SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
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 transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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4. Date Filed:
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SILICON STORAGE TECHNOLOGY, INC.
1171 Sonora Court
Sunnyvale, California 94086
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1999
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 30, 1999 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
extend the expiration date by nine years, such that the Plan expires
April 12, 2009 and to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 1,000,000
shares to 7,750,000 shares.
3. To approve the Company's 1995 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 350,000 shares to 1,200,000
shares.
4. To approve the Company's 1995 Non-Employee Directors' Plan, as
amended, to change the vesting terms from ratably over four years to
upon date of grant; to decrease the initial grant amount of options to
purchase shares of Common Stock for Non-Employee Directors from 24,000
shares to 15,000 shares; and to increase the aggregate number of
shares of Common Stock authorized for issuance under such plan by
50,000 shares to 200,000 shares.
5. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Company for its fiscal year ending December 31,
1999.
6. 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 June 1, 1999, 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
/s/ JEFFREY L. GARON
JEFFREY L. GARON
Secretary
Sunnyvale, California
June 15, 1999
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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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SILICON STORAGE TECHNOLOGY, INC.
1171 Sonora Court
Sunnyvale, California 94086
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
July 30, 1999
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 30, 1999 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, 1998 Annual Report (which
includes the Annual Report on Form 10-K) on or about June 15, 1999, to all
shareholders entitled to vote at the Annual Meeting. If your shares are held in
a bank or brokerage account, you may be eligible to vote your proxy
electronically. Please refer to the enclosed voting form for instructions.
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 June 1,
1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on June 1, 1999 the Company had outstanding and entitled to
vote 23,372,423 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.
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Voting Electronically Via the Internet
Shareholders may vote via the Internet. Specific instructions to be followed by
any registered shareholder interested in voting via the Internet are set forth
on the Company's web site, ssti.com under Investor/Financial Information. The
Internet voting procedures are designed to authenticate the shareholder's
identity and to allow shareholders to vote their shares and confirm that their
instructions have been properly recorded.
If your shares are registered in the name of a bank or brokerage firm and you
have not elected to receive your Annual Report and Proxy Statement over the
Internet, you may be eligible to vote your shares electronically over the
Internet. A large number of banks and brokerage firms are participating in the
ADP Investor Communication Services Online program. This program provides
eligible shareholders who review a paper copy of the annual report and proxy
statement the opportunity to vote via the Internet. If your bank or brokerage
firm is participating in ADP's program, your voting form will provide
instructions. If your voting form does not reference Internet information,
please complete and return the paper proxy card in the self-addressed postage
paid envelope provided.
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
Pursuant to Rule 14a-8 of the Securities and Exchange Commission, proposals
of shareholders that are intended to be presented at the Company's 2000 Annual
Meeting of Shareholders must be received by the Company not later than Friday,
February 15, 2000 in order to be included in the proxy statement and proxy
relating to the Annual Meeting. Pursuant to the Company's bylaws, shareholders
who wish to bring matters or proposed nominees for director at the Company's
2000 Annual Meeting of Shareholders must provide specified information to the
Company between March 2, 2000 and April 1, 2000. Shareholders are also advised
to review the Company's bylaws, which contain additional requirements with
respect to advance notice shareholder proposals and director nominations.
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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.
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:
<TABLE>
<CAPTION>
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Name Age Principal Occupation/Position Held with the Company
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<S> <C> <C>
Bing Yeh (1)(4) 48 President and Chief Executive Officer, and Director
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Yaw Wen Hu 49 Vice President, Process Development and Wafer
Manufacturing, and Director
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Tsuyoshi Taira (1)(2)(3) 60 President, Tazan International, Inc., and Director
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Yasushi Chikagami (1)(2)(3) 60 Director, GVC Corporation, and Director
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Ronald Chwang (1)(2)(3) 50 President, Acer Capital America, and Director
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</TABLE>
(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
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 an 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 an M.S. in Computer Engineering and a Ph.D.
in Applied Physics from Stanford University.
