SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment no. 1)
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Silicon Storage Technology, Inc.
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(Name of Registrant as Specified in Its Charter)
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(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 transactions applies:
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(2) Aggregate number of securities to which transactions 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.
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[ ] 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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<PAGE>
June 12, 1998
Dear Silicon Storage Technology, Inc. Shareholder:
Please note that the table, Stock Option Grants and Exercises, found on page 19
of your Proxy Statement contains certain erroneous information.
<TABLE>
The correct table is set forth below:
<CAPTION>
Potential Realizable Value
Percent of at Assumed Annual Rates
Total Options of Stock Price Appreciation
Granted to Exercise Market for Option Term
Date Options Employees in Price Price Expiration ------------------------------
Name of Grant Granted Fiscal Year ($/Sh) ($/Sh) Date 5% 10%
---- -------- ------- ------------ ------ ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Freeze Jan-97 100,000 4.41% $4.88 $4.88 1/31/07 $306,586 $776,949
Thomas A. Freeze Apr-97 100,000 4.41% $3.13 $3.13 4/30/07 $196,530 $498,045
Yaw-Wen Hu Jan-97 25,640 1.13% $4.88 $4.88 1/31/07 $78,609 $199,210
Yaw-Wen Hu Apr-97 25,640 1.13% $3.13 $3.13 4/30/07 $50,390 $127,699
Isao Nojima Jan-97 24,420 1.08% $4.88 $4.88 1/31/07 $74,868 $189,731
Isao Nojima Apr-97 24,420 1.08% $3.13 $3.13 4/30/07 $47,993 $121,622
</TABLE>
Please note that the Apr-97 activity is not an additional grant of options but a
re-pricing of options previously issued in January of 1997.
Sincerely,
/s/ JEFFREY L. GARON
Jeffrey L. Garon
Secretary
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
1171 Sonora Court
Sunnyvale, California 94086
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 17, 1998
TO THE SHAREHOLDERS OF SILICON STORAGE TECHNOLOGY, INC.:
Notice Is Hereby Given that the Annual Meeting of Shareholders of
Silicon Storage Technology, Inc., a California corporation ("the Company"), will
be held on Friday, July 17, 1998 at 2:00 p.m., local time, at the offices of the
Company at 1156 Sonora Court, Sunnyvale, California 94086 for the following
purposes:
1. To elect directors to serve for the ensuing year and until
their successors are elected.
2. To approve the Company's 1995 Equity Incentive Plan, as
amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 750,000
shares to 6,750,000 shares.
3. To ratify the selection of Coopers & Lybrand L.L.P. as
independent auditors of the Company for its fiscal year ending
December 31, 1998.
4. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 26, 1998,
as the record date for the determination of shareholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
JEFFREY L. GARON
Secretary
Sunnyvale, California
June 12, 1998
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ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
1171 Sonora Court
Sunnyvale, California 94086
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
July 17, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Silicon Storage Technology, Inc., a California corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held on Friday, July 17, 1998 at
2:00 p.m., local time, (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the Company's
offices at 1156 Sonora Court, Sunnyvale, California 94086. The Company intends
to mail this proxy statement, accompanying proxy card, 1997 Annual Report (which
includes the Annual Report on Form 10-K) on or about June 12, 1998, to all
shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram, or
personal solicitation by directors, officers, or other regular employees of the
Company. No additional compensation will be paid to directors, officers, or
other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on May
26, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 26, 1998 the Company had outstanding and entitled to
vote 22,877,585 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes. Abstentions and broker non-votes are counted
towards a quorum but are not counted for any purposes in determining whether a
matter is approved.
2
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive offices, 1171
Sonora Court, Sunnyvale, California 94086, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company
not later than Friday, February 12, 1999 in order to be included in the proxy
statement and proxy relating to the Annual Meeting. Shareholders are also
advised to review the Company's bylaws, which contain additional requirements
with respect to advance notice shareholder proposals and director nominations.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently
authorized in the Company's Bylaws. Each director to be elected will hold office
until the next annual meeting of shareholders and until his successor is elected
and has qualified, or until such director's earlier death, resignation or
removal. Each nominee listed below is currently a director of the Company, all
five having been elected by the shareholders.
Shares represented by the executed proxies will be voted, if authority
to do so is not withheld, for the election of the five nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
<TABLE>
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. The names of the nominees and certain
information about them are set forth below:
<CAPTION>
- ------------------------------------ --------- -------------------------------------------------------------
Name Age Principal Occupation/Position Held with the Company
- ------------------------------------ --------- -------------------------------------------------------------
<S> <C> <C>
Bing Yeh (1)(4) 47 President and Chief Executive Officer
- ------------------------------------ --------- -------------------------------------------------------------
Yaw Wen Hu 48 Vice President, Process Development and Wafer Manufacturing
- ------------------------------------ --------- -------------------------------------------------------------
Tsuyoshi Taira (1)(2)(3) 59 President, Tazan International, Inc.
- ------------------------------------ --------- -------------------------------------------------------------
Yasushi Chikagami (1)(2)(3) 59 Director, GVC Corporation
- ------------------------------------ --------- -------------------------------------------------------------
Ronald Chwang (1)(2)(3) 49 President, Acer Capital America
- ------------------------------------ --------- -------------------------------------------------------------
<FN>
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Stock Option Committee
(4) Sole Member of Non-Officer Stock Option Committee
</FN>
</TABLE>
Bing Yeh, co-founder of the Company, has served as President, Chief
Executive Officer and a director of the Company since its inception in 1989.
Prior to founding the Company, Mr. Yeh served as a Senior Research and
Development Manager of Xicor, Inc., a nonvolatile memory semiconductor company.
