<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
DSP TECHNOLOGY INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DSP TECHNOLOGY INC.
48500 KATO ROAD
FREMONT, CALIFORNIA 94538-7338
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[DSP LOGO]
48500 KATO ROAD
FREMONT, CALIFORNIA 94538-7338
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 20, 1997
Dear shareholder:
You are invited to attend the Annual Meeting of the Shareholders of DSP
Technology Inc. (the "Company"), which will be held on June 20, 1997, at 10:00
a.m. Pacific Daylight Time at the Company's principal executive offices located
at 48500 Kato Road, Fremont, California 94538, for the following purposes:
1. To elect four (4) directors to hold office until their successors are
elected and qualified.
2. To approve an increase in the number of shares of the Company's Common
Stock reserved for issuance under its 1991 Stock Option Plan by 100,000
shares.
3. To approve the reincorporation of the Company in the State of Delaware and
other related changes to the rights of shareholders.
4. Subject to the approval of Proposal Three, to approve certain additional
anti-takeover measures under the Company's Delaware Certificate of
Incorporation (as defined below) and Delaware By-Laws (as defined below) as
follows:
A. To approve the elimination of cumulative voting for the election of
directors.
B. To approve a classified board of directors removable only for
cause.
C. To approve the elimination of action by written consent.
D. To approve certain limitations on the ability to call special
meetings.
E. To approve super-majority vote requirements for certain amendments to
the Delaware Certificate and the Delaware By-Laws.
5. To ratify the appointment of the accounting firm of Grant Thornton as the
independent accountants of the Company for the fiscal year ending February
1, 1998.
6. To transact any other business that may properly come before the meeting or
any adjournments thereof.
<PAGE>
Shareholders of record at the close of business on April 25, 1997 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
By Order of the Board of Directors,
/s/ JOSE M. MILLARES, JR.
JOSE M. MILLARES, JR.
Secretary
Fremont, California
May 5, 1997
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YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE RETURN ENVELOPE TO
ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
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<PAGE>
DSP TECHNOLOGY INC.
48500 KATO ROAD
FREMONT, CALIFORNIA 94538-7338
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors of DSP
Technology Inc., a California corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on June 20, 1997, or any adjournment thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting. The
date of this Proxy Statement is May 5, 1997, the approximate date on which this
Proxy Statement and the accompanying form of proxy were first sent or given to
shareholders.
GENERAL INFORMATION
ANNUAL REPORT.
An annual report for the fiscal year ended January 31, 1997 is enclosed
with this Proxy Statement.
VOTING SECURITIES.
Only shareholders of record as of the close of business on April 25, 1997,
will be entitled to vote at the meeting and any adjournment thereof. As of that
date, there were 2,180,962 shares of Common Stock of the Company issued and
outstanding. Shareholders may vote in person or by proxy. Each holder of
shares of Common Stock is entitled to one (1) vote for each share of stock held
on the proposals presented in this Proxy Statement. The Company's By-Laws
provide that a majority of all of the shares of the stock entitled to vote,
whether present in person or represented by proxy, shall constitute a quorum for
the transaction of business at the meeting. Shareholders have cumulative voting
rights in the election of directors. Under the cumulative voting method, a
shareholder may multiply the number of shares owned by the number of directors
to be elected and cast this total number of votes for any one candidate or
distribute the total number of votes in any proportion among as many candidates
as the shareholder desires. A shareholder may not cumulate his or her votes for
a candidate unless such candidate's name has been placed in nomination prior to
the voting and unless a shareholder has given notice at the meeting, prior to
the voting, of his or her intention to cumulate his or her votes. If any
shareholder gives such notice, all shareholders may then cumulate their votes.
Management is hereby soliciting discretionary authority to cumulate votes
represented by proxies if cumulative voting is invoked.
SOLICITATION OF PROXIES.
The cost of soliciting proxies will be borne by the Company. The Company
has retained MacKenzie Partners, Inc. to assist in solicitation of proxies for a
fee not to exceed $7,500, plus customary out-of-pocket expenses. In addition,
the Company will solicit shareholders by mail through its regular employees, and
will request banks and brokers, and other custodians, nominees and fiduciaries,
to solicit their customers who have stock of the Company registered in the names
of such persons and will reimburse them for their reasonable, out-of-pocket
costs. The Company may use the services of its officers, directors, and others
to solicit proxies, personally or by telephone, without additional compensation.
VOTING OF PROXIES.
All valid proxies received prior to the meeting will be voted. All shares
represented by a proxy will be voted, and where a shareholder specifies by means
of the proxy a choice with respect to any matter to be acted upon, the shares
will be voted in accordance with the specification so made. If no choice is
indicated on the proxy, the shares will be voted in favor of the proposal. A
shareholder giving a proxy has the power to revoke his or her proxy, at any time
prior to the time it is voted, by delivery to the Secretary of the Company of a
written instrument revoking the proxy or a duly executed proxy with a later
date, or by attending the meeting and voting in person.
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of February 28, 1997,
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director and director-
nominee of the Company, (iii) the Chief Executive Officer and the two other
executive officers of the Company as of January 31, 1997 whose salary and bonus
for the year ended January 31, 1997 exceeded $100,000, and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OWNED (2)
----------------
BENEFICIAL OWNERS (1)
---------------------
NUMBER OF PERCENTAGE
SHARES OF CLASS
------ --------
<S> <C> <C>
FMR Corp................................ 160,800(3) 7.38%
82 Devonshire Street
Boston, MA 02109
Howard O. Painter, Jr................... 73,000(4) 3.32%
F. Gil Troutman, Jr..................... 115,000(5) 5.16%
J. Scott Kamsler........................ 75,200(6) 3.42%
Michael Ford............................ 16,000(7) *
Alan S. Broad........................... 89,536(8) 4.06%
Jose M. Millares, Jr.................... 43,000(9) 1.95%
Executive officers and directors as a
group (6 persons)...................... 411,736(10) 17.62%
</TABLE>
____________
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
the Company, 48500 Kato Road, Fremont, California 94538-7338.
(2) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(3) According to a Schedule 13G/A filed with the Securities and Exchange
Commission February 11, 1997, all of the shares are beneficially owned by
FMR Corp. through its wholly-owned subsidiary, Fidelity Management &
Research Company ("Fidelity"), which is deemed to beneficially own such
shares as a result of acting as an investment advisor to various investment
companies registered under Section 8 of the Investment Company Act of 1940
(the "Funds"). The ownership of one investment company, Fidelity Low-Priced
Stock Fund, amounts to 160,800 shares of the Company's Common Stock. Edward
C. Johnson 3d, FMR Corp., through its control of Fidelity, and the Funds
each has the sole power to dispose of the 160,800 shares owned by the
Funds. Neither FMR Corp. nor Edward C. Johnson 3d has the sole power to
vote or direct the voting of the shares owned directly by the Funds, which
power resides with the Funds' Board of Trustees. Fidelity carries out the
voting of the shares under written guidelines established by the Funds'
Board of Trustees. Members of the Mr. Edward C. Johnson 3d family, through
their ownership of voting common stock of FMR Corp. and their execution of
a shareholder's voting agreement, may be deemed, under the Investment
Company Act of 1940, to form a controlling group with respect to
2
<PAGE>
FMR Corp., and may therefore be deemed to beneficially own the shares of
the Company's stock beneficially owned by FMR Corp.
(4) Includes 18,000 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(5) Includes 50,000 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(6) Includes 18,000 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(7) Includes 16,000 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(8) Includes 27,500 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(9) Includes 27,500 shares subject to stock options exercisable within 60 days
of February 28, 1997.
(10) Includes 157,000 shares subject to stock options exercisable within 60 days
of February 28, 1997.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next annual
meeting of shareholders and thereafter until their successors are elected and
are qualified. The By-Laws of the Company authorize a flexible number of
directors ranging from three to five, currently fixed at four.
If the reincorporation of the Company in Delaware is approved, effective
upon the date when the Agreement and Plan of Merger between the Company and the
Delaware Company is made effective in accordance with applicable law (the
"Reincorporation Effective Date"), the nominees named below will serve as the
directors of the Delaware Company. Assuming the approval of the reincorporation
of the Company in Delaware and the Classified Board Provisions (as defined and
discussed in Proposal Four B, below), F. Gil Troutman, Jr. will serve as a Class
I director, with a term expiring at the Annual Meeting of Shareholders to be
held in 1998, Howard O. Painter, Jr. and J. Scott Kamsler will serve as Class II
directors, with terms expiring at the Annual Meeting of Shareholders to be held
in 1999, and Michael A. Ford will serve as Class III director, with a term
expiring at the Annual Meeting of Shareholders to be held in 2000. Thereafter,
each class of directors shall be elected for a term of office to expire at the
third succeeding Annual Meeting of Shareholders after their election. See
Proposal Three, "REINCORPORATION IN THE STATE OF DELAWARE AND RELATED CHANGES TO
THE RIGHTS OF SHAREHOLDERS," and Proposal Four, "ADDITIONAL ANTI-TAKEOVER
MEASURES," including Proposal Four B, "CLASSIFIED BOARD OF DIRECTORS REMOVABLE
ONLY FOR CAUSE." Votes in favor of the Reincorporation and the Classified Board
Provisions will together constitute approval of the terms of office of such
directors upon the Reincorporation. Should the proposals for reincorporation or
the Classified Board Provisions not be approved, each of the nominees will serve
as a director until the next Annual Meeting of Shareholders or until his
successor is elected and qualified.
Unless otherwise directed by shareholders, the proxyholders will vote all
shares represented by proxies held by them for the election of the following
nominees, all of whom are now members of and constitute the Company's Board of
Directors. The Company is advised that all of the nominees have indicated their
availability and willingness to serve if elected. In the event that any nominee
becomes unavailable or unable to serve as a director of the Company prior to the
voting, the proxyholders will refrain from voting for the unavailable nominee
and will vote for a substitute nominee in the exercise of their best judgment.
If a quorum is present and voting, the four nominees for director receiving the
highest number of votes will be elected directors. Absentees and shares held by
brokers that are present, but not voted because the brokers were prohibited from
exercising discretionary authority, i.e., "broker non-votes," will be counted as
present for purposes of determining if a quorum is present.
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ---- --- ------------------------- --------
<S> <C> <C> <C>
F. Gil Troutman, Jr. 53 Director, Chief Executive Officer 1988
and President
Howard O. Painter, Jr. 61 Chairman of the Board 1987
J. Scott Kamsler 49 Director 1988
Michael A. Ford 58 Director and Product Line Manager 1988
</TABLE>
F. Gil Troutman, Jr. has served as Chief Executive Officer since October
1989 and as a Director and President since July 1988. From 1985 until July
1988, Mr. Troutman held the position of Product Line Manager of the Test Systems
and Instruments Group of GenRad, Inc. Prior to this, he held various other
management positions with GenRad, Inc. since 1967, including the position of
National Sales Manager of all GenRad products from 1982 to 1985.
Howard O. Painter, Jr. has served as Chairman of the Board since March
1988, and as a Director since June 1987. He also served as the Company's Chief
Executive Officer from March 1988 until October 1989 and as President from March
1988 until July 1988. Since 1985, Mr. Painter has been an independent business
development and marketing consultant. From April 1992 to January 1994, he also
served as the President of Adtron Instruments, a manufacturer of electronic
instruments. From 1980 to 1985, he held the position of Vice President and
General Manager of the Service Products Division of GenRad, Inc., a test
equipment manufacturer. Prior to this, he held various other management
positions with GenRad, Inc. since 1971.
J. Scott Kamsler is a founder of the Company and has served as a Director
since November 1988. He served as the Company's Vice President of Finance,
Chief Financial Officer and Secretary from April 1984 until September 1989.
From January 1984 until September 1989, he was also the Vice President, Finance
and Chief Financial Officer of Solitec, Inc. Since October 1989, Mr. Kamsler
has also served as Vice President, Finance and Chief Financial Officer of
Symmetricom, Inc., formerly Silicon General Inc.
Michael A. Ford has served as a Director of the Company since October 1988
and has served as Product Line Manager for the Company's SigLab Group on a part-
time, interim basis since July 1994. In addition, Mr. Ford has been an
independent management and marketing consultant since March 1994. Mr. Ford
served as President of On-Line Environment Corporation, a company providing
environmental monitoring equipment and services to large computer installations
from October 1989 to March 1994. Prior to this, Mr. Ford was the President of
Western Management Partners, a business development and marketing consulting
company from 1986 to 1989.
BOARD MEETINGS.
During the fiscal year ended January 31, 1997, the Board held seven (7)
meetings. No director serving on the Board during the fiscal year ended January
31, 1997 attended fewer than 75% of such meetings of the Board and the
Committees on which he serves.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services and related fees performed by the independent accountants,
recommend the retention of the independent accountants to the Board, subject to
ratification by the shareholders, and periodically review the Company's
accounting policies and internal accounting and financial controls. The members
of the Audit Committee during the
4
<PAGE>
fiscal year ended January 31, 1997 were J. Scott Kamsler, Michael A. Ford and
Howard O. Painter, Jr. During the fiscal year ended January 31, 1997, the Audit
Committee held one (1) meeting.
The Compensation Committee's function is to review and approve salary and
bonus levels and stock option grants. The members of the Compensation Committee
during the fiscal year ended January 31, 1997 were Michael A. Ford and J. Scott
Kamsler. During the fiscal year ended January 31, 1997, the Compensation
Committee held six (6) meetings.
COMPENSATION OF DIRECTORS.
The Company pays a monthly fee of $2,725 to its Chairman of the Board and
$1,500 to the other non-employee directors. The Company also reimburses these
directors for expenses incurred in attending each Board and committee meeting.
The Company's 1991 Outside Directors Stock Option Plan (the "Directors Plan")
provides for the initial automatic grant of an option to purchase 6,000 shares
of the Company's Common Stock to directors of the Company who are not employees
of the Company or any parent or subsidiary corporation (an "Outside Director")
upon initial appointment or election to the Board of Directors, and subsequent
grants to each Outside Director of an option to purchase 3,000 shares of Common
Stock on each anniversary of the date of his or her initial grant. A total of
75,000 shares of the authorized but unissued Common Stock of the Company are
reserved for issuance under the Directors Plan. Messrs. Painter and Kamsler
were each granted options to purchase 3,000 shares of Common Stock under the
Directors Plan during the fiscal year ended January 31, 1997, while Mr. Ford was
granted options to purchase 3,000 shares of Common Stock under a separate
standalone agreement during the fiscal year ended January 31, 1997.
In March, 1993, the Company entered into a consulting agreement with
Michael A. Ford whereby the Company paid a fee of $2,000 per month for marketing
research services. This agreement was terminated by the Company in July 1994.
Since July 1, 1994, Mr. Ford has served as Product Line Manager on a part-time,
interim basis for the Company's SigLab Group at a $6,000 monthly salary.
