Outside Director on such dates; (ii) each Outside Director of the Company who
first served as an Outside Director prior to September 1, 1995 shall
automatically be granted an Option to purchase 5,000 shares on September 6,
1995, provided such person is serving as an Outside Director on such date; and
(iii) each Outside Director of the Company who first served as an Outside
Director after September 1, 1995 shall automatically be granted an Option to
purchase 5,000 shares on each anniversary during the term of the Plan on the
date of such person's election to the Board, provided such person continues to
serve as an Outside Director on such dates.
<PAGE>
(iii) The terms of an Option granted pursuant to this
Section 5(e) shall be as follows:
(A) the term of the Option shall be ten (10)
years;
(B) except as provided in Section 10 of this
Plan, the Option shall be exercisable only while the Outside Director remains a
director;
(C) the exercise price per share of Common
Stock shall be 100% of the fair market value on the date of grant of the Option,
as determined in accordance with Section 9 of the Plan;
(D) the Option shall become exercisable in
installments cumulatively with respect to one-fourth (1/4) of the Optioned Stock
one year after the date of grant and as to an additional one forty-eighth
(1/48th) of the Optioned Stock on the last day of each calendar month
thereafter; provided, however, that in no event shall any Option be exercisable
prior to obtaining stockholder approval of the Plan, nor shall any Option
granted or amended on or after the date of a material amendment to the Plan
(such as would require stockholder approval under Rule 16b-3) be exercisable
prior to obtaining stockholder approval of such amendment.
6. Limitations.
(a) Each Option shall be designated in the Notice of Grant
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's incentive stock options granted by the
Company, any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
<PAGE>
(c) The following limitations shall apply to grants of
Options and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year
of the Company, Options and Stock Purchase Rights to purchase more than 800,000
Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13(a).
(iii) If an Option or Stock Purchase Right is canceled
(other than in connection with a transaction described in Section 13), the
canceled Option or Stock Purchase Right will be counted against the limit set
forth in Section 6(c)(i). For this purpose, if the exercise price of an Option
or Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan
shall become effective upon the earlier to occur of its adoption by the Board or
its approval by the stockholders of the Company as described in Section 19 of
the Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Notice of
Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) ranted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
<PAGE>
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised. In so doing, the Administrator may
specify that an Option may not be exercised until the completion of a service
period.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.
<PAGE>
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment, Consulting or Outside
Director Relationship. Upon termination of an Optionee's Continuous Status as an
Employee, Consultant or Outside Director (but not in the event of a change of
status from Employee to Consultant or Outside Director (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant or Outside Director to Employee), other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option, but only
within such period of time as is specified in the Notice of Grant, and only to
the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the absence of a specified time
in the Notice of Grant, the Option shall remain exercisable for 90 days
following the Optionee's termination of Continuous Status as an Employee or
Consultant. In the case of an Incentive Stock Option, such period of time shall
not exceed ninety (90) days from the date of termination. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
<PAGE>
(c) Disability of Optionee. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer, which shall in no event
exceed six (6) months from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
<PAGE>
(c) Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock Purchase Agreements
need not be the same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right
is exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An
Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution,
Merger, Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
<PAGE>
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an Option
or Stock Purchase Right has not been previously exercised, it will terminate
immediately prior to the consummation of such proposed action. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
or Stock Purchase Right shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock, including Shares as to which the
Option or Stock Purchase Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
The Administrator may, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option or Stock Purchase Right as
to all or a portion of the Optioned Stock, including Shares as to which it would
not otherwise be exercisable. If the Administrator makes an Option or Stock
Purchase Right exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right will terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock
Purchase Right shall be, for all purposes, the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other later date as is determined by the Administrator. Notice of the
determination shall be provided to each Optionee within a reasonable time after
the date of such grant.
<PAGE>
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain
stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, Applicable Laws, and the requirements of any
stock exchange or quotation system upon which the Shares may then be listed or
quoted, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) Investment Representations. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
<PAGE>
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option or Stock Purchase Right exceeds, as of the date of grant,
the number of Shares which may be issued under the Plan without additional
stockholder approval, such Option or Stock Purchase Right shall be void with
respect to such excess Optioned Stock, unless stockholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the manner and to the degree required under applicable federal and
state law.