From 1981 to 1984, Mr. Yeh held program manager and other positions at Honeywell
Inc. From 1979 to 1981, Mr. Yeh was a senior development engineer of EEPROM
technology of Intel Corporation. He was a Ph.D. candidate in Applied Physics and
earned an Engineer degree at Stanford University. Mr. Yeh holds a M.S. and a
B.S. in Physics from National Taiwan University.
Yaw Wen Hu, Ph.D., has served the Company as Vice President, Process
Development and Wafer Manufacturing since July 1993 and became a director of the
Company in September 1995. From 1990 to 1993, Dr. Hu served as Deputy General
Manager of Technology Development of Vitelic Taiwan Corporation. From 1988 to
1990, he served as FAB Engineering Manager of Integrated Device Technology, Inc.
From 1985 to 1988 he was the Director of Technology Development at Vitelic
Corporation. From 1978 to 1985 he worked as a senior development engineer in
Intel Corporation's Technology Development group. Mr. Hu holds a B.S. in Physics
from National Taiwan University and a M.S. in Computer Engineering and a Ph.D.
in Applied Physics from Stanford University.
4
<PAGE>
Tsuyoshi Taira has been a director of the Company since July 1993. Mr.
Taira served as a member of the board of directors of Atmel Corporation from
1987 to 1992. Mr. Taira served as president of Sanyo Semiconductor Corporation
from 1986 to 1993. Mr. Taira was Chairman of the Sanyo Semiconductor Corporation
from 1993 to 1996. Mr. Taira left the Sanyo Semiconductor Corporation in August,
1996. Mr. Taira currently owns and runs a marketing and management consulting
company, Tazan International, Inc. Mr. Taira holds a B.S. from Tokyo
Metropolitan University.
Yasushi Chikagami has been a director of the Company since September
1995. Mr. Chikagami has been Chairman of Keian Corporation, a personal computer
and PC peripheral distributor, since 1993. Mr. Chikagami has also served as
director of GVC Corporation and Trident Microsystems, Inc. since 1993. Mr.
Chikagami holds a B.S. in Agricultural Engineering from Taiwan University and a
M.S. in Engineering from University of Tokyo.
Ronald Chwang, Ph.D., became a director of the Company in June 1997.
Dr. Chwang is the President of Acer Capital America and managing general partner
of Acer Technology Venture Fund. Previously, Dr. Chwang was President and Chief
Executive Officer of Acer America, a subsidiary of Acer Group, a worldwide
computer, component and semiconductor manufacturer, from 1992 to 1997, and has
been with Acer in various capacities since 1986. Dr. Chwang has previously held
development and management positions at Intel Corporation and Bell Northern
Research. Dr. Chwang holds a B.S. in Engineering from McGill University and a
Ph.D. in Electrical Engineering from the University of Southern California.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
5
<PAGE>
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1997, the Board of Directors held
four meetings. The Board has a Compensation Committee, Audit Committee, Stock
Option Committee, and a Non-Officer Stock Option Committee.
The Compensation Committee makes recommendations concerning the
salaries and benefits of all officers of the Company and reviews general policy
relating to compensation and benefits of employees of the Company, except for
the issuance of stock options and other awards under the Company's equity
incentive plans. The Compensation Committee is composed of three non-employee
directors: Mssrs. Taira, Chikagami and Chwang, and one employee director, Mr.
Yeh. The Compensation Committee met one time during fiscal 1997.
The Audit Committee meets with the Company's independent auditors at
least once annually to review the results of the annual audit and to discuss the
Company's financial statements. The Audit Committee recommends to the Board
whether the independent auditors are to be retained and receives and considers
the accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with audit and financial controls. The
Audit Committee is composed of three non-employee directors: Mssrs. Taira,
Chikagami, and Chwang. The Audit Committee met four times during fiscal 1997.
The Stock Option Committee administers the issuance of stock options
and other awards under the Company's 1995 Equity Incentive Plan. The Stock
Option Committee is composed of three non-employee directors: Mssrs. Taira,
Chikagami and Chwang. The Stock Option Committee did not meet during fiscal 1997
but acted by unanimous written consent five times during fiscal 1997.
The Non-Officer Stock Option Committee administers the issuance of
stock options consisting of not more than 12,000 shares per stock option grant
under the Company's 1995 Equity Incentive Plan to non-officer employees. The
Non-Officer Stock Option Committee is composed of one employee director: Mr.
Yeh. The Non-Officer Stock Option Committee acted by unanimous written consent
thirteen times during fiscal 1997.
During the year ended December 31, 1997, each Board member attended, in
person or by telephonic conference, all meetings of the Board, and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
6
<PAGE>
PROPOSAL 2
APPROVAL OF 1995 EQUITY INCENTIVE PLAN, AS AMENDED
In October 1995, the Board of Directors adopted, and the
shareholders subsequently approved, the Company's 1995 Equity Incentive Plan
("the Incentive Plan") as an amendment and restatement of its 1990 Stock Option
Plan and increased the number of shares reserved for issuance under the
Incentive Plan to 6,000,000 shares.
As of April 30, 1998, options to purchase a total of 2,698,000 (net of
cancelled or expired options) shares were outstanding under the Incentive Plan.
In addition, options to purchase 704,000 (plus any shares that might in the
future be returned to the plan as a result of cancellations or expiration of
options) shares remained available for grant thereunder. The Board has amended
the Incentive Plan subject to shareholder approval to increase the aggregate
number of shares of Common Stock authorized for issuance under the Incentive
Plan by 750,000 to 6,750,000 shares. During fiscal 1997, under the Incentive
Plan, the Company has granted to all current executive officers as a group,
options to purchase 494,000 shares at exercise prices of $3.125 to $6.00 per
share, and granted to all employees (excluding executive officers) as a group
options to purchase 939,000 shares at exercise prices of $3.125 to $6.00 per
share. The above figures are net of 845,000 options granted which were later
cancelled and reissued at a different exercise price ("re-priced options").