The following table provides the specified information concerning all
compensation paid to persons who were directors of the Company during the fiscal
year ended January 31, 1997 who are not named in the Summary Compensation Table.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
CASH COMPENSATION SECURITY GRANTS
----------------- ---------------
NUMBER OF
SECURITIES UNDERLYING
NAME ANNUAL OPTIONS (#)
---- ------ -----------
RETAINER FEES
-------------
<S> <C> <C>
Howard O. Painter, Jr. $32,700 3,000
J. Scott Kamsler $18,000 3,000
Michael A. Ford $18,000 3,000
</TABLE>
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and the two other executive officers
of the Company as of January 31, 1997 whose total salary and bonus for the
fiscal year ended January 31, 1997 exceeded $100,000, for services in all
capacities to the Company, during the fiscal years ended January 31, 1997, 1996
and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------- ---- ------- -------
<S> <C> <C> <C>
F. Gil Troutman, Jr. 1997 $175,448 $ 0
Director, Chief Executive Officer and 1996 $160,638 $40,000
President
1995 $151,081 $50,000
Alan S. Broad 1997 $138,812 $ 0
Senior Vice President 1996 $124,227 $22,350
1995 $116,231 $27,000
Jose M. Millares, Jr. 1997 $118,841 $ 0
Chief Financial Officer, Secretary and 1996 $106,470 $19,150
Vice President, Finance 1995 $ 97,243 $22,300
</TABLE>
STOCK OPTIONS GRANTED IN FISCAL 1997.
There were no grants of options to purchase the Company's Common Stock to
the persons named in the Summary Compensation Table during the fiscal year ended
January 31, 1997.
6
<PAGE>
OPTION EXERCISES AND FISCAL 1997 YEAR-END VALUES.
The following table provides specified information concerning unexercised
options held as of January 31, 1997 by the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES (1)
- ----------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE IN DOLLARS OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 1/31/97 1/31/97
------------------ -------
NAME EXERCISABLE/(2)/ UNEXERCISABLE EXERCISABLE/(3)/ UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
F. Gil Troutman, Jr. 50,000 0 $160,000 --
Alan S. Broad 27,500 0 $ 60,938 --
Jose M. Millares, Jr. 27,500 0 $ 77,188 --
- ----------------------------------------------------------------------------------------------------
</TABLE>
_________________________________
/(1)/ There were no exercises of options to purchase the Company's Common Stock
by the persons named in the Summary Compensation Table in the fiscal year
ended January 31, 1997.
/(2)/ Options granted during fiscal 1997 under the 1991 Stock Option Plan
generally vest in equal annual amounts over a three-year period; provided,
however, that no option may be exercised in whole or in part until six
months after the date of grant.
/(3)/ Based on the closing price of $5.75, as reported on the Nasdaq National
Market, on January 31, 1997, less the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
The Company's 1991 Stock Option Plan provides that in the event of a
"Transfer of Control" of the Company, the acquiring corporation will either
assume the Company's rights under outstanding options or issue substitute
options for the acquiring corporation's stock for such outstanding options. In
the event that the acquiring corporation elects not to assume or substitute for
outstanding options in connection with certain merger transactions, the Board of
Directors will provide that such outstanding options become immediately
exercisable and vested with respect to the full number of shares subject to such
options as of a date prior to the transfer of control. Options which are neither
assumed or substituted for by the acquiring corporation nor exercised as of the
consummation of the transfer of control will terminate.
CHANGES TO BENEFIT PLANS.
The Company has proposed the approval of an amendment to the Company's
Option Plan (as defined below) to increase the maximum aggregate number of
shares of the Company's Common Stock issuable under the plan by 100,000 shares
from 918,327 shares to 1,018,327 shares, as described below under the caption,
AMENDMENT OF THE 1991 STOCK OPTION PLAN." As of February 28, 1997, no grant of
options conditioned on shareholder approval of an increase in the share reserve
under the Option Plan had been made to any employee. Grants under the Option
Plan are made at the discretion of the Compensation Committee or the Board of
Directors. Accordingly, future grants under the Option Plan are not yet
determinable.
7
<PAGE>
PROPOSAL TWO
AMENDMENT OF THE 1991 STOCK OPTION PLAN
GENERAL.
The DSP Technology Inc. 1991 Stock Option Plan (the "Option Plan") was
adopted by the Board of Directors April 23, 1991, and adopted by the Company's
shareholders at the 1991 Annual Meeting of Shareholders held June 19, 1991.
Currently, a maximum of 918,327 shares of Common Stock may be issued under the
Option Plan. This number consists of 103,894 shares of Common Stock previously
reserved for issuance under the Company's 1985 Incentive Stock Option Plan and
1985 Nonstatutory Stock Option Plan (the "1985 Plans") which the Board of
Directors transferred to the Option Plan upon its adoption, 174,433 shares of
Common Stock which at the time of the adoption of the Option Plan were subject
to options previously granted under the 1985 Plans (the "1985 Plan Options"),
and an additional 640,000 shares of Common Stock reserved for issuance under the
Option Plan. However, the maximum number of shares that may be issued under the
Option Plan will be reduced by the number of shares subject to any 1985 Plan
Options that are exercised or remain outstanding. As of February 28, 1997, the
maximum number of shares issuable under the Option Plan is reduced by 174,443,
which is the sum of the 36,500 shares remaining subject to outstanding 1985 Plan
Options and 137,933 shares previously issued upon the exercise of the 1985 Plan
Options.
Options to purchase 85,500 shares of the Company's Common Stock were
granted under the Option Plan during the fiscal year ended January 31, 1997 at
exercise prices ranging from $4.625 to $5.875. No option grants were made to
the Company's executive officers during the fiscal year ended January 31, 1997.
Option grants under the Option Plan are made at the discretion of the
Compensation Committee or the Board of Directors. Accordingly, future grants
under the Option Plan are not yet determinable. As of February 28, 1997, a
total of 730,913 shares had been issued under the Option Plan or were subject to
options outstanding under the Option Plan, leaving 187,414 shares of Common
Stock available for future option grants under the Option Plan. Due to the
limited number of shares remaining, on February 28, 1997, the Board of Directors
amended the Option Plan, subject to shareholder approval, to increase the
aggregate maximum number of shares of the Company's Common Stock issuable under
the Option Plan by 100,000 shares from 918,327 shares to 1,018,327 shares. No
options have been granted under the Option Plan following the amendment.
The Board of Directors now seeks shareholder approval of the amendment to
the Option Plan authorizing the additional 100,000 shares for future stock
option awards. The Board of Directors believes that approval of the amendment
to the Option Plan to make available an adequate number of shares for the future
grant of stock options is in the best interests of the Company and its
shareholders because stock options serve to align the long-term interests of the
optionees and the shareholders and are an important factor in attracting,
motivating and retaining qualified personnel essential to the success of the
Company.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN AS AMENDED.
The following summary of the Option Plan as amended is qualified in its
entirety by the specific language of the Option Plan, a copy of which is
available to any shareholder upon request.
Shares Subject To Plan. The Option Plan provides for the grant of
incentive stock options within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options.
Currently, a maximum of 918,327 of the Company's common Stock may be issued upon
the exercise of options under the Option Plan. The Board has amended the option
Plan, subject to shareholder approval, to increase by 100,000 to 1,018,327 the
aggregate maximum number of shares that may be issued thereunder. As described
above, this number is reduced by the number of shares subject to any 1985 Plan
Options that are exercised or remain outstanding. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, reclassification
or reorganization, the Board may approve an appropriate and proportionate
adjustment in the number and kind of shares subject to the Option Plan and to
outstanding options and to the exercise price of outstanding options. To the
extent any outstanding option under the Option Plan expires or terminates prior
to
8
<PAGE>
exercise in full or if shares issued upon the exercise of an option are
repurchased by the Company, the shares for which the option has not been
exercised or the repurchased shares are returned to the option Plan and become
available for future grant.
Administration. The Option Plan is administered by the Board or a duly
appointed committee of the Board (together, the "Administrator"). Subject to
the provisions of the option Plan, the Administrator determines the persons to
whom options are to be granted, the number of shares to be covered by each
option, whether an option is to be an incentive stock option or a nonstatutory
stock option, the terms of vesting and exercisability of each option, the type
of consideration to be paid to the Company upon exercise of an option, the
duration of each option, and all other terms and conditions of the options. The
Administrator will interpret the Option Plan, and all determinations of
Administrator will be final and binding on all optionees.
Eligibility. All employees (including officers and directors who are also
employees) of the Company, any parent or subsidiary corporations of the Company,
or any other corporation within a controlled group of corporations within the
meaning of section 1563 of the Code which includes the Company may be granted
one or more options under the Option Plan. As of February 28, 1997,
approximately 132 employees, including three (3) executive officers, were
eligible to participate in the Option Plan.
Terms And Conditions Of Options. Each option is evidenced by a written
agreement between the Company and the optionee specifying the number of shares
subject to the option and the other terms and conditions of the option,
consistent with the requirements of the Option Plan. The exercise price per
share of an option must equal at least the fair market value of a share of the
Company's Common Stock on the date of grant. However, the exercise price per
share of any option granted to a person who at the time of grant owns stock
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Company or any parent or subsidiary corporation of the
Company must be at least 110% of the fair market value of a share of the
Company's Common Stock on the date of grant, and the term of any such option
cannot exceed five years. On February 28, 1997, the closing sale price of the
Company's Common Stock, as reported by the Nasdaq National Market, was $5.8125
per share.
Generally, options may be exercised by payment of the exercise price in
cash or in cash equivalent, or, if permitted by the Administrator, by tender of
shares of Common Stock owned by the optionee having a fair market value not less
than the option exercise price or by the assignment of the proceeds of a sale of
some or all of the shares of Common Stock being acquired upon the exercise of
the option.
Options become exercisable and vested at such times as specified by the
Administrator, provided that no option may be exercised in whole or in part
until six months after the date of grant. Generally, options become exercisable
in installments, subject to the optionee's continued employment. However, the
Administrator may accelerate the time at which an option or an installment
thereof may be exercised. The maximum term of options is ten years. Options
are nontransferable by the optionee other than by will or by the laws of descent
and distribution, and are exercisable during the optionee's lifetime only by the
optionee.
Under the Option Plan, if an optionee's employment is terminated for any
reason except death or disability, the optionee may generally exercise his or
her option (to the extent unexercised and exercisable on the date of
termination) within 90 days after the date of termination, but in any event not
later than the expiration of the option term; provided, however, that, at the
election of the Administrator, such 90-day period may be extended by up to one
year in the case of a nonstatutory stock option, but in no event later than the
expiration of the option term. If an optionee's employment terminates due to
death or disability, the optionee (or his or her legal representative) may
exercise the option (to the extent unexercised and exercisable on the date of
termination) within one year after the date of the optionee's death or the date
the optionee ceases to be an employee due to disability, as the case may be, but
in any event not later than the expiration of the option term.
Transfer Of Control. A "Transfer of Control" will be deemed to occur upon
any of the following events in which the shareholders of the Company do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company: (i) the direct or indirect sale or exchange
by the shareholders of the
9
<PAGE>
Company of all or substantially all of the stock of the Company, or (ii) a
merger in which the Company is the surviving corporation. A Transfer of Control
will also occur in the event of (i) a merger in which the Company is not the
surviving corporation, other than such transaction the principal purpose of
which is to change the state of the Company's incorporation, (ii) the sale,
exchange or transfer (other than to a subsidiary of the Company) of all or
substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company. If a Transfer of Control occurs, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "Acquiring Corporation"), may either assume outstanding
options or substitute options for the Acquiring Corporation's stock for the
outstanding options. However, if the Acquiring Corporation does not assume or
substitute for outstanding options in connection with a merger of the Company
constituting a Transfer of Control, the Administrator must provide that any
unexercisable and/or unvested portion of the outstanding options will be
immediately exercisable and vested as of a date at least 30 days prior to the
Transfer of Control. Any options which are neither assumed or substituted for by
the Acquiring Corporation nor exercised as of the date of the Transfer of
Control will terminate effective as of such date.
Termination Or Amendment. Unless sooner terminated, no options may be
granted under the Option Plan after April 22, 2001. The Administrator may
terminate or amend the Option Plan at any time, but, without shareholder
approval, the Administrator may not amend the Option Plan to increase the
aggregate maximum number of shares of Common Stock which may be issued
thereunder or change the class of persons eligible to receive options. No
termination or amendment of the Option Plan may adversely affect an outstanding
option without the consent of the optionee, unless the amendment is necessary to
comply with any applicable law or regulation.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN.
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation or tax consequences
based on particular circumstances.
Incentive Stock Options. An optionee recognizes no taxable Income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be
no ordinary income, and such loss will be a capital loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months.
Any ordinary income recognized by the optionee upon the disqualifying
disposition of the shares generally should be deductible by the Company for
federal income tax purposes, except to the extent such deduction is limited by
applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
10
<PAGE>
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally realizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below) and such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are subject to a substantial risk of forfeiture and are not
transferable, in which case the determination date is the earlier of (i) the
date on which the shares are transferable or (ii) the date on which the shares
are not subject to a substantial risk of forfeiture. If the determination date
is after the exercise date, the optionee may elect, pursuant to Section 83(b) of
the Code, to have the exercise date be the determination date by filing an
election with the Internal Revenue service not later than 30 days after the date
the option is exercised. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between the
sale price and the fair market value an the date of recognition of Income, will
be taxed as capital gain or loss. A capital gain or loss will be long-term if
the optionees holding period is more than 12 months. No tax deduction is
available to the Company with respect to the grant of a nonstatutory option or
the sale of the stock acquired pursuant to such grant. The Company generally
should be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of a nonstatutory option,
except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the votes present and entitled to
vote at the Annual Meeting of Shareholders, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
voting, either in person or by proxy, is required for approval of this proposal.
Abstentions and broker non-votes each will be counted as present for purposes of
determining the presence of a quorum, but will have no effect on the outcome of
the vote on this proposal.
The Board of Directors believes that the proposed amendment to increase the
share reserve of the 1991 Stock Option Plan is in the best interests of the
shareholders and the Company for the reasons stated above. THEREFORE, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL TO
INCREASE THE AGGREGATE MAXIMUM NUMBER OF SHARES ISSUABLE UNDER THE DSP
TECHNOLOGY, INC. 1991 STOCK OPTION PLAN BY 100,000 SHARES.
11
<PAGE>
PROPOSAL THREE
REINCORPORATION IN THE STATE OF DELAWARE AND
RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL.