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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. has been a director of the Company since June 1997.
Dr. Chwang is the president of Acer Capital America, director of Acer 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.
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Board Committees and Meetings
During the year ended December 31, 1998, the Board of Directors held four
regular meetings and the Committees of the Board held three other 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:
Messrs. Taira, Chikagami and Chwang, and one employee director, Mr. Yeh. The
Compensation Committee met one time during fiscal 1998. The Committee also acted
by unanimous written consent one time during fiscal 1998.
The Audit Committee meets with the Company's independent accountants 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 accountants 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:
Messrs. Taira, Chikagami, and Chwang. The Audit Committee met two times during
fiscal 1998.
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: Messrs. Taira, Chikagami
and Chwang. The Stock Option Committee did not meet during fiscal 1998 but acted
by unanimous written consent six times during fiscal 1998.
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
nine times during fiscal 1998.
During the year ended December 31, 1998, Dr. Chwang and Mr. Chikagami
attended three of the four regular meetings of the Board of Directors. Each
other Board member attended, in person or by telephonic conference, all meetings
of the Board. All Board members attended all of the meetings of the committees
on which he served.
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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. In June 1998, the Board of Directors amended, and the
shareholders subsequently approved, the Company's 1995 Equity Incentive Plan.
As of May 31, 1999, options to purchase a total of 2,982,000 (net of
cancelled or expired options) shares were outstanding under the Incentive Plan.
In addition, options to purchase 845,000 (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. In April 1999 the Board
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 1,000,000 shares to 7,750,000 shares. During fiscal 1998,
under the Incentive Plan, the Company has granted to all current executive
officers as a group, options to purchase 212,000 shares at exercise prices of
$2.844 to $3.00 per share, and granted to all employees (excluding executive
officers) as a group, options to purchase 658,000 shares at exercise prices of
$1.313 to $3.00 per share.
In addition, the Incentive Plan, as amended in April 1999, will expire on
April 12, 2009 rather than June 10, 2000, extending the life of the Incentive
Plan by almost nine years.
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.
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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 nonstatutory 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 nonstatutory 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"). Nonstatutory 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 Incentive 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 the Company's 225 employees as of May 31, 1999 and the Company's
consultants are eligible to participate in the Incentive Plan.
Administration. The Incentive 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 employees (including officers) of the Company and its affiliates.
Consultants and 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.
Shares Subject to the Incentive Plan. The Incentive Plan shall not exceed in the
aggregate 7,750,000 shares of the Company's Common Stock. 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 nonstatutory options under the Incentive Plan is
determined by the Board. At June 1, 1999,
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the closing price of the Company's Common Stock as reported on the Nasdaq
National Market was $5.00 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 nonstatutory, 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; (b) at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, or (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 first anniversary of the grant and 1/48th per month
(25% per year) thereafter during the optionee's employment or service 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, and certain other
events such as a change in ownership of the Company may accelerate the vesting
of options. 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.
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 an employee, director or consultant of the Company or any affiliate
of the Company, unless (a) the termination of employment as an employee,
director or consultant 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 an employee, director or consultant by the Company or
any affiliate of the Company, or within three months after termination of such
employment as an employee, director, or consultant, 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 or director relationship. The option term also may
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.
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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. Tandem stock appreciation rights tied to incentive stock options
may be granted to employees only.
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. Concurrent stock appreciation rights tied to incentive stock
options may be granted to employees only.
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.
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, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the 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 the
Incentive 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, with respect to awards held by persons then performing services as
employees, directors, or consultants, 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
April 12, 2009.
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The Board also may 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 Incentive 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 other 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 nonstatutory 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.
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 be subject the optionee
to an alternative minimum tax liability.
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 a long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on 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% 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 generally will be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Incentive Plan generally have the following federal income tax consequences:
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There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory 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 generally will 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 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.