Shareholders are requested in this Proposal 2 to approve the Incentive
Plan, as amended. If the shareholders fail to approve this Proposal 2, options
granted under the Incentive Plan after the Annual Meeting will not qualify as
performance-based compensation and, in some circumstances, the Company may be
denied a business expense deduction for compensation recognized in connection
with the exercise of these stock options. The affirmative vote of the holders of
a majority of the shares present in person or represented by proxy and voting at
the meeting will be required to approve the Incentive Plan, as amended. For
purposes of this vote, abstentions will be counted toward the tabulation of
votes counted and will have the same effect as negative votes, while broker
non-votes will not be counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
7
<PAGE>
The essential features of the Incentive Plan are outlined below:
GENERAL
The Incentive Plan provides for the grant or issuance of incentive stock
options to employees and non-statutory stock options, restricted stock purchase
awards, stock bonuses and stock appreciation rights to consultants, employees,
officers and employee directors. To date only incentive stock options and
non-statutory stock options have been awarded under the Incentive Plan.
Incentive stock options granted under the Incentive Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Non-statutory stock options
granted under the Incentive Plan are intended not to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of the various awards included in the Incentive Plan.
PURPOSE
The Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to receive stock in the Company, to assist in retaining the services
of employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. All of Company's 194
employees as of April 30, 1998 and the Company's consultants are eligible to
participate in the Incentive Plan.
ADMINISTRATION
The Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the Incentive Plan, and subject to
the provisions of the Incentive Plan, to determine the persons to whom and the
dates on which awards will be granted, what type of award will be granted, the
number of shares to be subject to each award, the time or times during the term
of each award within which all or a portion of such award may be exercised, the
exercise price, the type of consideration and other terms of the award. The
Board of Directors is authorized to delegate administration of the Incentive
Plan to a committee composed of not fewer than two members of the Board. As used
herein with respect to the Incentive Plan, the "Board" refers to the Stock
Option Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the Incentive Plan only to
selected key employees (including officers) of the Company and its affiliates.
Consultants and selected key employees (including officers) are eligible to
receive awards other than incentive stock options under the Incentive Plan.
Directors who are not salaried employees of or consultants to the Company or to
any affiliate of the Company are not eligible to participate in the Incentive
Plan.
No option may be granted under the Incentive Plan to any person who, at
the time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant, and the term of
the option does not exceed five years from the date of grant. For incentive
stock options granted under the Incentive Plan, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect to
which such options are exercisable for the first time by an optionee during any
calendar year (under all such plans of the Company and its affiliates) may not
exceed $100,000.
8
<PAGE>
STOCK SUBJECT TO THE INCENTIVE PLAN
If awards granted under the Incentive Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such awards
again becomes available for issuance under the Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of non-statutory options under the Incentive Plan is
determined by the Board. At April 30, 1998, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market was $3.00 per share.
In the event of a decline in the value of the Company's Common Stock,
the Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or non-statutory, with new
lower priced options. The Company has provided that opportunity to employees in
the past. To the extent required by Section 162(m), an option re-priced under
the Incentive Plan is deemed to be cancelled and a new option granted. The Board
also has the authority to include as part of an option agreement a provision
entitling the optionee to a further option in the event that the optionee
exercises his or her option by surrendering other shares of Common Stock as
payment of the exercise price.
The exercise price of options granted under the Incentive Plan must be
paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
at the rate of 25% on the anniversary of the grant and 1/48th per month (25% per
year) thereafter during the optionee's employment or services as a consultant.
Shares covered by options granted in the future under the Incentive Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the Incentive Plan may permit exercise prior to vesting, but in such event the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at their
exercise price should the optionee leave the employ of the Company before
vesting. To the extent provided by the terms of an option, an optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
9
<PAGE>
Term. The maximum term of options under the Incentive Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan terminate three months after the optionee
ceases to be employed by the Company or any affiliate of the Company, unless (a)
the termination of employment is due to such person's permanent and total
disability (as defined in the Code), in which case the option may, but need not,
provide that it may be exercised at any time within one year of such
termination; (b) the optionee dies while employed by the Company or any
affiliate of the Company, or within three months after termination of such
employment, in which case the option may, but need not, provide that it may be
exercised (to the extent the option was exercisable at the time of the
optionee's death) within eighteen months of the optionee's death by the person
or persons to whom the rights to such option pass by will or by the laws of
descent and distribution; or (c) the option by its terms specifically provides
otherwise. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock pursuant to a stock
bonus agreement in consideration of past services actually rendered to the
Company or for its benefit.
Repurchase. Shares of the Common Stock sold or awarded under the Incentive Plan
may, but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors
of, or consultants to, the Company or its affiliates. The Incentive Plan
authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are
tied to an underlying option and require the holder to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights must be made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at the
same time the underlying option is exercised. The holder receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less the fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
10
<PAGE>
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or
subject to any award granted under the Incentive Plan (through merger,
consolidation, reorganization, re-capitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Incentive Plan and awards outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares subject to such plan and the
class, number of shares and price per share of stock subject to such outstanding
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume awards outstanding under the Incentive Plan or
substitute similar awards for those outstanding under such plan, or such
outstanding awards will continue in full force and effect. In the event that any
surviving corporation declines to assume or continue awards outstanding under
the Incentive Plan, or to substitute similar awards, then the time during which
such awards may be exercised will be accelerated and the awards terminated if
not exercised during such time. The acceleration of an award in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without
shareholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Incentive Plan will terminate on June 10, 2000.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
shareholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires shareholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires shareholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the Incentive Plan for shareholder approval,
including, but not limited to, amendments intended to satisfy the requirements
of Section 162(m) of the Code regarding the exclusion of performance-based
compensation from the limitation on the deductibility of compensation paid to
certain employees.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution and, during the lifetime of an optionee, an option may be exercised
only by the optionee. A non-statutory stock option or an independent stock
appreciation right may not be transferred except by will or by the laws of
descent and distribution or pursuant to a "qualified domestic relations order."