The Company's Board of Directors (the "Board of Directors" or the "Board")
has unanimously approved a proposal to change the Company's state of
incorporation from California to Delaware. The Board of Directors believes the
change in domicile to be in the best interests of the Company and its
shareholders for several reasons. Principally, the Board of Directors believes
that reincorporation will enhance the Company's ability to attract and retain
qualified members of the Company's Board of Directors as well as encourage
directors to continue to make independent decisions in good faith on behalf of
the Company. To date, the Company has not experienced difficulty in retaining
directors. However, as a result of the significant potential liability and
relatively small compensation associated with service as a director, it may
become increasingly difficult for the Company to find and retain talented and
experienced directors and officers. As a result, the Company believes that the
more favorable corporate environment afforded by Delaware will enable it to
compete more effectively with other public companies, most of which are
incorporated in Delaware, to retain its current directors and officers and to
attract and retain new directors and officers.
Reincorporation in Delaware will allow the Company the increased
flexibility and predictability afforded by Delaware law. Concurrent with the
reincorporation, the Board of Directors proposes to include certain measures
designed to protect shareholder interests in the event of hostile takeover
attempts against the Company. The Board believes that these measures will
enable it to more effectively consider any proposed takeover attempt and to
negotiate terms that maximize the benefit to the Company and its shareholders,
as discussed in more detail below. See Proposal Four, "ADDITIONAL ANTI-TAKEOVER
MEASURES."
IMPLEMENTATION OF REINCORPORATION.
The proposed reincorporation will be accomplished by merging the Company
into a newly formed Delaware corporation which, just before the merger, will be
a wholly owned subsidiary of the Company (the "Delaware Company"), pursuant to
the Agreement and Plan of Merger (the "Merger Agreement") attached as Appendix A
----------
to this Proxy Statement. Upon the effective date of the merger (the
"Reincorporation Effective Date"), the Delaware Company's name will be DSP
Technology Inc. The reincorporation will not result in any change in the
Company's business, assets or liabilities, will not cause its corporate
headquarters to be moved and will not result in any relocation of management or
other employees. The incumbent officers and directors of the Company will also
be the officers and directors of the Delaware Company on the Reincorporation
Effective Date.
The Company's capital stock consists of 25,000,000 authorized shares of
Common Stock, without par value, of which 2,180,962 shares were issued and
outstanding as of April 25, 1997, and 2,500,000 authorized shares of Preferred
Stock, without par value, none of which were outstanding as of April 25, 1997.
Upon the Reincorporation Effective Date, the Delaware Company will have the same
number of outstanding shares of Common Stock that the Company had outstanding
immediately prior to the reincorporation.
The Delaware Company's capital stock will consist of 15,000,000 authorized
shares of Common Stock, $0.001 par value, and 1,000,000 shares of Preferred
Stock, $0.001 par value, consistent with maintaining adequate capitalization for
the current needs of the Company. The Delaware Company's authorized but unissued
shares of Preferred Stock will be available for future issuance.
12
<PAGE>
Under the Delaware Company's Certificate of Incorporation (the "Delaware
Certificate"), as under the Company's Articles of Incorporation (the "California
Articles"), the Board of Directors has the authority to determine or alter the
rights, preferences, privileges and restrictions to be granted to or imposed
upon any wholly unissued series of Preferred Stock and to fix the number of
shares constituting any such series and to determine the designation thereof.
On the Reincorporation Effective Date, each outstanding share of Common
Stock of the Company will automatically convert into one share of Common Stock
of the Delaware Company, and shareholders of the Company will automatically
become shareholders of the Delaware Company. On the Reincorporation Effective
Date, the number of outstanding shares of Common Stock of the Delaware Company
will be equal to the number of shares of Common Stock of the Company outstanding
immediately prior to the Reincorporation Effective Date. In addition, each
outstanding option or right to acquire shares of Common Stock of the Company
will be converted into an option or right to acquire an equal number of shares
of Common Stock of the Delaware Company, under the same terms and conditions as
the original options or rights. All of the Company's employee benefit plans,
including the 1991 Stock Option Plan and the 1991 Outside Directors Stock Option
Plan, will be adopted and continued by the Delaware Company following the
reincorporation. Shareholders should recognize that approval of the proposed
reincorporation will constitute approval of the adoption and assumption of those
plans by the Delaware Company.
NO ACTION NEED BE TAKEN BY SHAREHOLDERS TO EXCHANGE THEIR STOCK
CERTIFICATES NOW; THIS WILL BE ACCOMPLISHED AT THE TIME OF THE NEXT TRANSFER BY
THE SHAREHOLDER. Certificates for shares in the Company will automatically
represent an identical number of shares in the Delaware Company upon completion
of the merger. The Company intends to apply for the listing and registration of
the Common Stock of the Delaware Company on the Nasdaq National Market upon the
Reincorporation Effective Date.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal. If
approved by the shareholders, it is anticipated that the reincorporation would
be completed as soon thereafter as practicable. The reincorporation may be
abandoned or the Merger Agreement may be amended, either before or after
shareholder approval has been obtained, if in the opinion of the Board of
Directors, circumstances arise that make such action advisable, provided that
any amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding voting shares.
SIGNIFICANT CHANGES CAUSED BY THE REINCORPORATION.
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the Company's state of incorporation, the
California Articles and the Company's By-Laws (the "California By-Laws"), which
have been adopted pursuant to California law. The California Articles and By-
Laws are available for inspection during business hours at the principal
executive offices of the Company. In addition, copies may be obtained by writing
to the Company at DSP Technology Inc., 48500 Kato Road, Fremont, California
94538, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware law, rather than California law (however, see "Other Differences
Between California and Delaware Law--Application of California Law After
Reincorporation"). The California Articles and By-Laws will be replaced by the
Delaware Certificate and the Delaware Company's By-Laws (the "Delaware By-
Laws"), copies of which are attached as Appendix A-1 and Appendix A-2 to the
------------ ------------
Merger Agreement. In the event any of the separate proposals for additional
anti-takeover measures are approved by the requisite vote of shareholders, the
Delaware Certificate and the Delaware By-Laws will make provision for such
measures, as set forth in the Merger Agreement and exhibits thereto. See
Proposal Four, "ADDITIONAL ANTI-TAKEOVER MEASURES."
13
<PAGE>
REASONS FOR THE REINCORPORATION.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware and this trend
continues currently. For the reasons detailed below, the Company believes it is
beneficial and important that the Company likewise avail itself of Delaware law.
Greater Predictability and Responsiveness to Corporate Needs. Delaware has
adopted comprehensive corporate laws which are revised regularly to meet
changing business circumstances. The Delaware Legislature is particularly
sensitive to issues regarding corporate law and is especially responsive to
developments in modern corporate law. The Delaware courts have developed
considerable expertise in dealing with corporate issues as well as a substantial
body of case law construing Delaware's corporate law. As a result of these
factors, it is anticipated that Delaware law will provide greater predictability
in the Company's legal affairs than is presently available under California law.
More Certainty Regarding Indemnification and Limitation of Liability for
Directors. In 1986, Delaware amended its corporate law to allow corporations to
limit the personal monetary liability of its directors for their conduct as
directors under certain circumstances. Delaware law does not permit a Delaware
corporation to limit or eliminate the liability of its directors for intentional
misconduct, bad faith conduct or any transaction from which the director derives
an improper personal benefit or for violations of federal laws such as the
federal securities laws. In 1987, California amended its corporate law in a
manner similar to Delaware to permit a California corporation to limit the
personal monetary liability of its directors for their conduct as directors
under certain circumstances. The Company amended the California Articles and
By-Laws and entered into indemnification agreements to take advantage of these
changes under California law. Nonetheless, the Board of Directors believes that
the protection from liability for directors is somewhat more certain under the
Delaware law than under the California law and therefore that the Company's
objectives in adopting this type of provision can be better achieved by
reincorporation in Delaware. The directors have elected to adopt such a
provision in the Delaware Certificate and By-Laws. The Board believes that
Delaware reincorporation will enhance the Company's ability to recruit and
retain directors in the future; however, the shareholders should be aware that
such a provision inures to the benefit of the directors, and the interest of the
Board in recommending the reincorporation may therefore be in conflict with the
interests of the shareholders. See subsections entitled, "Limitations on
Director Liability" and "Indemnification of Officers and Directors" below for a
more complete discussion of these issues.
The interests of the Board of Directors, management and affiliated
shareholders in voting on the reincorporation proposal may not be the same as
those of unaffiliated shareholders. Delaware law does not afford minority
shareholders some of the rights and protections available under California law.
Reincorporation of the Company in Delaware may make it more difficult for
minority shareholders to elect directors and influence Company policies. A
discussion of the principal differences between California and Delaware law as
they affect shareholders begins on the following page.
Charter Provisions Deterring Hostile Takeovers. Reincorporation in
Delaware may have the effect of deterring hostile takeover attempts. The Board
has proposed the revision in the Delaware Certificate and By-Laws of certain
provisions available to certain public companies under Delaware law that deter
hostile take-over attempts, such as the elimination of cumulative voting,
exclusive right of the Board of Directors to set the number of directors, a
classified board of directors, limitations on the right to remove directors,
exclusive right of the Board of Directors to fill vacancies on the Board, blank
check preferred, the elimination of the right of shareholders to act by written
consent, elimination of shareholder right to call special meeting, advance
notice requirements and super-majority voting provisions requiring that any
amendment of the above provisions contained in the Delaware Certificate be
approved by two-thirds vote of the outstanding shares, entitled to vote
generally in the election of directors and a provision requiring two-thirds vote
for shareholder amendment of the Delaware By-Laws. Several of these measures
are not included in the California Articles and are not applicable to the
Company under California law at the present time. Accordingly, these matters
are presented for separate consideration and vote by the shareholders. Certain
disadvantages of anti-takeover measures generally are also reviewed below. See
Proposal Four, "ADDITIONAL ANTI-TAKEOVER MEASURES."
14
<PAGE>
DELAWARE CORPORATION LAW COMPARED TO CALIFORNIA CORPORATION LAW.
The following chart is only a summary of the more important differences in
the corporation laws of Delaware and California and does not purport to be an
exhaustive discussion. It is qualified in its entirety by reference to the
California Corporations Code, the Delaware General Corporation Law, the
California Articles and By-Laws and the Delaware Certificate and By-Laws. Both
California and Delaware law provide that some of the statutory provisions as
they affect various rights of holders of shares may be modified by provisions in
the charter or By-Laws of the corporation. Shareholders are requested to read
the following chart in conjunction with the discussion following the chart and
the Merger Agreement, the Delaware Certificate and the Delaware By-Laws attached
to this Proxy Statement. In addition, the Board is proposing additional anti-
takeover measures for separate consideration and vote by the shareholders. A
summary of those provisions is discussed below. See Proposal Four, "ADDITIONAL
ANTI-TAKEOVER MEASURES."
<TABLE>
<CAPTION>
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ISSUE DELAWARE CALIFORNIA
----- -------- ----------
- --------------------------------------------------------------------------------
<S> <C> <C>
Limitation of Liability of Delaware law permits the California law contains
Directors and Officers limitation of liability additional exceptions
of directors and to the liability
officers to a Company limitations of
except in connection directors and officers.
with (i) breaches of the Please see discussion
duty of loyalty; (ii) below.
acts or omissions not in
good faith or involving
intentional misconduct
or knowing violations of
law; (iii) the payment
of unlawful dividends or
unlawful stock purchases
or redemptions; or (iv)
transactions in which a
director received an
improper personal
benefit.
Indemnification of Delaware law could California law permits
Directors and Officers result in indemnification under
indemnification of certain circumstances,
directors and officers subject to certain
in circumstances where limitations.
California law would not
permit indemnification
and provides more
certainty as a result of
extensive case law on
indemnification.
Number of Directors Determined solely by Determined by Board
resolution of the Board within the range set in
pursuant to the Delaware the California By-Laws.
Certificate. Changes in the
authorized range must
be approved by the
shareholders.
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</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
- --------------------------------------------------------------------------------
<S> <C> <C>
Filling Board Vacancies Delaware law provides California law permits
for the Delaware Court (a) any holder of 5% or
of Chancery to order an more of the
election to fill corporation's voting
vacancies or newly stock or (b) the
created directorships superior court of the
upon the application of appropriate county to
the holders of 10% of call a special meeting
the outstanding shares of shareholders to
having a right to vote elect the entire board
for such directors, if if, after filling any
at the time of filling vacancy, the directors
such vacancies or then in office who have
directorships, the been elected by the
directors then in office shareholder constitute
constitute less than a less than a majority of
majority of the entire the directors then in
board as constituted office.
immediately prior to any
increase.
The Delaware Certificate The California Articles
and By-Laws provide are silent on filling
vacancies may be filled vacancies. The
only by a majority vote California By-Laws
of the directors then in provide vacancies may
office, though less than be filled by a majority
a quorum, or by a sole vote of the directors
remaining director. then in office, though
less than a quorum, or
by a sole remaining
director except that a
vacancy created by the
removal of a director,
by the vote or written
consent of the
shareholders or by
court order may be
filled only by the vote
of a majority of
outstanding voting
shares.
Blank Check Preferred The Delaware Certificate The California Articles
provides for the provide for the
issuance of preferred issuance of preferred
stock with terms set by stock with terms set by
the Board of Directors. the Board of Directors.
Advance Notice Requirement There are no specific There are no specific
statutory regulations. statutory regulations.
The Delaware By-Laws By-Laws require timely
require timely notice notice according to the
which is not less than Securities Exchange Act
120 days in advance of of 1934.
the date the proxy
statement was released
to shareholders in
connection with the
previous year's annual
meeting.
Tender Offer Statute Restricts mergers in two Restricts mergers in
step takeovers, without two step takeovers
Board approval of first unless Common Stock is
step. issued, unanimous
affirmative vote of
shareholders or
Department of
Corporations approval.
Loans to Officers and Board may authorize if Loans may be made only
Directors the loans may reasonably with shareholder
be expected to benefit approval unless By-Laws
the Company. permitting loans by
Board approval only are
approved by the
shareholders.
Class Vote for Generally not required A reorganization
Reorganization unless a reorganization transaction must
adversely affects a generally be approved
specific class of shares. by a majority vote of
each class of shares
outstanding.
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</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
- --------------------------------------------------------------------------------
<S> <C> <C>
Right of Shareholders to Permitted for any Permitted for any
Inspect Shareholder List purpose reasonably purposes reasonably
related to a related to a
shareholder's interest shareholder's interest
as a shareholder. as a shareholder.
Also, an absolute right
to 5% shareholders and
certain 1% shareholders.
Appraisal Rights Generally available if Available in certain
shareholders receive circumstances if the
cash in exchange for holders of 5% of the
their shares and in class assert such
certain other rights.
circumstances.
Dividends Paid from surplus Generally limited to
(including paid-in and the greater of (i)
earned surplus or net retained earnings or
profits). (ii) an amount which
would leave the Company
with assets of 125% of
liabilities and current
assets of 100% of
current liabilities.
Other Responsive legislature
and larger body of
corporate case law in
Delaware provides more
predictable corporate
legal environment in
Delaware.
- --------------------------------------------------------------------------------
</TABLE>
LIMITATION OF LIABILITY AND INDEMNIFICATION.