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
generally will 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 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 are subject to 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. Section 162(m) of the Internal
Revenue Code 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
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performance-based compensation under these 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).
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PROPOSAL 3
APPROVAL OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In October 1995, the Board of Directors adopted, and the shareholders
subsequently approved, the Company's 1995 Employee Stock Purchase Plan ("the
Purchase Plan"). The Purchase Plan allows for employees to share in the growth
and prosperity of the Company by providing them with an opportunity to purchase
stock in the Company on favorable terms through payroll deductions. Upon
adoption 850,000 shares of Common Stock were reserved for issuance under the
Purchase Plan. In April 1999, the Board of Directors amended the Purchase Plan
to increase the number of shares reserved for issuance by 350,000 for a total of
1,200,000 shares authorized under the Purchase Plan. As of May 31, 1999, 433,000
shares have been issued under the Purchase Plan.
Shareholders are requested in this Proposal 3 to approve the Purchase Plan,
as amended. The Board of Directors believes that this Purchase Plan is necessary
to enable the Company to provide meaningful equity incentives to attract,
motivate, and retain employees and recommends that the shareholders approve the
amended Purchase Plan. The Company operates in an extremely competitive high
tech job market where unemployment is extremely low and where turnover can be
very high. In this job market, employee stock purchase plans are offered by the
majority of the high technology firms with whom the Company competes for talent.
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 Purchase 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 3.
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The essential features of the Purchase Plan are outlined below:
Purpose. The Purchase Plan provides a means by which employees of the Company
may be given an opportunity to purchase stock of the Company in order to retain
the services of the Company's employees, to secure and retain the services of
new employees, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
Administration. The Purchase Plan shall be administered by the Board of
Directors of the Company unless and until the Board delegates administration to
a Committee. Whether or not the Board has delegated administration, the Board
shall have the final power to determine all questions of policy and expediency
that may arise in the administration of the Purchase Plan, to determine when and
how rights to purchase stock of the Company shall be granted and the provisions
of each offering of such rights (which need not be identical), and to construe
and interpret the Purchase Plan and rights 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
Purchase Plan, in a manner and to the extent it shall deem necessary or
expedient to make the Purchase Plan fully effective.
Shares Subject To The Plan. The Purchase Plan shall not exceed in the aggregate
1,200,000 shares of the Company's common stock.
Eligibility. Any person who is employed by the Company at least 20 hours per
week and more than five months in a calendar year is eligible to participate in
the Purchase Plan, providing that the employee is employed on the first day of
an Offering (or for such period preceding the first day of an Offering - not to
exceed two years as may be required by the Board), does not possess more than 5%
of the total combined voting power of the Company as defined by section 424(d)
and 423(b) of the Code, and where the fair market value of stock purchased under
the Purchase Plan does not exceed $25,000 in one year. As of May 31, 1999,
approximately 225 employees are eligible to participate in the Purchase Plan.
Offering period. Each Offering under the Purchase Plan is generally for a period
of 6 months and cannot exceed 27 months. Offerings currently run from February 1
through July 31 and from August 1 through January 31. The Board can change the
duration of the Offerings for future Offerings at least 15 days prior to the
scheduled beginning of the first Offering to be affected. The first day of each
Offering is called the "Offering Date" and the last day of each Offering is
called the "Purchase Date".
Purchase price. The purchase price of the shares is accumulated by payroll
deductions during the Offering. The deductions may not exceed 10% of a
participant's eligible earnings or $25,000 of fair market value of stock over
each calendar year. Eligible earnings is defined as an employee's regular salary
or wages which shall include overtime pay, but shall exclude bonuses,
commissions, incentive pay, profit sharing, other remuneration paid directly to
the employee, the cost of employee benefits, education or business expense
reimbursements. The purchase price shall not be the lesser of 85% of the fair
market value of the stock on the Offering Date or the Purchase Date. The Board
can specify a maximum number of shares that may be purchased by any employee as
well as a maximum aggregate number that may be purchased by all eligible
employees in an Offering.