In any case, an optionee may designate in writing a third party who may exercise
the option in the event of the optionee's death. No rights under a stock bonus
or restricted stock purchase agreement are transferable except where required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement. A tandem stock appreciation right or
concurrent stock appreciation right may be transferred only by the method(s)
applicable to the underlying option. In addition, any shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer which the Board deems appropriate.
11
<PAGE>
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be either long-term or mid-term capital gain or loss. Generally, if
the optionee disposes of the stock before the expiration of either of these
holding periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (a) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (b) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss, which will be long-term, mid-term or
short-term depending on the length of time the stock was held. Capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum long-term capital gains rate for federal income tax purposes is
currently 20% (28% for mid-term capital gain) while the maximum ordinary income
rate is effectively 39.6% at the present time. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Non-statutory Stock Options. Non-statutory stock options granted under
the Incentive Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a non-statutory stock option. Upon exercise of a non-statutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long-term,
mid-term or short-term depending on the length of time the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
12
<PAGE>
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
the length of time the stock was held from the date ordinary income is measured.
Slightly different rules may apply to persons who acquire stock subject to
forfeiture under Section 16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income to
the recipient in the year of such exercise. Generally, with respect to
employees, the Company is required to withhold from the payment made on exercise
of the stock appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, Section 162(m) of the Code and the satisfaction
of a reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to a covered employees in a taxable year to the extent that
non-performance-based compensation paid to such a covered employee exceeds $1
million. It is possible that compensation attributable to awards under the
Incentive Plan, when combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a per-employee limitation on the number of shares for which stock
options and stock appreciation rights may be granted during a specified period;
(ii) the per-employee limitation is approved by the shareholders; (iii) the
award is granted by a compensation committee comprised solely of "outside
directors;" and (iv) the exercise price of the award is no less than the fair
market value of the stock on the date of grant. Restricted stock and stock
bonuses qualify as performance-based compensation under these proposed Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of "outside directors;" (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain; (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance goal
has been satisfied; and (iv) prior to the granting (or exercisability) of the
award, shareholders have approved the material terms of the award (including the
class of employees eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount (or formula used to calculate
the amount) payable upon attainment of the performance goal).
13
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ending December 31, 1998 and
has further directed that management submit the selection of independent
auditors for ratification by the shareholders at the Annual Meeting. Coopers &
Lybrand L.L.P. has audited the Company's financial statements since 1991.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Coopers & Lybrand L.L.P.
as the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
L.L.P. to the shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the selection, the Audit Committee
and the Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board in their discretion may
direct the appointment of different independent auditors at any time during the
year if they determine that such a change would be in the best interests of the
Company and its shareholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the Annual Meeting will be
required to ratify the selection of Coopers & Lybrand L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
14
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of April 30, 1998 by: (i) each director and each
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table employed by the Company in that capacity on April 30, 1998;
(iii) all executive officers and directors of the Company as a group; and (iv)
all those known by the Company to be beneficial owners of more than five percent
of its Common Stock.
Beneficial Ownership (1)
------------------------
Beneficial Owner Number of Shares Percent of Total
- ---------------- ---------------- ----------------
Bing Yeh (2) 3,650,000 16.0%
Ching S. Jenq 1,980,000 8.7
13030 Cumbra Vista Court
Los Altos Hills, CA 94022
Tseng Family Trust Dtd 12/26/96, 1,570,000 6.9
Carter and Su Hwa Tseng, trustees
22, R&D Road 2
Hsin-Chu Science Park
Taiwan, R.O.C. 30077
Isao Nojima (3) 338,408 1.5
Yaw Wen Hu (4) 316,149 1.4
Tsuyoshi Taira (5) 16,471 *
Yasushi Chikagami (5) 16,471 *
Ronald Chwang (6) 6,589 *
All executive officers and directors
as a group (eleven persons) (7) 4,507,088 19.7%
- ----------
* Represents beneficial ownership of less than 1% of the outstanding
shares of the Company's Common Stock.
(1) This table is based upon information supplied by officers, directors
and principal shareholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise
indicated in the footnotes to this table, and subject to community
property laws where applicable, the Company believes that each of the
shareholders named in this table above has sole voting and investment
power with respect to the shares of Common Stock shown as beneficially
owned. Percentage of beneficial ownership is based on 22,877,585 shares
of the Company's Common Stock outstanding as of April 30, 1998 adjusted
as required by rules promulgated by the SEC.
(2) Includes (i) 1,160,000 shares held by the Yeh Family Trust U/D/T dated
August 14, 1995, of which Mr. Yeh and his wife are trustees and (ii)
2,480,000 shares held by the Yeh 1995 Children's Trust U/T/A dated July
31, 1995 (the "Children's Trust") of which Su-Wen Y. Liu and Yeon-Hong
Chan are trustees. Mr. Yeh disclaims beneficial ownership of the shares
held by the Children's Trust. Also includes 10,000 shares purchased
under an IRA account in the name of Bing Yeh.
(3) Includes 308,944 shares issuable subject to options exercisable on or
before June 30, 1998.
(4) Includes (i) 5,000 shares held by each of Dr. Hu's two minor children
and (ii) 268,418 shares issuable subject to options exercisable on or
before June 30, 1998.
(5) Includes 16,471 shares issuable subject to options exercisable on or
before June 30, 1998.
15
<PAGE>
(6) Includes 6,589 shares issuable subject to options exercisable on or
before June 30, 1998.
(7) Includes 749,893 shares subject to stock options held by directors and
executive officers as a group exercisable on or before June 30, 1998.
See footnotes (3) through (6).