Limitations on Director Liability. Both California and Delaware permit a
corporation to limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of certain duties as a
director. The California and Delaware laws adopt a self-governance approach by
enabling a corporation to take advantage of these provisions only if an
amendment to the charter limiting such liability is approved by a majority of
the outstanding shares or such language is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (i) intentional misconduct or knowing and culpable violation of
law; (ii) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (iii) receipt of an improper personal
benefit; (iv) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (v) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders; (vi) interested
transactions between the corporation and a director in which a director has a
material financial interest; or (vii) liability for improper distributions,
loans or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for: (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
17
<PAGE>
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors and
officers to the Company and its shareholders.
Indemnification of Officers and Directors. The California Articles and By-
Laws and the Delaware Certificate and By-Laws relating to indemnification
similarly require that the California Company and the Delaware Company,
respectively, indemnify its directors and its executive officers to the fullest
extent permitted by the respective state law, provided, that the Company may
modify the extent of such indemnification by individual contracts with its
directors and executive officers, and, provided, further, that the Company will
not be required to indemnify any director or executive officer in connection
with a proceeding initiated by such person, with certain exceptions. Such
charter documents and By-Laws permit the California Company and the Delaware
Company, respectively, to provide indemnification to its other officers,
employees and agents as set forth in the respective state law. Such
indemnification is intended to provide the full flexibility available under such
laws. The Delaware By-Laws contain a provision with respect to advances in that
the Company is required to advance expenses related to any proceeding contingent
on such persons' commitment to repay any advances unless it is determined
ultimately that such persons are entitled to be indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
Indemnification is permitted by both California and Delaware law, provided
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action. California law requires indemnification when the
individual has successfully defended the action on the merits, as opposed to
Delaware law which requires indemnification relating to a successful defense on
the merits or otherwise.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
--- ------- --
the corporation. Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (i) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (ii) no indemnification
may be made under California law, without court approval, in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a
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threatened or pending action or amounts incurred in defending a pending action
which is settled or otherwise disposed of without court approval. Delaware law
allows indemnification of expenses actually and reasonably incurred, subject to
the same limitations set forth in (iii) above. Delaware law is silent on the
right of indemnification regarding settlements of derivative actions.
California corporations may include in their Articles of Incorporation a
provision which extends the scope of indemnification through agreements, By-Laws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision. The Company, following
shareholder approval, entered into indemnification agreements with its officers
and directors providing for indemnification beyond that expressly mandated by
the California Corporations Code.
Under Delaware law, rights to indemnification and expenses are non-
exclusive, in that they need not be limited to those expressly provided by
statute. Under Delaware law and the Delaware Certificate and By-Laws, the
Delaware Company is permitted to indemnify its directors, officers, employees
and other agents, within the limits established by law and public policy,
pursuant to an express contract, bylaw provision, shareholder vote or otherwise,
any or all of which could provide indemnification rights broader than those
currently available under the California By-Laws or the California
indemnification statutes. The Delaware By-Laws provides: (i) the Delaware
Company is required to indemnify its officers and directors to the fullest
extent permitted by law, including those circumstances in which indemnification
would otherwise be discretionary; (ii) the Delaware Company is required to
advance expenses to its officers and directors as incurred, including expenses
related to obtaining a determination that such officers and directors are
entitled to indemnification, provided that they undertake to repay the amount
advanced if it is ultimately determined that they are not entitled to
indemnification; (iii) an officer or director may bring suit against the
Delaware Company if a claim for indemnification is not timely paid; (iv) the
Delaware Company is authorized to enter into indemnification agreements with its
officers and directors; and (v) the Delaware Company may not retroactively amend
the Indemnification provision in its By-Laws in a way which is adverse to its
officers or directors or former officers or directors. The Company has entered
into indemnification agreements with its officers and directors. The Delaware
Company plans to enter into similar agreements with its officers and directors
upon completion of the proposed reincorporation in the form attached as Appendix
--------
B to this Proxy Statement (the "Delaware Indemnity Agreement"). The Delaware
- -
Indemnity Agreement contains certain additional limitations on indemnification
for expenses in suits against the Company not contained in the indemnification
agreements currently in effect.
Principal Terms of the Delaware Indemnity Agreements
1. Indemnification rights may be provided under the Delaware Indemnity
Agreement to a person in his capacity as a present or former director, officer,
employee or other Agent (as such, term is defined in the Delaware Indemnity
Agreement) of the Company (the "Indemnitee") in connection with a threatened,
pending or completed proceeding, whether civil, criminal, administrative or
investigative. Indemnification rights are also provided to an Indemnity's
heirs, executors and administrators to the same extent they would be provided to
the Indemnitee were he or she still alive.
2. The Company must maintain in effect directors' and officers' liability
insurance naming the Indemnitee as an insured in reasonable amounts from
established and reputable insurers, unless such insurance is not available on
reasonable terms.
3. The Company must indemnify against all expenses reasonably incurred by
an Indemnitee to the extent he or she has been successful in the defense of any
proceeding (including an action by or in the right of the Company such as a
derivative action).
4. The Company is required to indemnify against any expenses and
liabilities (including judgments, fines, ERISA excise taxes and penalties, and
amounts paid in settlement) actually and reasonably incurred by an Indemnitee in
connection with any proceeding (other than an action by or in the right of the
Company), provided the Indemnitee's actions met the required standard of
conduct.
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5. In connection with proceedings brought by or in the right of the
Company against the Indemnitee (including derivative actions), the Company is
required to indemnify against expenses actually and reasonably incurred by the
Indemnitee, provided that his or her actions met the required standard of
conduct. However, no indemnification is required in such proceeding to the
extent the Indemnitee is finally adjudged liable to the Company unless the court
determines that, in view of all the circumstances, the Indemnitee is fairly and
reasonably entitled to indemnification.
6. The Company is required to advance expenses incurred by the Indemnitee
in connection with the investigation, defense, settlement or appeal of any
proceeding, provided that the Indemnitee undertakes to repay any amounts for
which he or she is ultimately determined not to be entitled to indemnification.
This provision of the Delaware Indemnity Agreement expands upon Section 145,
which is silent on advances of expenses incurred in connection with
investigation, settlement and appeal.
7. The Indemnitee may enforce in court any right to indemnification or
advances granted by the Indemnity Agreement if (i) his or her claim is denied in
whole or in part, or (ii) no disposition of his or her claim is made within 90
days of his or her request therefor. If successful in an enforcement action,
the Indemnitee is entitled to be paid the expenses of prosecuting his or her
claim.
If the proposed reincorporation is approved, the indemnification agreements
also will be approved by the Company's shareholders. Thus a vote in favor of the
proposed reincorporation will also ratify and approve the indemnification
agreements in substantially the form attached as Appendix B to this Proxy
----------
Statement. Although the law in this regard is not certain, shareholders who vote
in favor of the reincorporation proposal, and thereby approve the indemnity
contracts, may be prevented from challenging the validity of the indemnity
contracts in a subsequent court proceeding.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the California Company made prior to the proposed reincorporation.
Nevertheless, the Board has recognized in considering this reincorporation
proposal that the individual directors have a personal interest in obtaining the
application of Delaware law to such indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is actually indemnified in circumstances where indemnification would
not be available under California law, would result in expense to the Company
which the Company would not incur if the Company were not reincorporated. The
Board believes, however, that the overall effect of reincorporation is to
provide a corporate legal environment that enhances the Company's ability to
attract and retain high quality outside directors and thus benefits the
interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened litigation
to which any of its directors is a party in which the rights of the Company or
its shareholders would be affected if the Company currently were subject to the
provisions of Delaware law rather than California law.
California and Delaware corporate law, the California Certificate and By-
Laws and the Delaware Certificate and By-Laws, as well as any indemnity
agreements, may permit indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Board of Directors
has been advised that, in the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act and the
Exchange Act may be contrary to public policy and therefore may be
unenforceable, absent a decision to the contrary by a court of appropriate
jurisdiction.
ANTI-TAKEOVER MEASURES.
General. Delaware law has been widely viewed to permit a corporation
greater flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Certain of such measures are either not currently
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permitted or are more narrowly drawn under California law. Among these measures
are those described below and under Proposal Four, "ADDITIONAL ANTI-TAKEOVER
MEASURES."
The measures described below are either included in the California Articles
or provided in California Law and applicable to the Company currently, in
substantially similar terms. The Board of Directors is proposing certain
additional anti-takeover measures not currently applicable to the Company for
separate consideration and vote by the shareholders. See Proposal Four,
"ADDITIONAL ANTI-TAKEOVER MEASURES".
In addition, certain types of "poison pill" defenses (such as shareholder
rights plans) have been upheld by Delaware courts, while California courts have
yet to decide on the validity of such defenses, thus rendering their
effectiveness in California less certain. The Company does not have a rights
plan in place and the Board has no present intention to adopt such a plan. The
Company does not have any present intention of adopting any further anti-
takeover measures, nor does the Board of Directors have knowledge that any
attempt to gain control of the Company is being contemplated.
Number of Directors. California law allows the number of persons
constituting the board of directors of a corporation to be fixed by the By-Laws
or the Articles of Incorporation, or permits the By-Laws to provide that the
number of directors may vary within a specified range. California law further
provides that, in the case of a variable board, the maximum number of directors
may not exceed two times the minimum number minus one. The California By-Laws
provide for a board of directors that may vary between three and five members,
inclusive, and the exact number of directors has been fixed at four. California
law also requires that any change in a fixed number of directors and any change
in the range of a variable board of directors specified in the Articles of
Incorporation and By-Laws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the Articles of Incorporation),
provided that a change reducing the minimum number of directors to less than
five cannot be adopted if votes cast against adoption are equal to more than 16
2/3% of the outstanding shares entitled to vote. The California By-Laws require
the vote of a majority in interest of the voting power of all of the then
outstanding shares to change the range of the Company's variable Board of
Directors.
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the By-Laws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the Certificate of Incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
Filling Board Vacancies. Under California law, if, after the filling of
any vacancy by the directors of a corporation, the directors then in office who
have been elected by the corporation's shareholders constitute less than a
majority of the directors then in office, then: (i) any holder of more than 5%
of the corporation's voting stock may call a special meeting of shareholders, or
(ii) the superior court of the appropriate county may order a special meeting of
the shareholders to elect the entire board of directors of the corporation.
Delaware law provides that if, at the time of filling any vacancy or newly
created directorship, the directors then in office constitute less than a
majority of the entire board of directors as constituted immediately prior to
any increase, the Delaware Court of Chancery may, upon application of any
shareholder or shareholder's holding at least 10% of the total number of shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships or to replace the directors chosen by the directors then in
office. The proposed Delaware Certificate and By-Laws provide that vacancies
shall be filled only by the affirmative vote of a majority of directors then in
office, even if such directors comprise less than a quorum of the Board of
Directors, or by the sole remaining director, unless the Board of Directors
determines by resolution that any such vacancies be filled by the shareholders,
or as otherwise provided by law. The California Articles are silent on filling
vacancies. The California By-Laws provide vacancies may be filled by a majority
vote of the directors then in office, though less than a quorum, or by a sole
remaining director except that a vacancy created by the removal of a director,
by the vote or written consent of the shareholders or by court order, may be
filled only by the vote of a majority of outstanding voting shares.
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Advance Notice Requirement for Shareholder Proposals and Director
Nominations. There is no specific statutory requirement under California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the proxy statement released in
connection with the previous year's annual meeting.
Both the California By-Laws and the Delaware By-Laws provide that in order
for director nominations or shareholder proposals to be properly brought before
the meeting, the shareholder must have delivered timely notice to the Secretary
of the corporation. To be timely under the California By-Laws, the
shareholder's proposal must be received at the principle offices of the Company
no later than the date required by the Exchange Act. To be timely under the
Delaware By-Laws, a shareholder proposal to be presented at an annual meeting
shall be received at the Delaware Company's principal executive offices no less
than 120 days in advance of the date that the Company's (or Company's
predecessor's) proxy statement was released to shareholders in connection with
the previous year's annual meeting of shareholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
advanced by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, notice by the shareholders to be timely
must be received no later than the close of business on the tenth day following
the day on which the date of the annual meeting is publicly announced.
Blank Check Preferred. After the reincorporation, the Delaware Company
would retain the rights currently available to the Company under California law
to issue shares of its authorized but unissued capital stock. Following the
Reincorporation Effective Date, shares of authorized and unissued Common Stock
and Preferred Stock of the Delaware Company could (within the limits imposed by
applicable law) be issued in one or more transactions, or Preferred Stock could
be issued with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board. Accordingly, if the Delaware Board so
authorizes, the holders of Delaware Preferred Stock may be entitled to vote
separately as a class in connection with approval of certain extraordinary
corporate transactions in circumstances where Delaware law does not ordinarily
require such a class vote, or might be given a disproportionately large number
of votes. Such Delaware Preferred Stock could also be convertible into a large
number of shares of Common Stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a controlling
interest in the Delaware Company more difficult or more costly, including the
right to elect additional directors to the Delaware Board. Potentially, the
Delaware Preferred Stock could be used to create voting impediments or to
frustrate persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware Preferred Stock could be privately placed
with purchasers who might side with the management of the Delaware Company in
opposing a hostile tender offer or other attempt to obtain control.
Future issuances of Delaware Preferred Stock as an anti-takeover device
might preclude shareholders from taking advantage of a situation which might
otherwise be favorable to their interests. In addition (subject to the
considerations referred to above as to applicable law), the Delaware Board could
authorize issuance of shares of Common Stock of the Delaware Company ("Delaware
Common Stock") or Delaware Preferred Stock to a holder who might thereby obtain
sufficient voting power to ensure that any proposal to alter, amend or repeal
provisions of the Delaware Certificate unfavorable to a suitor would not receive
the necessary vote of a majority of the Voting Stock required for certain of the
proposed amendments (as described below).
If the reincorporation is approved, it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Delaware Preferred Stock or Delaware Common Stock, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board of Directors that the delay necessary for shareholder
approval of a specific issuance would be a detriment to
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the Delaware Company and its shareholders. The Board of Directors does not
intend to issue any Preferred Stock except on terms which the Board of Directors
deems to be in the best interests of the Delaware Company and its then existing
shareholders. The Board currently has the right to issue Preferred Stock without
shareholder approval under the California Articles.
Tender Offer Statutes. A Delaware statute regulates tender offers and is
intended to limit coercive takeovers of companies incorporated in that state.