<PAGE>
APPENDIX 3
1991 EMPLOYEE STOCK PURCHASE PLAN
PMC-SIERRA, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
(as amended through April 20, 1998)
The following constitute the provisions of the 1991 Employee Stock
Purchase Plan of PMC-Sierra, Inc..
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean PMC-Sierra, Inc., a Delaware
corporation.
(e) "Compensation" shall mean all base straight time gross
earnings plus payments for overtime, shift premiums and commissions, but
excluding incentive compensation, incentive payments, bonuses, awards, and other
compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is a regular
employee of the Company for purposes of tax withholding under the Code. For
purposes of the Plan, the employment relationship shall be treated as continuing
intact while the individual is on sick leave or other leave of absence approved
by the Company. Where the period of leave exceeds 90 days and the individual's
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the 91st day of
such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each
Purchase Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the
value of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such exchange (or the exchange with the greatest volume
of trading in Common Stock) or system on the last market trading day prior to
the day of such determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ
system (but not on the National Market System thereof) or is regularly quoted by
a recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high and low asked prices for the
Common Stock on the last market trading day prior to the day of such
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Period" shall mean the period of
approximately twenty-four (24) months during which an option granted pursuant to
the Plan may be exercised, except that the first Offering Period shall be an
extended Offering Period of approximately twenty-six months and one week,
commencing on about April 24, 1991 and terminating on the last Trading Day of
June, 1993.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six
month period commencing after one Exercise Date and ending with the next
Exercise Date, except that the first Purchase Period of any Offering Period
shall commence on the Enrollment Date and end with the next Exercise Date;
provided, however, that the first Purchase Period of the first Offering Period
under the Plan shall be approximately eight months and one week in duration.
(o) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
<PAGE>
(q) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
(a) Any Employee, as defined in paragraph 2, who has been
continuously employed by the Company for at least three (3) consecutive months
and who shall be employed by the Company on a given Enrollment Date shall be
eligible to participate in the Plan; provided, however, that with respect to the
first Offering Period under the Plan, any Employee employed by the Company on
the Enrollment Date thereof shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits his or her rights to purchase stock under all employee stock
purchase plans of the Company and its subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the
fair market value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods, with the first Offering Period beginning April 24, 1991 and
continuing unless terminated in accordance with the Plan. The Board shall have
the power to change the duration of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected. Absent action by the Board, each Offering Period shall be for a
period of approximately twenty-four months (24) and new Offering Periods shall
commence on the first Trading Day of January and July of each year; except that
the first Offering Period under the Plan shall be approximately twenty-six (26)
months and one (1) week in duration and shall commence on April 24, 1991.
5. Participation.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office at least ten (10) business days prior to the applicable Enrollment Date,
unless a later time for filing the subscription agreement is set by the Board
for all eligible Employees with respect to a given Offering Period.
<PAGE>
(b) Payroll deductions for a participant shall commence on
the first payroll period following the Enrollment Date and shall end on the last
payroll period in the Offering Period, unless sooner terminated by the
participant as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed ten percent (10%) of the participant's Compensation during said
Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation
in the Plan as provided in paragraph 10, or may decrease the rate of his or her
payroll deductions during the current Purchase Period by filing with the Company
a new subscription agreement authorizing a decrease in payroll deduction rate.
The decrease in rate shall be effective with the first full payroll period
following ten (10) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A participant may increase the rate of his or her
payroll deductions for an upcoming Purchase Period by filing with the Company a
new subscription agreement authorizing an increase in payroll deduction rate
within ten (10) business days of the commencement of the upcoming Purchase
Period. A participant's subscription agreement shall remain in effect for
successive Purchase Periods and Offering Periods unless terminated as provided
in paragraph 10. The Board shall be authorized to limit the number of
participation rate changes during any Offering Period.
(d) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in paragraph 10.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefit attributable to sale or
early disposition of Common Stock by the Employee.
<PAGE>
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Purchase
Period more than a number of shares determined by dividing $12,500 by the fair
market value of a share of the Company's Common Stock on the Enrollment Date,
and provided further that such purchase shall be subject to the limitations set
forth in Section 3(b) and 12 hereof. Exercise of the option shall occur as
provided in Section 8, unless the participant has withdrawn pursuant to Section
10, and the option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in paragraph 10 below, his or her option for the purchase of
shares will be exercised automatically on each Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period, subject to earlier withdrawal by the participant as provided in
paragraph 10. Any other monies left over in a participant's account after the
Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement.