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
16
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the
Company for their service as members of the Board of Directors, although they
are reimbursed for certain travel-related expenses in connection with attendance
at Board and committee meetings in accordance with Company policy.
Each non-employee director of the Company receives stock option grants
under the 1995 Non-Employee Directors' Stock Option Plan ("the Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code").
Option grants under the Directors' Plan are non-discretionary.
Pursuant to the terms of the Directors' Plan, each director who was serving on
the date of the Company's initial public offering was granted on such date an
option to purchase 24,000 shares of the Company's Common Stock. In addition,
each non-employee director subsequently elected to the Board will automatically
be granted an option to purchase 24,000 shares of the Company's Common Stock. On
the date of each annual meeting of shareholders commencing with the 1997 Annual
Meeting, each member of the Company's Board of Directors who is not an employee
of the Company is automatically granted under the Directors' Plan, without
further action by the Company, the Board of Directors or the shareholders of the
Company, an option to purchase up to 6,000 shares of Common Stock of the
Company. No other options may be granted at any time under the Directors' Plan.
The exercise price of options granted under the Directors' Plan is 100% of the
fair market value of the Common Stock subject to the option on the date of the
option grant. Options granted under the Directors' Plan become exercisable over
a period of four years from the date of grant in forty-eight equal monthly
installments commencing on the date one month after the date of grant of the
option, provided that the optionee has, during the entire period prior to such
vesting date, continuously served as a non-employee director or employee of or
consultant to the Company or any affiliate of the Company, whereupon such option
shall become fully exercisable in accordance with its terms with respect to that
portion of the shares represented by that installment. The term of options
granted under the Directors' Plan is ten years. In the event of a merger of the
Company with or into another corporation or a consolidation, acquisition of
assets or other change-in-control transaction involving the Company, the vesting
of each option will accelerate and the option will terminate if not exercised
prior to the consummation of the transaction. At April 30, 1998, options (net of
canceled or expired options) covering an aggregate of 85,000 shares had been
granted under the Directors' Plan and 65,000 shares of the Company's Common
Stock remained available for grant under the Directors' Plan.
During fiscal year 1997, the Company granted options covering 37,000
shares to non-employee directors of the Company at exercise prices of $3.125 and
$3.625 per share (based on the closing sales price reported in the Nasdaq
National Market on the date of grant. As of April 30, 1998, no options had been
exercised under the Directors' Plan.
17
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation
<TABLE>
The following table shows for the fiscal years ended December 31, 1997,
December 31, 1996 and December 31, 1995 compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and the Company's other four
most highly compensated executive officers at December 31, 1997 (the "Named
Executive Officers"):
<CAPTION>
Annual Compensation Long-Term Compensation All Other
--------------------------------------------------
Salary Bonus Securities Underlying Compensation
Name and Principal Position Year ($) ($)(1) Stock Options ($)(2)
- -------------------------------- ----- ------------ --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Bing Yeh
President and 1997 $207,121 ----- ----- $1,480
Chief Executive Officer 1996 $195,000 $78,682 ----- $2,592
1995 $128,690 $40,824 ----- -----
Michael J. Praisner (3) 1997 $138,877 ----- ----- -----
Vice President, Finance 1996 $132,000 $38,324 ----- $712
and Administration, Chief 1995 $37,919 ----- 200,000 -----
Financial Officer and
Secretary
Thomas A. Freeze (4) 1997 $161,051 ----- 100,000 (5) $240
Chief Operating Officer and 1996 ----- ----- ----- -----
Executive Vice President 1995 ----- ----- ----- -----
Yaw-Wen Hu 1997 $137,280 ----- 25,640 (5) $280
Vice President, Process 1996 $132,000 $40,814 ----- $1,792
Development and Wafer 1995 $115,121 $18,281 2,800 -----
Manufacturing
Isao Nojima 1997 $141,353 ----- 24,420 (5) -----
Vice President, Advanced 1996 $135,000 $41,851 ----- $1,072
Development 1995 $115,500 $18,492 3,000 -----
<FN>
- ----------
(1) Bonuses received pursuant to the Company's profit sharing plan (see
Report of the Compensation Committee of the Board of Directors on
Executive Compensation).
(2) Includes other compensation for travel time.
(3) Michael J. Praisner left the Company in January 1998.
(4) Thomas A. Freeze left the Company in March 1998.
(5) Stock option grant net of impact of re-priced stock options.
</FN>
</TABLE>
18
<PAGE>
Stock Option Grants and Exercises
The Company grants options to its executive officers under the
Incentive Plan, as described in Proposal 2. As of April 30, 1998, options to
purchase a total of 2,698,000 shares were outstanding under the Incentive Plan
and options to purchase 704,000 shares remained available for grant thereunder.
<TABLE>
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
<CAPTION>
Potential Realizable Value
Percent of at Assumed Annual Rates
Total Options of Stock Price Appreciation
Granted to Exercise for Option Term (3)
Date of Options Employees in Price Expiration -----------------------------
Name Grant Granted Fiscal Year (1) ($/Sh)(2) Date 5% 10%
- ------------------- --------- ------------ ---------------- --------- ----------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Freeze Jan-97 100,000 (1) 4.41% $4.88 1/31/07 ($487,500) ($487,500)
Thomas A. Freeze Apr-97 100,000 4.41% $3.13 4/30/07 ($312,500) ($312,500)
Yaw-Wen Hu Jan-97 25,640 (1) 1.13% $4.88 1/31/07 ($124,995) ($124,995)
Yaw-Wen Hu Apr-97 25,640 1.13% $3.13 4/30/07 ($80,125) ($80,125)
Isao Nojima Jan-97 24,420 (1) 1.08% $4.88 1/31/07 ($119,048) ($119,048)
Isao Nojima Apr-97 24,420 1.08% $3.13 4/30/07 ($76,313) ($76,313)
<FN>
(1) The Company granted a net amount of 1,433,000 stock options to
employees during fiscal 1997. A total of 2,278,000 options were granted
to employees during the fiscal year. Of those options, 845,000 options
granted in January 1997 were converted into re-priced option grants in
April 1997 as described in the Report of the Compensation Committee of
the Board of Directors on Executive Compensation in this Proxy
Statement.