The Delaware law, Section 203, provides that a corporation may not engage in any
business combination with any interested shareholder for a period of three years
following the date that such shareholder became an interested shareholder unless
(i) prior to the date the shareholder became an interested shareholder the Board
of Directors approved the business combination or the transaction which resulted
in the shareholder becoming an interested shareholder, or (ii) upon consummation
of the transaction which resulted in the shareholder becoming an interested
shareholder, the interested shareholder owned at least 85%, of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
by person who are directors and also officers and employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) the business combination is approved by the Board of Directors and
authorized by 66 2/3% of the outstanding voting stock which is not owned by the
interested shareholder. An interested shareholder means any person that is the
owner of 15% or more of the outstanding voting stock; however, the statute
provides for certain exceptions to parties who otherwise would be designated
interested shareholders, including an exception for parties that held 15% or
more of the outstanding voting stock as of December 23, 1987. Any corporation
may decide to opt out of the statute in its original Certificate of
Incorporation or at any time by action of its shareholders. The Company has not
opted out of the statute.
In contrast, California law requires that holders of a California
corporation's Common Stock receive nonredeemable Common Stock in a merger of the
corporation with the holder (or an affiliate of the holder) of more than 50% but
less than 90% of its Common Stock, unless all of the holders of its Common Stock
consent to the merger or the merger has been approved by the California
Commissioner of Corporations at a "fairness hearing." This provision of
California law may have the effect of making a cash "freezeout" merger by a
majority shareholder more difficult to accomplish. A cash freezeout merger is a
transaction whereby a minority shareholder is forced to relinquish his share
ownership in a corporation in exchange for cash, subject in certain instances to
dissenters' rights. Delaware law has no comparable provision.
OTHER KEY DIFFERENCES BETWEEN CALIFORNIA AND DELAWARE LAW.
Loans To Officers, Directors and Employees. California law provides that
any loan or guaranty (other than loans to permit the purchase of shares under
certain stock purchase plans) for the benefit of any officer or director, or any
employee benefit plan authorizing such loan or guaranty (except certain employee
stock purchase plans), must be approved by the shareholders of a California
corporation. However, a bylaw approved by the shareholders may provide that the
Board alone may approve such loan, guaranty or plan by a vote sufficient without
counting the vote of any interested director or directors if the Board
determines that such loan, guaranty or plan may reasonably be expected to
benefit the corporation. The California By-Laws do not provide for such loans.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
Class Vote For Certain Reorganizations. With certain exceptions,
California law requires that mergers, reorganizations, certain sales of assets
and similar transactions be approved by a majority vote of each class of shares
outstanding. Delaware law generally does not require class voting for such
transactions, except in certain situations involving an amendment to the
Certificate of Incorporation which adversely affects a specific class of shares.
Inspection Of Shareholder Lists. California law provides for an absolute
right of inspection of the shareholder list for shareholders holding 5% or more
of a corporation's outstanding voting shares or shareholders
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holding 1% or more of such shares who have filed a Schedule 14B with the SEC.
Delaware law provides no such absolute right of shareholder inspection. However,
both California and Delaware law permit any shareholder of record to inspect the
shareholder list for any purpose reasonably related to that person's interest as
a shareholder.
Appraisal Rights. Under both California law and Delaware law, a
shareholder of a corporation participating in certain mergers and
reorganizations may be entitled to receive cash in the amount of the "fair
value" (Delaware) or "fair market value" (California) of its shares, as
determined by a court, in lieu of the consideration it would otherwise receive
in the transaction. The limitations on such dissenters' appraisal rights are
somewhat different in California and Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the Reincorporation
Proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
In addition, Delaware law does not provide shareholders with voting or
---
appraisal rights when a corporation acquires another business through the
issuance of its stock, whether in exchange for assets or stock or in a merger
with a subsidiary. California law treats these kinds of acquisitions in the same
manner as a merger of the corporation directly with the business to be acquired
and provides appraisal rights in the circumstances described in the preceding
paragraph.
Dividends. Under California law, any dividends or other distributions to
shareholders, such as redemptions, are limited to the greater of (i) retained
earnings or (ii) an amount which would leave the corporation with assets
(excluding certain intangible assets) equal to at least 125% of its liabilities
(excluding certain deferred items) and current assets equal to at least 100%
(or, in certain circumstances, 125%) of its current liabilities. Delaware law
allows the payment of dividends and redemption of stock out of surplus
(including paid-in and earned surplus) or out of net profits for the current and
immediately preceding fiscal years.
The Company has never paid a cash dividend, and the Delaware Company does
not anticipate paying any cash dividends in the foreseeable future.
Application of California Law After Reincorporation. California law
provides that if (i) the average of certain property, payroll and sales factors
results in a finding that more than 50% of the Delaware Company's business is
conducted in California, and in a particular fiscal year more than 50% of the
Delaware Company's outstanding voting securities are held of record by persons
having addresses in California, and (ii) the Company's shares are traded in the
Nasdaq National Market and are held by fewer than 800 shareholders, as of its
most recent annual meeting of shareholders, then the Delaware Company would
become subject to certain provisions of California law regardless of its state
of incorporation.
Because the Company's Common Stock is traded in the Nasdaq National Market
and the Company's shares are held by at least 800 shareholders as of its most
recent annual meeting of shareholders, California law will not
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apply to the Delaware Company if the reincorporation is approved. The Company
would not be subject to California law as long as it continued to meet both of
these requirements .
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
SUMMARY OF FEDERAL TAX CONSEQUENCES OF THE REINCORPORATION.
The reincorporation is intended to be a reorganization under the Internal
Revenue Code of capital stock of 1986, as amended. Generally, for federal
income tax purposes, no gain or loss should be recognized by holders of the
Company as a result of the reincorporation and no gain or loss should be
recognized by the Company or the Delaware Company.
Each former holder of Common Stock of the Company should have the same
basis in the Common Stock of the Delaware Company received pursuant to the
reincorporation as such shareholder had in the Common Stock of the Company held
by such shareholder at the time of consummation of the reincorporation. A
shareholder's holding period with respect to the Common Stock of the Delaware
Company received in the reincorporation should include the period during which
the shareholder held the corresponding shares of Common Stock of the Company;
provided that the shares of Common Stock of the Company were held by the
shareholder as capital assets at the time of consummation of the
reincorporation. Tax provisions are complex and subject to change and this
summary does not purport to be a complete discussion of all the possible tax
consequences of the reincorporation under federal laws. The Company has not
obtained a ruling from the Internal Revenue Service or an opinion of legal or
tax counsel with respect to the consequences of the reincorporation.
EACH SHAREHOLDER SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF THE LAWS
OF ANY STATE OR OTHER JURISDICTION.
BOARD OF DIRECTORS RECOMMENDATION.
The Board of Directors believes that the proposed reincorporation of the
Company in Delaware and all related matters is in the best interests of the
shareholders of the Company and the Company for the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THIS PROPOSAL TO REINCORPORATE IN DELAWARE AND CERTAIN RELATED MATTERS.
A VOTE FOR THE REINCORPORATION PROPOSAL WILL CONSTITUTE APPROVAL OF THE
MERGER, THE DELAWARE CERTIFICATE (WITHOUT ANTI-TAKEOVER MEASURES SET FORTH UNDER
PROPOSAL FOUR UNLESS SEPARATELY APPROVED BY THE SHAREHOLDERS), THE DELAWARE BY-
LAWS (WITHOUT ANTI-TAKEOVER MEASURES SET FORTH UNDER PROPOSAL FOUR UNLESS
SEPARATELY APPROVED BY THE SHAREHOLDERS), THE FORM OF THE INDEMNIFICATION
AGREEMENTS, THE ADOPTION AND ASSUMPTION BY THE DELAWARE COMPANY OF THE COMPANY'S
1991 STOCK OPTION PLAN, 1991 OUTSIDE DIRECTORS STOCK OPTION PLAN AND ALL OTHER
ASPECTS OF THIS PROPOSAL THREE. SEE PROPOSAL FOUR, "ADDITIONAL ANTI-TAKEOVER
MEASURES."
25
<PAGE>
PROPOSAL FOUR
ADDITIONAL ANTI-TAKEOVER MEASURES
As described under Proposal Three, "REINCORPORATION IN THE STATE OF
DELAWARE AND OR RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS," the Board of
Directors has unanimously approved a proposal to change the Company's state of
incorporation from California to Delaware. In addition, if Proposal Three is
approved, the Board has also proposed the inclusion in the Delaware Certificate
and By-Laws of certain provisions available to public companies under Delaware
law that deter hostile take-over attempts, as more particularly described below.
These measures are not included in the California Articles and are not
applicable to the Company under California Law currently. Accordingly, these
matters are presented for separate consideration and vote by the
shareholders.
In considering the proposals, shareholders should be aware that the overall
effect of certain of the proposed provisions is to make it more difficult for
holders of a majority of the outstanding shares of Common Stock to change the
composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
These provisions, if included in the Company's new charter documents, could make
a proxy contest a less effective means of removing or replacing existing
directors or could make it more difficult to make a change in control of the
Company which is opposed by the Board of Directors. This strengthened tenure and
authority of the Board of Directors could enable the Board of Directors to
resist change and otherwise thwart the desires of a majority of the
shareholders. Because these provisions may have the effect of continuing the
tenure of the current Board of Directors, the Board has recognized that the
individual directors have a personal interest in this provision that may differ
from those of the shareholders. However, the Board believes that these
provisions' primary purpose is to ensure that the Board will have sufficient
time to consider fully any proposed takeover attempt in light of the short and
long-term benefits and other opportunities available to the Company and, to the
extent the Board determines to proceed with the takeover, to effectively
negotiate terms that would maximize the benefits to the Company and its
shareholders.
A hostile takeover attempt may have a positive or a negative effect on the
Company and its shareholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the board of directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
shareholders the risk of terms which may be less than favorable to all of the
shareholders than would be available in a Board-approved transaction. Board-
approved transactions may be carefully planned and undertaken at an opportune
time in order to obtain maximum value for the corporation and all of its
shareholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate assets.
In addition, in the case of a proposal which is presented to the Board of
Directors, there is a greater opportunity for the Board to analyze the proposal
thoroughly, to develop and evaluate alternatives, to negotiate for improved
terms and to present its recommendations to the shareholders in the most
effective manner.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to shareholders, providing all shareholders with
considerable value for their shares. However, the Board of Directors believes
that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its shareholders.
Accordingly, the Board has separately proposed certain measures for inclusion in
the Delaware Certificate or the Delaware By-Laws that may have the effect of
discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to shareholders
of the changes, shareholders should recognize that one of the effects of such
changes may be to discourage a future attempt to acquire control of the Company
which is not presented to and approved by the Board of Directors, but which a
substantial number, and perhaps even a majority, of the Company's shareholders
might believe to be in their best interests or in which
26
<PAGE>
shareholders might receive a substantial premium for their shares over the
current market price. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so.
In addition, by increasing the probability that any person or group seeking
control of the Delaware Company would be forced to negotiate directly with the
Board of Directors, the proposed takeover defenses could discourage takeover
bids by means of a hostile tender offer, proxy contest or otherwise without the
approval of the Board. Thus, the principal disadvantages to the shareholders
which result from discouraging such hostile takeover bids would be to (i) reduce
the likelihood that any acquiror would make a hostile tender offer for the
outstanding shares of stock of the Company at a premium over the market rate and
(ii) increase the difficulty of removing the existing Board of Directors and
management even if, in a particular case, removal would be beneficial to
shareholders generally.
It should be noted, however, that the Board of Directors has a fiduciary
duty to the shareholders to negotiate for the best interests of the shareholders
and not for its own interests. Further, while the proposed takeover defenses
may discourage hostile takeover attempts, these provisions would not prevent a
hostile acquisition of the Delaware Company.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions described below outweigh
the possible disadvantages. In particular, the Board believes that the benefits
associated with enabling the Board to fully consider and negotiate proposed
takeover attempts make these proposals beneficial to the Company and its
shareholders.
The proposal to include these anti-takeover provisions as part of the
proposed reincorporation does not reflect knowledge on the part of the Board of
Directors or management of any proposed takeover or other attempt to acquire
control of the Company. Management may in the future propose or adopt other
measures designed to discourage takeovers apart from those proposed in this
Proxy Statement, if warranted from time to time in the judgment of the Board of
Directors, although the Board has no such intention at the present time.
SUMMARY OF ADDITIONAL ANTI-TAKEOVER MEASURES.
The separate proposals are summarized in the chart below. The following
chart does not purport to be an exhaustive discussion. It is qualified in its
entity by reference to the California Corporations Code, the Delaware General
Corporation Law, the California Articles and By-Laws and the Delaware
Certificate and By-Laws. Shareholders are requested to read the following chart
in conjunction with the discussion following the chart and the Merger Agreement,
the Delaware Certificate and By-Laws attached to this Proxy Statement.
Shareholders should note that each of these measures is proposed for separate
consideration and vote by the shareholders.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
- --------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Voting for Cumulative voting is not California law permits
Directors available unless it is Nasdaq National Market
provided for in the corporations with over
Certificate of 800 shareholders to
Incorporation; the Board eliminate cumulative
proposes that the voting. The California
Delaware Certificate not Articles do not
--- eliminate cumulative
provide for cumulative voting.
voting.
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Classified Board Delaware law permits the California law permits
adoption of a classified the Company to adopt a
board with staggered classified board with
terms. The Board staggered terms with
proposes that the shareholder approval.
Delaware Certificate and The California By-Laws
By-Laws provide for a do not provide for a
classified Board with classified Board.
three classes of
directors, each with a
three year term.
Delaware law permits the California law permits
removal of a director on the removal of a
a classified board only director with or
for cause, unless without cause by
otherwise specified in affirmative vote of a
the Certificate of majority of the
Incorporation. The outstanding shares.
Board proposes that the
Delaware Certificate and
By-Laws permit removal
of directors only for
cause by affirmative
vote of the majority of
the outstanding shares
of voting stock entitled
to vote at an election
of directors.
Action by Written Consent The Board proposes that Actions by written
of Shareholders in lieu actions by written consent are permitted
of a Shareholder vote at consent not be permitted by the California
a Shareholder Meeting under the Delaware Articles and By-Laws.
Certificate. All
shareholder action would
take place by a
shareholder vote at a
meeting of shareholders.
Call of Special Meetings Special meetings may be Special meetings may be
by Shareholders called only by the Board called by the Board,
or any person as may be the Chairman, the
designated in the President, holders of
Certificate of 10% or more of the
Incorporation or outstanding voting
By-Laws. The Board power and such other
proposes that the persons as may be
Delaware Certificate and designated in the
By-Laws provide special Articles of
meetings may be called Incorporation or
only by the Board, the By-Laws. The
Chairman or the California By-Laws
President and Chief provide special
Executive Officer. meetings may be called
by the Board, the
Chairman, the President
or holders of 10% or
more of the outstanding
voting power.
Amendment of Certificate The Board proposes that Amendments of the
and By-Laws amendments of certain California Articles
provisions the Delaware require approval by a
Certificate require majority of the
approval by two-thirds outstanding voting
of the voting stock and shares. The By-Laws
a majority of the voting can be amended by the
stock for certain Board or the holders of
provisions, and that the a majority of the
Delaware By-Laws could outstanding voting
be amended by the Board shares, except that the
or by the holders of Board may not amend the
two-thirds of the range of authorized
outstanding voting directors.
shares.