<PAGE>
(b) Upon a participant's ceasing to be an Employee for any
reason or upon termination of a participant's employment relationship (as
described in Section 2(g)), the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under paragraph 14, and such
participant's option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be 1,310,000
shares, plus an annual increase to be added on January 1 of each year, beginning
on January 1, 1999, equal to the lesser of (i) 1% of the outstanding shares on
such date, (ii) 500,000 shares, or (iii) an amount determined by the Board,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. During any Purchase Period under the Plan, the maximum number
of shares of the Company's Common Stock which shall be made available for sale
under the Plan during such Purchase Period shall be 120,000 shares, which number
of shares shall apply as a cumulative limit to the number of shares which shall
be made available for sale under all Purchase Periods occurring simultaneously
under separate Offering Periods under the Plan, subject to adjustment upon
changes in capitalization as provided in paragraph 18. If on a given Exercise
Date the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company shall
make a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant will have no interest or voting right
in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by
the Board of the Company or a committee of members of the Board appointed by the
Board. The Board or its committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
<PAGE>
(1) Members of the Board who are eligible to
participate in the Plan may not vote on any matter affecting the administration
of the Plan or the grant of any option pursuant to the Plan.
(2) If a Committee is established to administer the
Plan, no member of the Board who is eligible to participate in the Plan may be a
member of the Committee.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions
of Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under The Securities Exchange Act of 1934, as amended, or any successor
provision ("Rule 16b-3") provides specific requirements for the administrators
of plans of this type, the Plan shall be only administered by such a body and in
such a manner as shall comply with the applicable requirements of Rule 16b-3.
Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the
Plan shall be afforded to any committee or person that is not "disinterested" as
that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with paragraph 10.
<PAGE>
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the Reserves as well as the price per
share of Common Stock covered by each option under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option. The Board may, if it so determines in the exercise of its
sole discretion, make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Periods will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Offering Periods then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) days prior to the New Exercise Date, that the
Exercise Date for his option has been changed to the New Exercise Date and that
his option will be exercised automatically on the New Exercise Date, unless
prior to such date he has withdrawn from the Offering Period as provided in
<PAGE>
paragraph 10. For purposes of this paragraph, an option granted under the Plan
shall be deemed to be assumed if, following the sale of assets or merger, the
option confers the right to purchase, for each share of option stock subject to
the option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each share of Common Stock held
on the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in Section
424(e) of the Code), the Board may, with the consent of the successor
corporation and the participant, provide for the consideration to be received
upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the sale of assets or
merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in paragraph
18, no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in paragraph
18, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Purchase
Periods and/or Offering Periods, limit the frequency and/or number of changes in
the amount withheld during Purchase Periods and/or Offering Periods, establish
the exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
<PAGE>
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of twenty
(20) years unless sooner terminated under paragraph 19.
23. Additional Restrictions of Rule 16b-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their options on
such Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
<PAGE>
EXHIBIT A
PMC-SIERRA, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________ hereby elects to participate in the
PMC-Sierra, Inc. 1991 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 10%) during
the Offering Period in accordance with the Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete "PMC-Sierra, Inc. 1991 Employee
Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of
the Plan. I understand that the grant of the option by the Company
under this Subscription Agreement is subject to obtaining stockholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (employee and/or spouse only): ____________
_______________________________________________________
6.
I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year
after the Exercise Date (the date I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
delivered to me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30 days after the date of
any disposition of my shares and I will make adequate provision for
Federal, State or other tax withholding obligations, if any, which
arise upon the disposition of the Common Stock. The Company may, but
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 1-year and 2-year holding periods described above, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value
of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the
shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) __________________________________________________________
(First) (Middle) (Last)
___________________________________ ______________________________________
Relationship
______________________________________
(Address)
NAME: (Please print) __________________________________________________________
(First) (Middle) (Last)
<PAGE>
___________________________________ ______________________________________
Relationship
______________________________________
(Address)
Employee's Social
Security Number: ______________________________________
Employee's Address: ______________________________________
______________________________________
______________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_____________________________ ______________________________________
Signature of Employee
______________________________________
Spouse's Signature (If beneficiary
other than spouse)
<PAGE>
EXHIBIT B
PMC-SIERRA, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the PMC-Sierra,
Inc. 1991 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant
________________________________
________________________________
________________________________
Signature
________________________________
Date: __________________________