Participation; Withdrawal; Termination. A participant may reduce (including to
zero) payroll deductions at any time during the Offering. A participant may
terminate his or her payroll deductions under the Purchase Plan and withdraw
from the Offering by delivering to the Company a notice of withdrawal in such
form as the Company provides. Such withdrawal may be elected at any time prior
to the end of the Offering except as provided by the Board or the Committee in
the Offering. Upon such withdrawal from the Offering by a participant, the
Company shall distribute to such participant all of his or her accumulated
payroll deductions, without interest, and such participant's interest in that
Offering shall be automatically terminated. A participant's withdrawal from an
Offering will have no effect upon such participant's eligibility to participate
in any other Offerings under the Purchase Plan but such participant will be
required to deliver a new participation agreement in order to participate in
subsequent Offerings under the Purchase
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Plan. Upon cessation of any participating employee's employment with the Company
the participant's interest will be terminated and payroll deductions will be
returned to the participant without interest. Rights granted under the Purchase
Plan shall not be transferable by a participant except as provided for in the
Purchase Plan.
Exercise. On each Purchase Date, each participant's accumulated payroll
deductions will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Purchase Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Purchase Plan. The amount, if any, of accumulated
payroll deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of stock on
the final Purchase Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Purchase
Plan, unless such participant withdraws from such next Offering, or is no longer
eligible to be granted rights under the Purchase Plan, in which case such amount
shall be distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in any
participant's account after the purchase of shares which is equal to or greater
than the amount required to purchase one whole share of stock on the final
Purchase Date of an Offering shall be distributed in full to the participant
after such Purchase Date, without interest.
Adjustments Upon Changes in Capitalization. The shares reserved under the
Purchase Plan, as well as the price per share of Common Stock covered by each
right under the Purchase Plan which has not yet been exercised, will be
proportionately adjusted for any stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock or any other
increase or decrease in the number of shares of Common Stock effective without
receipt of consideration by the Company. In the event of the proposed
dissolution, liquidation, merger, consolidation, reverse merger or any other
capital reorganization as defined in the Purchase Plan, then, as determined by
the Board, the surviving corporation may assume the rights outstanding, or such
rights may continue in full force and effect or participants' accumulated
payroll deductions may be used to purchase Common Stock immediately prior to the
change in control for the transaction and the participants' rights under the
ongoing Offering terminated.
Amendment of the Plan. The Board of Directors of the Company may, at any time
and for any reason, terminate or amend the Purchase Plan. Except as to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company within 12 months before or after the
adoption of the amendment, where the amendment will increase the number of
shares reserved for rights under the Purchase Plan. Shareholder approval may be
required for certain amendments in order to comply with the federal securities
or tax laws, or any other applicable law or regulation.
Designation of Beneficiary. A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Purchase Plan in the event of such participant's
death subsequent to the end of an Offering but prior to delivery to the
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Purchase Plan in the event of such participant's
death during an Offering.
Termination or Suspension of the Plan. The Board in its discretion, may suspend
or terminate the Purchase Plan at any time. No rights may be granted under the
Purchase Plan while the Purchase Plan is suspended or after it is terminated.
Federal Tax Information. The following information is a general summary of some
of the current federal income tax consequences of the Purchase Plan to
participants and the Company. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Tax Code.