(2) The exercise price is equal to 100% of the fair market value of the
Common Stock on the date of grant.
(3) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation of
five and ten percent is assumed pursuant to rules promulgated by the
Securities and Exchange Commission and does not represent the Company's
prediction of its stock price performance. The potential realizable
value at 5% and 10% appreciation is calculated by assuming that the
exercise price appreciates at the indicated rate for the entire term of
the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price.
(4) Each of the options listed in the table was granted under the Incentive
Plan and vests over four years.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
Aggregated Option Exercises of Named Executive Officers in Last Fiscal Year
and Fiscal Year-End Option Values
<CAPTION>
Number (#) of Securities $ Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired $ Value Options at December 31, 1997 December 31, 1997
Name On Exercise (#) Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable (2)
- ------------------ --------------- ------------ ---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Bing Yeh -- -- -/- -/-
Michael J. Praisner -- -- 93,333/106,667 $198,333/$226,668
Isao Nojima 30,000 $198,000 287,000/42,420 $853,675/$53,550
Yaw Wen Hu 15,500 $ 24,200 243,967/46,973 $725,662/$63,446
Thomas A. Freeze -- -- 25,000/75,000 -/-
<FN>
(1) Based on the fair market value of the Company's Common Stock on the
date of exercise minus the exercise price, multiplied by the number of
shares underlying the option.
(2) Based on the closing price of the Company's Common Stock ($3.125) on
December 31, 1997 as reported on the Nasdaq National Market minus the
exercise price, multiplied by the number of shares underlying the
option.
</FN>
</TABLE>
Employee Stock Purchase Plan
In October 1995, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan") which became effective upon the effective date of the
Company's initial public offering. A total of 850,000 shares of common stock
have been reserved for issuance under the Purchase Plan. The Purchase Plan
provides for eligible employees, which include all executive officers except the
Chief Executive Officer, to purchase shares of common stock at a price equal to
85% of the fair market value of the Company's common stock on the date of the
option grant by withholding up to 10 percent of their annual base earnings.
20
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION (1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors which is composed of Mssrs.
Taira, Chikagami, and Chwang, each a non-employee director of the Company and
Bing Yeh, President and Chief Executive Officer; and, the Stock Option Committee
which consists of Mssrs. Taira, Chikagami, and Chwang.
The Company's executive compensation program is designed to retain and
reward executives who are responsible for leading the Company in achieving its
business objectives. All decisions by the Compensation Committee relating to the
salary compensation of the Company's executive officers, with the exception of
the Chief Executive Officer, are reviewed by the full Board; and, all stock
option awards by the Stock Option Committee to the executive officers of the
Company are reviewed by the full Board. The salary compensation of the Chief
Executive Officer is established by the non-employee members of the Compensation
Committee, Mssrs. Taira, Chikagami, and Chwang. This report is submitted by the
Compensation Committee and the Stock Option Committee (collectively, the
Committee) and addresses the Company's compensation policies for the fiscal year
ended December 31, 1997 as they affect Bing Yeh, in his capacity as President
and Chief Executive Officer of the Company, and the other executive officers of
the Company.
COMPENSATION PHILOSOPHY
The objectives of the executive compensation program are to (i) align
compensation with the Company's business objectives and individual performance,
(ii) motivate and reward high levels of performance, (iii) recognize and reward
the achievement of team and individual goals, and (iv) enable the Company to
attract, retain and reward executive officers who contribute to the long-term
success of the Company.
The Company's executive compensation philosophy is to tie a significant
portion of executive compensation to the performance of the Company and
attainment of team and individual goals and objectives by its executive officers
and is based on the following:
-- The Committees regularly compare the Company's executive
compensation practices with those of other companies in the
semiconductor industry and other technology-related industries
and sets its compensation guidelines based on this review. The
Company's base annual salaries for its executives are generally
in the low-range of those paid to executives of companies with
comparable revenue targets in high technology industries. The
Compensation Committee and the Stock Option Committee seek,
however, to provide the Company's executives with opportunities
for higher compensation through profit sharing and stock options
which, when the Company is profitable, places total compensation
at the mid-range of comparable companies.
-- The Committees believe that an executive compensation program
that ties profit sharing awards to performance and achievement of
the Company's stated goals serves both as an influential
motivator to its executives and as an effective instrument for
aligning their interests with those of the shareholders of the
Company.
- -----------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "1933 Act"),
or the Securities Exchange Act of 1934 (the "1934 Act"), that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
following report and Performance Graph on page 25 shall not be incorporated by
reference into any such filings.
21
<PAGE>
-- The Committees also believe that a substantial portion of the
compensation of the Company's executives should be linked to the
success of the Company's stock in the marketplace. The linkage is
achieved through the Company's stock option program which also
serves to more fully align the interests of management with those
of the Company's shareholders.
IMPLEMENTATION OF COMPENSATION PROGRAM
Annual compensation for the Company's executives consists of three
principal elements -- salary, profit sharing and stock options.
The Compensation Committee sets the base annual salary and levels of
compensation for executives by reviewing compensation for comparable positions
in the market and the historical compensation levels of the Company's
executives. Currently, the base annual salaries of the Company's executives are
at levels which the Compensation Committee believes are generally in the
mid-range of those of executives of companies with which the Company compares
itself. The Compensation Committee members participate in the deliberations of
the annual salaries for all executive officers other than for compensation for
Mr. Yeh. The non-employee members of the Compensation Committee deliberate upon
and set Mr. Yeh's annual salary. Increases in annual salaries are based on a
review and evaluation of executive salary levels and the demonstrated
capabilities of the executives in managing the key aspects of a semiconductor
company, including (i) corporate partnering, patent strategy and technology
collaborations, (ii) research and development, (iii) market development and
market penetration, (iv) financial matters, including attracting capital and
financial planning, and (v) human resources.