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
PROPOSAL FOUR A
ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS
Concurrent with the reincorporation proposal described above, the Board of
Directors has proposed the adoption of certain additional measures designed to
protect shareholder interests in the event of hostile takeover attempts against
the Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. The elimination of
cumulative voting for directors is one such measure.
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, the holder or holders of a majority of the
shares entitled to vote in an election of directors are able to elect all the
directors in the absence of cumulative voting.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its Articles of Incorporation or By-Laws, to eliminate cumulative voting when
the Company's shares are listed on a national stock exchange or traded on the
Nasdaq National Market and are held by at least 800 shareholders. The
California Articles have not been amended to eliminate cumulative voting.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's Certificate of Incorporation. The Board of Directors has
proposed to eliminate cumulative voting by eliminating it from the Delaware
Certificate.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company, with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
In the event this proposal is not approved by the requisite vote of
shareholders, the Delaware Certificate will provide for cumulative voting in the
election of directors. In the event this proposal is approved, the provision
regarding cumulative voting of directors will not be included in the Delaware
Certificate.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal.
The Board believes that the proposed provision regarding the elimination of
cumulative voting under the Delaware Certificate is in the best interest of the
shareholders and the Company for the reasons stated above. THEREFORE, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
29
<PAGE>
PROPOSAL FOUR B
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. A classified board of
directors removable only for cause is another such measure.
A classified Board provides directors to be divided into two or three
"classes" elected for staggered "terms" of two or three years. The
classification system of electing directors may tend to maintain the incumbency
of the Board as it generally enables it more difficult for shareholders to
change a majority of the directors. A classified board may also contribute to
the continuity and stability of its leadership and policy. Classification of
the Board of Directors might make it more difficult for a person acquiring
shares to take immediate control of the Board of Directors.
Delaware law permits the adoption of a classified Board of Directors with
staggered terms. A maximum of three classes of directors is permitted by
Delaware law, with members of one class to be elected each year for a maximum
term of three years. The Board of Directors has proposed the inclusion in the
Delaware Certificate and By-Laws of certain provisions establishing a classified
Board of Directors removable only for cause, as discussed below (the "Classified
Board Provisions").
The directors of the California Company, who will also be the directors of
the Delaware Company if the reincorporation proposal is approved, are set forth
in Proposal One. Under the Classified Board Provisions, the Board of Directors
will be divided into three classes, designated Class I, Class II and Class III,
on the Reincorporation Effective Date. The director in Class I, F. Gil
Troutman, Jr., will hold office until the first annual meeting of shareholders
following the Reincorporation Effective Date, the directors in Class II, Howard
O. Painter, Jr. and J. Scott Kamsler, will hold office until the second annual
meeting of shareholders following the Reincorporation Effective Date and the
director in Class III, Michael A. Ford, will hold office until the third annual
meeting of shareholders following the Reincorporation Effective Date (and, in
each case, until their successors are duly elected and qualified or until their
earlier resignation, removal from office or death) and, after each such
election, the directors shall then serve in succeeding terms of three years and
until their successors are duly elected and qualified.
Under California law, a director may be removed with or without cause by
the affirmative vote of a majority of the outstanding shares. Under Delaware
law, a director on a classified board of directors can be removed from office
during his term by shareholders only for cause unless the Certificate of
Incorporation provides otherwise. The Board of Directors has proposed that the
Delaware Certificate provide that the Company's directors may be removed from
office only for cause by the affirmative vote of the holders of a majority of
the voting power of the then outstanding shares of voting stock of the Company
entitled to vote in the election of directors.
California law generally requires that directors be elected annually but
does permit a "classified" Board of Directors if (i) a corporation is listed on
a national stock exchange or (ii) the corporation's shares are traded on the
Nasdaq National Market and are held by at least 800 shareholders. California law
also allows the election of one or more directors by the holders of a particular
class or series of shares. The California Articles currently do not provide for
a classified Board of Directors.
With the Classified Board Provisions proposed for inclusion in the Delaware
Certificate and By-Laws, unless directors are removed for cause, it will require
at least two annual meetings of shareholders for a majority of shareholders to
make a change in control of the Board of Directors, since only a portion of the
directors will be elected at each meeting. A significant effect of a classified
Board of Directors may be to deter hostile takeover attempts because an acquirer
would experience delay in replacing a majority of the directors. However, a
classified Board of Directors also makes it more difficult for shareholders to
effect a change in control of the Board of
30
<PAGE>
Directors, even if such a change in control is sought due to dissatisfaction
with the performance of the Company's directors.
In the event this proposal is not approved, all directors of the Company
will be elected at each annual meeting. In the event this proposal is approved,
the Delaware Certificate and By-Laws will include the Classified Board
Provisions as set forth in Exhibit 1 to the Merger Agreement.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal.
The Board believes that the Classified Board Provisions proposed for
inclusion in the Delaware Certificate and By-Laws are in the best interest of
the shareholders and the Company for the reasons stated above. THEREFORE, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
31
<PAGE>
PROPOSAL FOUR C
ELIMINATION OF ACTION BY WRITTEN CONSENT
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. The elimination of
action by written consent of the shareholders is another such measure.
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and Delaware
law permits a corporation to eliminate such actions by written consent in its
charter. The California Articles does not eliminate the ability of shareholders
to act by written consent. The Board of Directors proposes to include a
provision in the Delaware Certificate and a corresponding provision in the
Delaware By-Laws, which would eliminate the right of shareholders to act by
written consent of shareholders.
Elimination of such shareholders' right to act by written consent may
lengthen the amount of time required to take shareholder actions because certain
actions by written consent are not subject to the minimum notice requirement of
a shareholders' meeting. The elimination of shareholders' right to act by
written consent may deter hostile takeover attempts because of the lengthened
shareholder approval process. Without the ability to act by written consent, a
holder or group of holders controlling a majority in interest of the Delaware
Company's capital stock will not be able to amend the Delaware By-Laws or remove
directors pursuant to a written consent. Any such holder or group of holders
would have to wait until a shareholders' meeting was held to take any such
action. The Board believes this provision would enhance the Board's and
shareholders' opportunity to fully consider shareholder proposals at a meeting
where all views can be heard.
In the event this proposal is not approved by the requisite vote of the
shareholders, the Delaware Certificate and By-Laws will provide for action by
written consent by the shareholders. In the event the proposal is approved, the
Delaware Certificate and the Delaware By-Laws will include a provision which
eliminates the shareholders' right to act by written consent as set forth in
Exhibit 2 to the Merger Agreement.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal.
The Board believes that the proposed provisions under the Delaware
Certificate and By-Laws regarding the elimination of action by written consent
is in the best interest of the shareholders and the Company for the reasons
stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" APPROVAL OF THIS PROPOSAL.
32
<PAGE>
PROPOSAL FOUR D
LIMITATION ON ABILITY TO CALL SPECIAL MEETINGS
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. Limiting the manner
in which special meetings are called is another such measure.
Under California law, special meetings of shareholders may be called by the
Board, the Chairman of the Board, the President, the holders of 10% or more of
the outstanding voting power and such other persons as may be designated in the
Articles of Incorporation or By-Laws of a company. The California By-Laws
provide special meetings may be called by the Board, the Chairman of the Board,
the President or the holders of 10% or more of the outstanding voting
power.
Delaware law, however, provides that special meetings of shareholders may
only be called by the Board or by any other person as may be designated in the
Certificate of Incorporation or By-Laws. The Board of Directors has proposed a
provision in the Delaware Certificate and the Delaware By-Laws providing that
special meetings of shareholders may be called only by the Board of Directors,
the Chairman of the Board or the President and Chief Executive Officer. Such a
provision precludes a shareholder from mounting a proxy contest or taking action
to amend charter documents until the next annual meeting. Such a provision
could have the affect of deterring efforts to seek control of the Company on a
basis which some shareholders might deem favorable.
In the event this proposal is not approved by the requisite vote of the
shareholders, the Delaware By-Laws will provide that special meetings of
shareholders may be called by the Board of Directors, the Chairman of the Board,
the President and Chief Executive Officer or the holders of 10% or more of the
outstanding voting power. In the event this proposal is approved, the Delaware
Certificate and By-Laws will provide that special meetings of shareholders may
be called only by the Board of Directors, the Chairman of the Board or the
President and Chief Executive Officer as set forth in Exhibit 3 to the Merger
Agreement.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal.
The Board believes that the proposed provisions regarding the limitation on
the ability to call special meetings by the shareholders under the Delaware
Certificate and By-Laws is in the best interest of the shareholders and the
Company for the reasons stated above. THEREFORE, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
33
<PAGE>
PROPOSAL FOUR E
SUPER-MAJORITY VOTE REQUIREMENT FOR AMENDMENT OF DELAWARE CERTIFICATE AND
BY-LAWS
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. Super-majority vote
requirements for amendments to the Delaware Certificate and By-Laws are such
measures.
Both Delaware and California law permit super-majority voting requirements
on most matters which may be voted upon by shareholders or directors.
California law permits super-majority voting requirements for corporations if
(i) the corporation is listed on a national stock exchange or the corporation's
shares are traded on the Nasdaq National Market and are held by at least 800
shareholders, on most matters which may be voted upon by shareholders and
directors, provided that such provisions are included in the Company's Articles
--------
of Incorporation after shareholder approval. However, shareholders of a
California corporation must vote to renew such provisions every two years.
Delaware law does not provide similar restrictions on super-majority voting
provisions.
The California Articles may be amended following the approval by the Board
of Directors and by a majority of the outstanding shares. The Board has
proposed that the Delaware Certificate include a provision under which the
Delaware Certificate may be amended by action of the Board of Directors with the
affirmative vote of a majority of outstanding shares, provided that for the
following provisions, two-thirds of the outstanding shares would be required for
amendment of the Delaware Certificate, subject, where indicated, to the separate
approval of the inclusion of such provisions in the Delaware Certificate under
Proposals Four A through Four D above: (i) the establishment of a Classified
Board, the terms of office of directors, and restrictions on removal of
directors only for cause (subject to the separate approval of the shareholders
of the Classified Board Provisions set forth in Proposal Four B, described
above); (ii) the exclusive right of the directors to change the number of
authorized directors and to fill vacancies on the Board; (iii) the percentage of
shares necessary to amend certain provisions of the Delaware Certificate; (iv)
the authority of the Board of Directors and the shareholders to amend the
Delaware By-Laws; (v) the elimination of the right of shareholders to act
without a meeting (subject to the separate approval of the shareholders of the
elimination of the right of shareholders to act without a meeting under Proposal
Four C above); (vi) the elimination of the right of shareholders to call a
special shareholders meeting (subject to the separate approval of the
shareholders of the elimination of the right of shareholders to call a special
meeting under Proposal Four D above); and (vii) the elimination of directors'
personal liability for monetary damages arising from their negligence or gross
negligence.
The California By-Laws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company, except that the Board of Directors may not change the authorized
range of directors. The Board has proposed that the Delaware By-Laws include a
provision under which the Delaware By-Laws may be adopted, amended or repealed
by the Board or by the affirmative vote of the holders of at least two-thirds of
the shares of the capital stock of the Delaware Company. This provision would
have the effect of making it more difficult for shareholders to amend the
Delaware By-Laws.
In the event this proposal is not approved by the requisite vote of the
shareholders, any provision of the Delaware Certificate may be amended by action
of the Board of Directors, with the affirmative vote of a majority of
outstanding shares, and the Delaware By-Laws may be adopted, amended or repealed
by the Board or by the affirmative vote of the holders of at least a majority of
the shares of capital stock of the Delaware Company.
In the event this proposal is approved by the shareholders, the Delaware
Certificate and By-Laws will include the super-majority provisions, as set forth
in Exhibit 4 to the Merger Agreement.
34
<PAGE>
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the voting power of all outstanding
Common Stock of the Company is required for approval of this proposal.
The Board believes that the proposed provisions regarding super-majority
voting for the amendment of the Delaware Certificate and By-Laws is in the best
interest of the shareholders and the Company for the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THIS PROPOSAL.
35
<PAGE>
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Grant Thornton as
independent accountants to audit the financial statements of the Company for the
fiscal year ending February 1, 1998. Grant Thornton has acted in such capacity
since its appointment during the fiscal year ended January 31, 1993. A
representative of Grant Thornton is expected to be present at the Annual Meeting
with the opportunity to make a statement if the representative desires to do so,
and is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes present and entitled to
vote at the Annual Meeting of Shareholders, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
voting, either in person or by proxy, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum, but will not be counted as having been
voted on the proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE APPOINTMENT OF GRANT THORNTON AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR THE FISCAL YEAR ENDING FEBRUARY 1, 1998.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next Annual
Meeting of the Shareholders of the Company must be received at the Company's
principal office not later than January 1, 1998, and satisfy the conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors,
/s/ JOSE M. MILLARES, JR.
JOSE M. MILLARES, JR.
Secretary
May 5, 1997
36
<PAGE>
APPENDIX A
----------
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of the 28th day of April, 1997 by and between DSP Technology Inc., a
California corporation ("DSP California"), and DSP Technology Inc., a Delaware
corporation ("DSP Delaware").
WITNESSETH:
WHEREAS, DSP Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, DSP California is a corporation duly organized and existing under
the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, DSP Delaware has authority
to issue 1,000 shares of Common Stock, par value $.001 per share (the "DSP
Delaware Common Stock"), of which 100 shares are issued and outstanding and
owned by DSP California;
WHEREAS, as of April 25, 1997, the record date of the 1997 Annual Meeting
of Shareholders (the "Annual Meeting"), DSP California has authority to issue
(i) 25,000,000 shares of Common Stock (the "DSP California Common Stock"), of
which 2,180,962 shares are issued and outstanding and (ii) 2,500,000 shares of
Preferred Stock, of which no shares are issued and outstanding;
WHEREAS, the respective Boards of Directors for DSP Delaware and DSP
California have determined that, for the purpose of effecting the
reincorporation of DSP California in the State of Delaware, it is advisable and
to the advantage of said two corporations and their shareholders that DSP
California merge with and into DSP Delaware upon the terms and conditions herein
provided; and
WHEREAS, the respective Boards of Directors of DSP Delaware and DSP
California, the shareholders of DSP California, and the sole stockholder of DSP
Delaware have adopted and approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, DSP California and DSP Delaware hereby agree to merge as follows:
1. Merger. DSP California shall be merged with and into DSP Delaware,
------
and DSP Delaware shall survive the merger ("Merger"), effective upon the date
when this Merger Agreement is made effective in accordance with applicable law
(the "Effective Date").