1997 RE-PRICING PROGRAM
<TABLE>
On April 23, 1997 the Board of Directors approved an offer to all
employees of the Company to re-price outstanding options granted prior to that
date with an exercise price above $3.125 per share (the "1997 Re-pricing
Program"). Under the 1997 Re-pricing Program, as of April 28, 1997, 845,000
option grants were converted into re-priced option grants with an exercise price
of $3.125 (based on the closing price as reported on the Nasdaq National Market
on such date). As consideration for the grant of re-priced options, optionees
are prohibited from exercising the re-priced options for a period of three
months following the initial vest date of such re-priced options. The 1997
Re-pricing Program terminated on April 28, 1997. The following officers received
re-priced option grants pursuant to the 1997 Re-pricing Program:
<CAPTION>
Number of Length of Original
Securities Market Price of Stock Option Term Remaining
Underlying Options At Time of Re-pricing New Exercise At Date of Re-pricing
Name Date Re-priced or Amended Or Amendment Price Or Amendment
---- ---- -------------------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C>
Isao Nojima 4/28/97 24,420 $4.875 $3.125 117 months
Thomas A. Freeze 4/28/97 100,000 $4.875 $3.125 117 months
Yaw Wen Hu 4/28/97 25,640 $4.875 $3.125 117 months
David Sweetman 4/28/97 25,640 $4.875 $3.125 117 months
</TABLE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER IN FISCAL 1997
As discussed below, Mr. Yeh is eligible to participate in the same executive
compensation plans available to the other executive officers of the Company. The
non-employee members of the Compensation Committee set Mr. Yeh's total annual
compensation, including compensation derived from the Company's profit sharing
program, at a level it believes is appropriate in comparison with other Chief
Executive Officers at mid-sized companies in technology-related industries with
comparable revenue targets. The non-employee members of the Compensation
Committee agreed to Mr. Yeh's request to be paid at the low end of the range for
his position until the Company returns to profitability.
22
<PAGE>
Mr. Yeh earned $205,725 in 1997 as base salary. Effective January 1,
1998, his salary was increased to $220,000 annually. In determining Mr. Yeh's
salary, the non-employee members of the Compensation Committee reviewed various
factors, including Mr. Yeh's contributions with respect to the advancement of
market development and diversification of market penetration, development of
corporate partnership strategy, refinement of overall Company strategic
direction, reinforcement of corporate infrastructure, the selection and
retention of Dr. Ronald Chwang as a member of the Company's Board of Directors
in June 1997, and the recruitment of the Company's new Vice President of Memory
Design, Mr. Michael Briner, in November 1997. No profit sharing was earned by
Mr. Yeh during 1997 due to the operating loss for that year. Profit sharing is
calculated and based on a pre-determined formula which is applied to every
employee of the Company as described below.
PROFIT SHARING
Bonuses are calculated for all employees, including executive officers,
twice each year using two pre-determined profit sharing-based formulas. The
first formula allocates 10% of the Company's operating profit to a profit
sharing pool provided the Company has met its twin profitability goals of both
pre-tax profits and operating profits in excess of 10% of sales. If pre-tax
profits or operating profits are less than 10% of sales, no allocation is made
to profit sharing. The second formula apportions some of the profit sharing
pool, if any, to each employee based on the employee's length of employment,
level of performance and base salary. No bonus is paid to an employee who has
worked for the Company for less than six months. Level of performance is a
numerical value assigned in performance reviews independently of the profit
sharing program. The Company currently calculates bonuses based on the Company's
financial performance in the periods January 1 through June 30 and July 1
through December 31.
As the Company did not achieve its profitability goals for the period
January 1, 1997 through June 30, 1997 and for the period July 1, 1997 through
December 31, 1997, none of the Named Executive Officers, or any other employee,
were eligible for or received profit sharing bonuses related to fiscal 1997.
STOCK AWARDS
Total compensation at the executive level also includes long-term
incentives offered by stock awards under the Incentive Plan. Stock awards are
designed to align the long-term interests of the Company's employees with those
of its shareholders and to assist in the retention of employees. The size of an
individual stock award is generally intended to reflect the employee's position
with the Company and his or her importance, past and future anticipated
contributions to the Company, and how many years of future service for which the
employee has non-vested options. It has been the Company's practice to fix the
exercise price of stock option grants at 100% of the fair market value per share
on the date of grant. Options are generally subject to vesting over a four or
five year period to encourage key employees to continue in the employ of the
Company.
The Stock Option Committee administers the Incentive Plan for executive
officers of the Company. The Board has delegated to the Non-Officers Stock
Option Committee the administration of the Incentive Plan for all other
employees of the Company for option grants of not more than 12,000 shares per
option grant. In January, 1997, a stock replenishment program was approved by
the Board of Directors whereby options may be granted on a smaller and more
frequent basis to both executive officers and employees in order to ensure that
each eligible employee possesses non-vested options for four years of future
service. The Company intends to grant options to executive officers on a routine
basis as part of this stock replenishment program.
LIMITATIONS ON DEDUCTION OF COMPENSATION PAID TO CERTAIN NAMED EXECUTIVE
OFFICERS
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
Code.
23
<PAGE>
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Compensation Committee believes that at the present time it is quite
unlikely that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." The
Compensation Committee intends to continue to evaluate the effects of the
statute and Treasury regulations.