2. Governing Documents. The Certificate of Incorporation of DSP Delaware
-------------------
shall be amended and restated as in the form attached hereto as Appendix A-1,
------------
and shall be the Certificate of Incorporation of the surviving corporation; and
the By-Laws of DSP Delaware shall be amended and restated as in the form
attached hereto as Appendix A-2, provided, however, that (i) in the event
------------ -----------------------
Proposal Four A is approved by the requisite vote of the shareholders of DSP
California at the Annual Meeting, Article TENTH of the Certificate of
Incorporation attached as Appendix A-1 shall be deleted; (ii) in the event
------------
Proposal Four B is approved by the requisite vote of the shareholders of DSP
California at the Annual Meeting, Article SIXTH, Section A of the Certificate of
Incorporation attached as Appendix A-1 and as and Article 2, Sections 2.2 and
------------
2.12 of the Delaware By-Laws shall read in their entirety as set forth on
Exhibit 1 hereto; (iii) in the event Proposal Four C is approved by the
requisite vote of the shareholders of DSP California at the Annual Meeting, a
new Article FIFTH, Section C (as set forth on Exhibit 2 hereto) shall be added
to the Certificate of Incorporation attached as Appendix A-1 and Article 1,
------------
Section 1.12 of the Delaware By-Laws shall read in its entirety as set forth on
Exhibit 2 hereto; (iv) in the event Proposal Four D is
A-1
<PAGE>
approved by the requisite vote of the shareholders of DSP California at the
Annual Meeting, a new Article FIFTH, Section D (as set forth as Exhibit 3
hereto) shall be added to the Certificate of Incorporation attached as Appendix
--------
A-1 and Article 1, Section 1.3 of the Delaware By-Laws shall read in its
- ---
entirety as set forth on Exhibit 3 hereto; and (v) in the event Proposal Four E
is approved by the requisite vote of the shareholders of DSP California at the
Annual Meeting, Article SEVENTH and Article NINTH of the Certificate of
Incorporation attached as Appendix A-1, and Article 6, Section 6.2 of the
------------
Delaware By-Laws shall read as set forth in Exhibit 4 hereto.
3. Directors and Officers. The directors and officers of DSP California
----------------------
shall become the directors and officers of DSP Delaware upon the Effective Date.
4. Succession. On the Effective Date, DSP Delaware shall succeed to DSP
----------
California in the manner of and as more fully set forth in Section 259 of the
General Corporation Law of the State of Delaware.
5. Further Assurances. From time to time, as and when required by DSP
------------------
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of DSP California such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in DSP Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of DSP California, and otherwise to carry out the purposes of this
Merger Agreement and the officers and directors of DSP Delaware are fully
authorized in the name and on behalf of DSP California or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
6. Stock of DSP California. Upon the Effective Date, by virtue of the
-----------------------
Merger and without any action on the part of the holder thereof, each share of
DSP California Common Stock outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of DSP
Delaware Common Stock.
7. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates which prior to that time represented shares of DSP
California stock shall be deemed for all purposes to evidence ownership of and
to represent the shares of DSP Delaware stock into which the shares of DSP
California stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of DSP Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to DSP Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of DSP Delaware stock evidenced by such
outstanding certificate as above provided.
8. Options. Upon the Effective Date, each outstanding option or other
-------
right to purchase shares of DSP California stock, including those options
granted under the 1991 Stock Option Plan (the "Option Plan") and the 1991
Outside Directors Stock Option Plan (the "Directors Plan") of DSP California,
shall be converted into and become an option or right to purchase the same
number of shares of DSP Delaware stock at a price per share equal to the
exercise price of the option or right to purchase DSP California stock and upon
the same terms and subject to the same conditions as set forth in the Option
Plan and the Directors Plan, respectively, and other agreements entered into by
DSP California pertaining to such options or rights. A number of shares of DSP
Delaware stock shall be reserved for purposes of such options and rights equal
to the number of shares of DSP California stock so reserved as of the Effective
Date. As of the Effective Date, DSP Delaware shall assume all obligations of
DSP California under agreements pertaining to such options and rights, including
the Option Plan, and the outstanding options or other rights, or portions
thereof, granted pursuant thereto.
9. Other Employee Benefit Plans. As of the Effective Date, DSP Delaware
----------------------------
hereby assumes all obligations of DSP California under any and all employee
benefit plans in effect as of said date or with respect to which employee rights
or accrued benefits are outstanding as of said date.
10. Outstanding Common Stock of DSP Delaware. Forthwith upon the
----------------------------------------
Effective Date, the One Hundred (100) shares of DSP Delaware Common Stock
presently issued and outstanding in the name of DSP
A-2
<PAGE>
California shall be canceled and retired and resume the status of authorized and
unissued shares of DSP Delaware Common Stock, and no shares of DSP Delaware
Common Stock or other securities of DSP Delaware shall be issued in respect
thereof.
11. Covenants of DSP Delaware. DSP Delaware covenants and agrees that it
-------------------------
will, on or before the Effective Date:
a. Qualify to do business as a foreign corporation in the State of
California, and in all other states in which DSP California is so qualified and
in which the failure so to qualify would have a material adverse impact on the
business or financial condition of DSP Delaware. In connection therewith, DSP
Delaware shall irrevocably appoint an agent for service of process as required
under the provisions of Section 2105 of the California Corporations Code and
under applicable provisions of state law in other states in which qualification
is required hereunder.
b. File any and all documents with the California Franchise Tax
Board necessary to the assumption by DSP Delaware of all of the franchise tax
liabilities of DSP California.
12. Book Entries. As of the Effective Date, entries shall be made upon
------------
the books of DSP Delaware in accordance with the following:
a. The assets and liabilities of DSP California shall be recorded at
the amounts at which they were carried on the books of DSP California
immediately prior to the Effective Date, with appropriate adjustments to reflect
the retirement of the one hundred (100) shares of DSP Delaware Common Stock
presently issued and outstanding.
b. There shall be credited to the capital stock of DSP Delaware the
aggregate amount of the par value of all shares of DSP Delaware stock resulting
from the conversion of the outstanding California Common Stock pursuant to the
Merger.
c. There shall be credited to the capital surplus account of DSP
Delaware the aggregate of the amounts shown in the capital stock and capital
surplus accounts of DSP California immediately prior to the Effective Date, less
the amount credited to the common stock account of DSP Delaware pursuant to
Paragraph (b) above.
d. There shall be credited to the retained earnings account of DSP
Delaware an amount equal to that carried in the retained earning account of DSP
California immediately prior to the Effective Date.
13. Condition. It shall be a condition precedent to the consummation of
---------
the Merger and the other transactions contemplated by this Merger Agreement that
the shares of Delaware Common Stock to be issued by DSP Delaware shall, upon
official notice of issuance, be listed on the Nasdaq National Market prior to or
on the Effective Date.
14. Amendment. At any time before or after approval and adoption by the
---------
shareholders of DSP California, this Merger Agreement may be amended in any
manner as may be determined in the judgment of the respective Boards of
Directors of DSP Delaware and DSP California to be necessary, desirable or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purposes and intent of this Merger Agreement.
15. Abandonment. At any time before the Effective Date, this Merger
-----------
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either DSP California or DSP Delaware or both, notwithstanding
approval of this Merger Agreement by the sole stockholder of DSP Delaware and
the shareholders of DSP California.
16. Counterparts. In order to facilitate the filing and recording of this
------------
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
A-3
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolution of the Board of Directors of DSP California and DSP Delaware, is
hereby executed on behalf of each of said two corporations by their respective
officers thereunto duly authorized.
DSP Technology Inc., a Delaware corporation
By: /s/ F. GIL TROUTMAN, JR.
------------------------
F. Gil Troutman, Jr.,
President
ATTEST:
/s/ JOSE M. MILLARES, JR.
- --------------------------------
Jose M. Millares, Jr., Secretary
DSP Technology Inc., a California
corporation
By: /s/ F. GIL TROUTMAN, JR.
------------------------
F. Gil Troutman, Jr.,
President
ATTEST:
/s/ JOSE M. MILLARES, JR.
- --------------------------------
Jose M. Millares, Jr., Secretary
A-4
<PAGE>
Exhibit 1
---------
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
(Proposal Four B)
In the event Proposals Three and Four B are approved by the requisite vote
of the shareholders, Article Sixth, Section A of the Delaware Certificate shall
read in its entirety as follows:
The number of directors shall initially be four (4) and thereafter shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to
the Board for adoption). Upon the effective date of the merger of DSP
Technology Inc., a California corporation with and into the Corporation
(the "Effective Date") the directors shall be divided into three classes
with the term of office of the first class to expire at the first annual
meeting of the stockholders following the Effective Date, the term of
office of the second class to expire at the second annual meeting of
stockholders held following the Effective Date, the term of office of the
third class to expire at the third annual meeting of stockholders following
the Effective Date, and thereafter for each such term to expire at each
third succeeding annual meeting of stockholders after such election. All
directors shall hold office until the expiration of the term for which
elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director."; and
Article 2, Sections 2.2. and 2.12. of the Delaware By-Laws shall read their
entirety as follows:
"2.2. Number and Term of Office. The number of directors shall initially
-------------------------
be four (4) and, thereafter, shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Upon the effective
date of the Agreement and Plan of Merger between the Corporation and DSP
Technology Inc., a California corporation (the "Effective Date"), the
directors shall be divided into three classes, with the term of office of
the first class to expire at the first annual meeting of stockholders held
after the Effective Date; the term of office of the second class to expire
at the second annual meeting of stockholders held after the Effective Date;
the term of office of the third class to expire at the third annual meeting
of stockholders held after the Effective Date; and thereafter for each such
term to expire at each third succeeding annual meeting of stockholders
after such election. All directors shall hold office until the expiration
of the term for which elected and until their respective successors are
elected, except in the case of the death, resignation or removal of any
director."
* * * *
"2.12. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of all of the outstanding shares of capital stock entitled to
vote generally in the election of directors, voting together as a single
class."
A-5
<PAGE>
Exhibit 2
---------
ELIMINATION OF ACTION BY WRITTEN CONSENT
(Proposal Four C)
In the event Proposals Three and Four C are approved by the requisite vote
of the shareholders, Article Fifth, Section C of the Delaware Certificate shall
read in its entirety as follows:
"C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent
in writing by such stockholders."; and
Article 1, Section 1.12. of the Delaware By-Laws shall read in its entirety
as follows:
"1.12. No Stockholder Action Without Meeting. Any action required or
-------------------------------------
permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders."
A-6
<PAGE>
Exhibit 3
LIMITATION ON THE ABILITY TO CALL SPECIAL MEETINGS
(Proposal Four D)
Exhibit 3(A):
------------
In the event Proposals Three and Four D are approved by the requisite vote
of the shareholders, Article Fifth, Section D of the Delaware Certificate will
read its entirety as follows:
"D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors, the Chairman of the Board of Directors or
the President and Chief Executive Officer."; and
Exhibit 3(B):
------------
Article 1, Section 1.3. of the Delaware By-Laws shall read in its entirety
as follows:
"1.3. Special Meetings. Special meetings of Stockholders may be called at
----------------
any time only by the Board of Directors, Chairman of the Board or the
President and Chief Executive Officer."
A-7
<PAGE>
Exhibit 4
SUPER-MAJORITY VOTE REQUIREMENT FOR AMENDMENT OF
THE DELAWARE CERTIFICATE AND BY-LAWS
(Proposal Four E)
In the event Proposals Three and Four E are approved by the requisite vote
of the shareholders, Article Ninth of the Delaware Certificate shall read in its
entirety as follows:
"The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by
the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however,
-------- -------
that, notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at
least sixty-six and two thirds percent (66 2/3%) of the voting power of all
of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as
a single class, shall be required to amend or repeal this Article NINTH,
Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH."; and
Article Seventh of the Delaware Certificate shall read in its entirety as
follows:
"The Board of Directors is expressly empowered to adopt, amend or repeal
By-Laws of the Corporation. The stockholders shall also have power to
adopt, amend or repeal the By-Laws of the Corporation. Any adoption,
amendment or repeal of By-Laws of the Corporation by the stockholders shall
require, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six
and two thirds percent (66 2/3%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class."; and
Article 6, Section 6.2. of the Delaware By-Laws shall read in its entirety
as follows:
"6.2. By the Stockholders. Except as otherwise set forth in these By-
-------------------
Laws, these By-Laws may be altered, amended or repealed or new By-Laws may
be adopted by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote at any annual
meeting of stockholders, or at any special meeting of stockholders,
provided notice of such alteration, amendment, repeal or adoption of new
By-Laws shall have been stated in the notice of such special meeting."
A-8
<PAGE>
APPENDIX A-1
------------
CERTIFICATE OF INCORPORATION
OF DSP TECHNOLOGY INC.
FIRST: The name of the Corporation is DSP Technology Inc. (hereinafter
- -----
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the State
- ------
of Delaware is Incorporating Services, Ltd., 15 East North Street, in
the City of Dover, County of Kent. The name of the registered agent
at that address is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
- -----
activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH:
- ------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Sixteen Million Shares
(16,000,000) consisting of:
1. Fifteen Million (15,000,000) shares of Common Stock, par value
one-tenth of one cent ($.001) per share (the "Common Stock"); and
2. One Million (1,000,000) shares of Preferred Stock, par value
one-tenth of one cent ($.001) per share (the "Preferred Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred
Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to
fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions
thereon. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority
of the Common Stock without a vote of the holders of the Preferred
Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the
series of Preferred Stock.
FIFTH: The following provisions are inserted for the management of the
- -----
business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the By-Laws of the Corporation,
the directors are hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the
Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
A-1-1
<PAGE>
SIXTH:
- -----
A. The number of directors shall initially be four (4) and thereafter
shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption). All directors shall hold office
until the expiration of the term for which elected, and until their
respective successors are elected, except in the case of the death,
resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation or other cause
(including removal from office by a vote of the stockholders) may be
filled only by a majority vote of the directors then in office, though
less than a quorum, or by sole remaining director, and directors so
chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective
successors are elected, except in the case of the death, resignation,
or removal of any director.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
- -------
repeal By-Laws of the Corporation. The stockholders shall also have
power to adopt, amend or repeal the By-Laws of the Corporation. Any
adoption, amendment or repeal of By-Laws of the Corporation by the
stockholders shall require, in addition to any vote of the holders of
any class or series of stock of the Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders
of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class.
EIGHTH: A director of the Corporation shall not be personally liable to the
- ------
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involved intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
- -----
contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights
conferred upon stockholders are granted subject to this reservation;
provided, however, that, notwithstanding any other provision of this
-------- -------
Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any vote
of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of a majority of the voting power of
all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend or
repeal this Certificate of Incorporation.
A-1-2
<PAGE>
TENTH Every stockholder entitled to vote at any election of directors of
- -----
this company may cumulate his votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which his shares are entitled, or distribute his
votes on the same principle among as many candidates as he thinks fit.
The candidates receiving the highest number of votes up to the number
of directors to be elected are elected.
A-1-3
<PAGE>
APPENDIX A-2
------------
BY-LAWS OF DSP TECHNOLOGY INC. (DELAWARE)
Article 1. Stockholders
------------
1.1. Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President and Chief Executive
Officer or, if not so designated, at the registered office of the corporation.