Compensation Committee
Bing Yeh
Tsuyoshi Taira
Yasushi Chikagami
Ronald Chwang
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee of the Board of Directors is composed of the
following persons: Bing Yeh, Tsuyoshi Taira, Yasushi Chikagami, and Ronald
Chwang. Of these Directors, Mr. Yeh is also an officer of the Company.
24
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON (1)
The following chart shows the total shareholder return of an investment
of $100 in cash on November 21, 1995 for (i) the Company's Common Stock, (ii)
the Nasdaq Stock Market - U.S. Index, and (iii) the Hambrecht & Quist
Semiconductor Index. All values assume reinvestment of the full amount of all
dividends and are calculated as of December 31, 1996 and 1997.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Cumulative Total Return
---------------------------------------------
11/21/95 12/31/95 12/31/96 12/31/97
SILICON STORAGE TECHNOLOGY, INC. 100 147 54 35
NASDAQ STOCK MARKET (U.S.) 100 103 127 155
HAMBRECHT & QUIST SEMICONDUCTORS 100 91 118 125
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC, and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date hereof
and irrespective of any general incorporation of language in any such filings.
25
<PAGE>
CERTAIN TRANSACTIONS
On January 31, 1996, the Company acquired a 14% interest in a Japanese
company for approximately $939,000 paid in cash. The president of the Japanese
company is a shareholder of the Company. In 1996 and 1997 this customer
accounted for 12.7% or approximately $11.8 million and 15.4% or approximately
$11.6 million, respectfully, of net revenues of the Company. This was the only
customer that accounted for more than 10% of the Company's net revenues in 1996
and 1997.
Dr. Chwang is the President of Acer Capital America and managing
general partner of Acer Technology Venture Fund. A related entity, Acer
Corporation, is a customer of the Company. In 1997, this customer accounted for
6.0% or $4.5 million of net revenues.
As a matter of policy, all transactions between the Company and any of
its officers, directors or principal shareholders will be approved by a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes of the Company.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
JEFFREY L. GARON
Secretary
June 12, 1998
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended December 31, 1997 is available without
charge upon written request to: Corporate Secretary, Silicon Storage Technology,
Inc., 1171 Sonora Court, Sunnyvale, California 94086.
26
<PAGE>
Appendix A
SILICON STORAGE TECHNOLOGY, INC.
EQUITY INCENTIVE PLAN
Adopted on October 3, 1995
Approved by the Stockholders November 1995
Amended by the Board of Directors June 1998
INTRODUCTION
This Silicon Storage Technology, Inc. Equity Incentive Plan is an
amendment and restatement of the Silicon Storage Technology, Inc. 1990 Stock
Option Plan. Shares reserved for issuance under the 1990 Stock Option Plan shall
hereafter be reserved for issuance, and issued, under the terms of this Equity
Incentive Plan, as amended and restated in the form below.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Consultants to the Company, and its Affiliates, may be given an
opportunity to benefit from increases in value of the stock of the Company
through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v)
stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company or its
Affiliates, to secure and retain the services of new Employees and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
1.
<PAGE>
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Silicon Storage Technology, Inc., a California
corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "Continuous Status as an Employee, Director or Consultant" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "Director" means a member of the Board.
(j) "Disinterested Person" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any Affiliate entitling the participants therein to acquire equity securities
of the Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(k) "Employee" means any person employed by the Company or any
Affiliate of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
2.
<PAGE>
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Independent Stock Appreciation Right" or "Independent Right" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
3.
<PAGE>
(u) "Plan" means this Silicon Storage Technology, Inc. Equity Incentive
Plan.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(w) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(x) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(y) "Stock Award Agreement" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(z) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
14.
4.
<PAGE>
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate six million seven hundred fifty thousand
(6,750,000) shares of the Company's common stock. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan. Shares subject
to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan
shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees or Consultants.
(b) A Director may be eligible for benefits of the Plan only if such
Director is also an Employee at the time of the grant.
5.
<PAGE>
(c) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(c) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(d) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
6.
<PAGE>
(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be determined by the Board. Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and any administrative interpretations or pronouncements thereunder
(a "QDRO"), and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a QDRO.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
7.
<PAGE>
(f) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the
8.
<PAGE>
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate.
(j) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(c)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
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Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) Termination of Employment or Relationship as a Director or
Consultant. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right,
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the holder must provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. If a
Stock Appreciation Right is granted to an individual who is at the time subject
to Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock
Award Agreement of grant shall incorporate all the terms and conditions at the
time necessary to assure that the subsequent exercise of such right shall
qualify for the safe-harbor exemption from short-swing profit liability provided
by Rule 16b-3 promulgated under the Exchange Act (or any successor rule or
regulation). No limitation shall exist on the aggregate amount of cash payments
the Company may make under the Plan in connection with the exercise of a Stock
Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) Concurrent Stock Appreciation Rights. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) Independent Stock Appreciation Rights. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of
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shares of Company stock equal to the number of share equivalents in which the
holder is vested under such Independent Right, and with respect to which the
holder is exercising the Independent Right on such date, over (B) the aggregate
Fair Market Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the
affected holders of Options and/or Stock Appreciation Rights, the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
but having an exercise price per share not less than eighty-five percent (85%)
of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option) or, in the case of a 10% stockholder (as
described in subsection 5(c)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a transaction
to which section 424(a) of the Code applies.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
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(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the California Corporations Code,
or the right to terminate the relationship of any Consultant pursuant to the
terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
13.
<PAGE>
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar Stock
Awards for those outstanding under the Plan, or (ii) such Stock Awards shall
continue in full force and effect. In the event any surviving corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar options for those outstanding under the Plan, then, with respect to
Stock Awards held by persons then performing services as Employees, Directors or
Consultants, the time during which such Stock Awards may be exercised shall be
accelerated and the Stock Awards terminated if not exercised prior to such
event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
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(i) Increase the number of shares reserved for Stock
Awards under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on June 10, 2000, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15.
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16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
16.