1.2. Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President and Chief Executive Officer at the time and place to
be fixed by the Board of Directors or the President and stated in the notice of
the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
1.3. Special Meetings. Special meetings of stockholders may be called at
----------------
any time only by the Board of Directors, the Chairman of the Board, the
President and Chief Executive Officer or the holders of 10% or more of the
outstanding voting power of the Corporation. Business transacted at any special
meeting of stockholders shall be confined to the purpose or purposes stated in
the notice of meeting.
1.4. Notice of Meetings. Written notice of each meeting of stockholders,
------------------
whether annual or special, shall be given not less than ten (10) nor more than
sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required by law (meaning here and hereafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and
hour of the meeting. The notice of a special meeting shall state, in addition,
the purpose or purposes for which the meeting is called. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5. Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present. This list shall preemptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
1.6. Quorum. Except as otherwise provided by law or these By-Laws, the
------
holders of a majority of the shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
A-2-1
<PAGE>
1.7. Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the holders of a majority of the shares of stock present
or represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. When a meeting is adjourned to another place,
date or time, written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original
meeting.
1.8. Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons to
vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
1.9. Action at Meeting. When a quorum is present at any meeting, any
-----------------
election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election, and all other matters shall be
determined by a majority of the votes cast affirmatively or negatively on the
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, a majority of each such
class present or represented and voting affirmatively or negatively on the
matter) shall decide such matter, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws.
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting. The corporation may, and to the
extent required by law, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as an alternate
inspector to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting may, and to the extent required by law, shall, appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability.
1.10. Notice of Stockholder Business. At an annual meeting of the
------------------------------
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder proposal to be presented at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been advanced by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholders to be timely must be
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received not later than the close of business on the tenth day following the day
on which the date of the annual meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
1.11. Conduct of Business. At every meeting of the stockholders, the
-------------------
Chairman of the Board, if there is such an officer, or if not, the person
appointed by the Board of Directors, shall act as Chairman. The Secretary of
the corporation or a person designated by the Chairman of the meeting shall act
as Secretary of the meeting. Unless otherwise approved by the Chairman of the
meeting, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these By-Laws to
act by proxy, and officers of the corporation.
The Chairman of the meeting shall call the meeting to order, establish the
agenda, and conduct the business of the meeting in accordance therewith or, at
the Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the stockholders in attendance. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the By-Laws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this Section
1.11 and Section 1.10, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
1.12. Stockholder Action by Written Consent. Any action which may be
-------------------------------------
taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Article 2. Board of Directors
------------------
2.1. General Powers. The business and affairs of the corporation shall
--------------
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2. Number and Term of Office. The number of directors shall initially
-------------------------
be four (4) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption). All directors shall hold office
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until the expiration of the term for which elected and until their respective
successors are elected, except in the case of the death, resignation or removal
of any director.
2.3. Vacancies and Newly Created Directorships Subject to the rights of
-----------------------------------------
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.4. Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5. Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6. Special Meetings. Special meetings of the Board of Directors may be
----------------
called at any time and place, within or without the State of Delaware, by the
Chairman of the Board, the President and Chief Executive Officer, two or more
directors, or by one director in the event that there is only a single director
in office.
2.7. Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone or
electronic voice message system at least 24 hours in advance of the meeting,
(ii) by sending a telegram, telecopy or telex, or delivering written notice by
hand, to his last known business or home address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least three (3) day in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
2.8. Participation in Meetings by Telephone Conference Calls. Directors or
-------------------------------------------------------
any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.9. Quorum. A majority of the total number of authorized directors shall
------
constitute a quorum at any meeting of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the number
so fixed constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present. Interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or at a meeting of a
committee which authorizes a particular contract or transaction.
2.10 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
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2.11. Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board or
committee.
2.12. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only by the affirmative
vote of the holders of at least a majority of the voting power of all of the
outstanding shares of capital stock entitled to vote generally in the election
of directors, voting together as a single class.
2.13. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these By-Laws for the
Board of Directors.
2.14. Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to the determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.15. Nomination of Director Candidates. Subject to the rights of holders
---------------------------------
of any class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of Directors generally. However, any stockholder entitled to vote
in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary of the Corporation. To be timely, a stockholder nomination for a
director to be elected at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a nomination for director to be
elected at a special meeting, notice by the stockholders to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the special meeting was mailed or such
public disclosure was made. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote for the election
of directors on the date of such notice and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission,
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<PAGE>
had the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.15 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.15 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.15,
such nomination shall be void; provided, however, that nothing in this Section
2.15 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
Article 3. Officers
--------
3.1. Enumeration. The officers of the corporation shall consist of a
-----------
President and Chief Executive Officer, a Secretary, a Chief Financial Officer
and such other officers with such other titles as the Board of Directors shall
determine, including, at the discretion of the Board of Directors, a Chairman of
the Board, and one or more Vice Presidents and Assistant Secretaries. The Board
of Directors may appoint such other officers as it may deem appropriate.
3.2. Election. Officers shall be elected annually by the Board of
--------
Directors at its first meeting following the annual meeting of stockholders.
Officers may be appointed by the Board of Directors at any other meeting.
3.3. Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4. Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote appointing him, or until his earlier death, resignation or removal.
3.5. Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer may be removed at any time, with or without cause, by
the Board of Directors.
3.6. Chairman of the Board. The Board of Directors may appoint a Chairman
---------------------
of the Board. If the Board of Directors appoints a Chairman of the Board, he
shall perform such duties and possess such powers as are assigned to him by the
Board of Directors. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, and, if he is a director, at
all meetings of the Board of Directors.
3.7. President. The President shall, subject to the direction of the Board
---------
of Directors, have responsibility for the general management and control of the
business and affairs of the Corporation and shall perform all duties and have
all powers which are commonly incident to the office of chief executive or which
are delegated to him or her by the Board of Directors. The President shall be
the Chief Executive Officer of the corporation. The President shall perform
such other duties and shall have such other powers as the Board of Directors may
from time to time prescribe. He or she shall have power to sign stock
certificates, contracts and other
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<PAGE>
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation, other than the Chairman of the Board.
3.8. Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have at the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.9. Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the Secretary,
including, without limitation, the duty and power to give notices of all
meetings of stockholders and special meetings of the Board of Directors, to keep
a record of the proceedings of all meetings of stockholders and the Board of
Directors, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.10. Chief Financial Officer. Unless otherwise designated by the Board
-----------------------
of Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform such duties and shall have such powers as may
from time to time be assigned to him by the Board of Directors or the President.
In addition, the Chief Financial Officer shall perform such duties and have such
powers as are incident to the office of chief financial officer, including
without limitation, the duty and power to keep and be responsible for all funds
and securities of the corporation, to maintain the financial records of the
Corporation, to deposit funds of the corporation in depositories as authorized,
to disburse such funds as authorized, to make proper accounts of such funds, and
to render as required by the Board of Directors accounts of all such
transactions and of the financial condition of the corporation.
3.11. Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.12. Delegation of Authority. The Board of Directors may from time to
-----------------------
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Article 4. Capital Stock
-------------
4.1. Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2. Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the
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<PAGE>
corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation. Any or
all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3. Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or authenticity of signature
as the corporation or its transfer agent may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by the By-
Laws, the corporation shall be entitled to treat the record holder of stock as
shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been transferred on the books of the corporation in accordance with
the requirements of these By-Laws.
4.4. Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously saved certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5. Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, concession or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Article 5. General Provisions
------------------
5.1. Fiscal Year. The fiscal year of the corporation shall be as fixed by
-----------
the Board of Directors.
5.2. Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
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<PAGE>
5.3. Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy, telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
5.4. Actions with Respect to Securities of Other Corporations. Except as
--------------------------------------------------------
the Board of Directors may otherwise designate, the President or any officer of
the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution) at
any meeting of stockholders or shareholders (or with respect to any action of
stockholders) of any other corporation or organization, the securities of which
may be held by this corporation and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of this corporation's
ownership of securities in such other corporation or other organization.
5.5. Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6. Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to
time.
5.7. Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.8. Pronouns. All pronouns used in these By-Laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
5.9. Notices. Except as otherwise specifically provided herein or required
-------
by law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram,
mailgram, telecopy or commercial courier service. Any such notice shall be
addressed to such stockholder, director, officer, employee or agent at his or
her last known address as the same appears on the books of the Corporation. The
time when such notice shall be deemed to be given shall be the time such notice
is received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or the
time such notice is dispatched, if delivered through the mails or be telegram or
mailgram.
5.10. Reliance Upon Books, Reports and Records. Each director, each
----------------------------------------
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
5.11. Time Periods. In applying any provision of these By-Laws which
------------
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included.
5.12. Facsimile Signatures. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee
thereof.
A-2-9
<PAGE>
Article 6. Amendments
----------
6.1. By the Board of Directors. Except as is otherwise set forth in these
-------------------------
By-Laws, these By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
6.2. By the Stockholders. Except as otherwise set forth in these By-Laws,
-------------------
these By-Laws may be altered, amended or repealed or new By-Laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any annual meeting of stockholders, or at any special meeting of stockholders,
provided notice of such alteration, amendment, repeal or adoption of new By-Laws
- --------
shall have been stated in the notice of such special meeting.
Article 7. Indemnification of Directors and Officers.
-----------------------------------------
7.1. Right to Indemnification. Each person who was or is made a party or
------------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or of a Partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by Delaware Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 7.2 of
-------- -------
this Article 7, the Corporation shall indemnify any such person seeking
indemnity in connection with an action, suit or proceeding (or part thereof)
initiated by such person only if (a) such indemnification is expressly required
to be made by law, (b) the action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation, (c) such
indemnification is provided by the Corporation, in its sole discretion, pursuant
to the powers vested in the Corporation under the Delaware General Corporation
Law, or (d) the action, suit or proceeding (or part thereof) is brought to
establish or enforce a right to indemnification under an indemnity agreement or
any other statute or law or otherwise as required under Section 145 of the
Delaware General Corporation Law. Such right shall be a contract right and
shall include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that, unless the Delaware General Corporation Law then so prohibits,
- -------
the payment of such expenses incurred by a director or officer of the
Corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is tendered by such person while a
director or officer, including, without limitation. service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
7.2. Right of Claimant to Bring Suit. If a claim under Section 7.1 is not
-------------------------------
paid in full by the Corporation within ninety (90) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if such suit is not frivolous or brought in bad faith, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other then an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the
A-2-10
<PAGE>
claimant is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
7.3. Indemnification of Employees and Agents. The Corporation may, to the
---------------------------------------
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of related expenses, to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification of and advancement of expenses to directors
and officers of the Corporation.
7.4. Non-Exclusivity of Rights. The rights conferred on any person in
-------------------------
Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5. Indemnification Contracts. The Board of Directors is authorized to
-------------------------
enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article 7.
7.6. Insurance. The Corporation shall maintain insurance to the extent
---------
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
7.7. Effect of Amendment. Any amendment, repeal or modification of any
-------------------
provision of this Article 7 by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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<PAGE>
APPENDIX B
----------
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ___________________, 199___, is made
by and between DSP Technology Inc., a Delaware corporation (the "Company"), and
_______________________ (the "Indemnitee").
RECITALS
--------
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents
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<PAGE>
of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
(a) Agent. For the purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director, officer, employee or other agent of
the Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interests of the Company or a
subsidiary of the Company as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include all
--------
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the By-Laws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
-------------------
(a) Maintenance of D&O Insurance. The Company hereby covenants and
----------------------------
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company,
B-2
<PAGE>
the Company, subject to Section 3(c), shall promptly obtain and maintain in full
force and effect directors' and officers' liability insurance ("D&O Insurance")
in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
-------------------
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
---------------------------------------------------
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
------------------
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
------------------------------------
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in
B-3
<PAGE>
settlement) actually and reasonably incurred to the extent Indemnitee would have
been entitled to indemnification pursuant to Sections 4(a), 4(b), or 4(c) above
were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be obligated
to indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually made to
or on behalf of Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
---------------------------------
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
B-4
<PAGE>
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
------------------------
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or By-Laws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by this
-----------
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
------------------
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company,
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<PAGE>
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place.
13. Interpretation of Agreement. It is understood that the parties hereto
---------------------------
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
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17. Governing Law. This Agreement shall be governed exclusively by and
-------------
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
DSP TECHNOLOGY INC.
By________________________________
Title_____________________________
Address: ______________________
______________________
INDEMNITEE:
[Indemnitee's Printed Name]
Address: ______________________
______________________
B-7
<PAGE>
PROXY
DSP TECHNOLOGY INC.
48500 KATO ROAD, FREMONT, CALIFORNIA 94538
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints F. Gil Troutman, Jr. and Jose M. Millares,
Jr. (the "Proxies"), and each of them, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and vote as
designated below, all the shares of Common Stock of DSP Technology Inc. (the
"Company") held of record by the undersigned on April 25, 1997, at the Annual
Meeting of Shareholders to be held on June 20, 1997 or any adjournment thereof.
1. ELECTION OF DIRECTORS
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed
below
INSTRUCTION: To withhold authority to vote for any individual
nominee strike a line through the nominee's name below.
F. Gil Troutman, Jr. Howard O. Painter, Jr. J. Scott Kamsler Michael A. Ford
2. To approve an increase in the number of shares of the Company's
Common Stock reserved for issuance under its 1991 Stock Option
Plan by 100,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve the reincorporation of the Company in the State of
Delaware and other related changes to the rights of shareholders.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Subject to the approval of Proposal Three, to approve certain
additional anti-takeover measures under the Company's Delaware
Certificate of Incorporation and Delaware By-Laws as follows:
A. To approve the elimination of cumulative voting for the
election of directors.
[_] FOR [_] AGAINST [_] ABSTAIN
B. To approve a classified board of directors removable only
for cause.
[_] FOR [_] AGAINST [_] ABSTAIN
C. To approve the elimination of action by written consent.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
D. To approve certain limitations on the ability to call
special meetings.
[_] FOR [_] AGAINST [_] ABSTAIN
E. To approve super-majority vote requirements for certain
amendments to the Delaware Certificate of Incorporation and
the Delaware By-Laws.
[_] FOR [_] AGAINST [_] ABSTAIN
5. To ratify the appointment of Grant Thornton as the independent
accountants of the Company for the fiscal year ending February 1,
1998.
[_] FOR [_] AGAINST [_] ABSTAIN
6. To transact such other business as may properly come before the
meeting.
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, the Proxy will be
voted FOR Proposals 1, 2, 3, 4A, 4B, 4C, 4D, 4E and 5.
Please sign exactly as your name appears on your stock certificates. When
shares are held by joint tenants, both should sign. When signing as an
attorney, as executor, administrator, trustee or guardian, please give your full
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.
Dated:___________________________________1997
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED TO
ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN THOUGH YOU HAVE SENT
IN YOUR PROXY.