Tax Treatment of Participants. Participants will not recognize income when they
enroll in the Purchase Plan or when they purchase shares. All tax consequences
are deferred until the participant disposes of the
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shares. If the participant holds the shares for more than one year after the
Purchase Date and more than two years after the Offering Date, or if the
participant dies while owning the shares, the participant will generally realize
ordinary income when disposing of the shares equal to the difference between the
purchase price and the fair market value of the shares on the date of
disposition, or 15% of the fair market value of the shares on the Offering Date,
whichever is less. Any additional gain will be taxed as a long-term capital
gain. If the shares are sold for less than the purchase price, there is no
ordinary income, but the participant will have a long-term capital loss for the
difference between the purchase price and the sales price. If a participant
sells or makes a gift of the shares less than one year after the Purchase Date
or less than two years after the Offering Date, the participant will generally
have ordinary income equal to the difference between the purchase price and the
fair market value on the Purchase Date. The difference between the sales price
and the fair market value on the Purchase Date will be a capital gain or loss,
taxable at short-term capital gain rates if the shares are held twelve months or
less and at long-term capital gain rates if the shares are held longer than
twelve months.
Tax Treatment of the Company. When a participant recognizes ordinary income by
disposing of shares before the one-year or two-year holding period ends, the
Company will generally be entitled to a tax deduction in the amount of the
ordinary income.
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PROPOSAL 4
APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN, AS AMENDED
In October 1995, the Board of Directors adopted, and the shareholders
subsequently approved, the Company's 1995 Non-Employee Directors' Stock Option
Plan (the "Directors' Plan"). The Directors' Plan provides a means by which each
director of the Company who is not otherwise an employee of the Company will be
given an opportunity to purchase stock of the Company.
In April 1999, the Board of Directors amended the Directors' Plan to
increase the number of shares reserved for issuance under the Directors' Plan
from 150,000 shares to 200,000 shares. In addition, the proposal is to change
the vesting terms of options granted under the plan from vesting ratably over
four years from the date of grant to vesting upon the date of grant. This change
is proposed because new proposed accounting rules issued in 1998 change the
accounting treatment of stock options issued to non-employees. Finally, this
proposal will decrease the initial grant amount of options to purchase shares of
Common Stock for non-employee directors from 24,000 shares to 15,000 shares.
This decrease is proposed in order to partially offset the benefit of the
accelerated vesting to the non-employee directors. As of May 31, 1999, 103,000
shares, net of cancellations have been issued under the Directors' Plan.
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 Directors' 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 4.
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The essential features of the Directors' Plan are outlined below:
Purpose. The purpose of the Directors' Plan is to provide a means by which each
director of the Company who is not otherwise an employee of the Company or of
any Affiliate of the Company will be given an opportunity to purchase stock of
the Company in order to secure and retain the services of persons capable of
serving in such capacity, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
Administration. The Directors' Plan shall be administered by the Board of
Directors of the Company unless and until the Board delegates administration to
a committee. If administration is delegated to a committee, the Board may
abolish the committee at any time and revest in the Board the administration of
the Directors' Plan.
Shares Subject To The Directors' Plan. The Directors' Plan shall not exceed in
the aggregate 200,000 shares of the Company's Common Stock. If any option
granted under the Directors' Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not purchased under
such option shall again become available for the Directors' Plan.
Eligibility. Options shall be granted only to Non-Employee Directors of the
Company.
Non-Discretionary Grants. Each person who is elected for the first time to be a
Non-Employee Director automatically shall be granted, upon the date of initial
election to be a Non-Employee Director by the Board or shareholders of the
Company, an option to purchase 15,000 shares of Common Stock of the Company. On
the date of each annual meeting of the Company, each person who is then a
Non-Employee Director and continuously has been a Non-Employee Director since
the Company's annual meeting in the immediately preceding year automatically
shall be granted an option to purchase 6,000 shares of Common Stock of the
Company. Non-Employee Directors who join the Board of Directors mid-year will be
given an option to purchase a pro-rata amount of shares of Common Stock based on
the number of days the person has continuously served with 6,000 shares
representing the full year.
Option Provisions. Each option expires 10 years from the date of grant unless
terminated earlier due to the death or termination of service. Upon the death of
the optionee, the option expires after 18 months. Upon the termination of
service of the optionee for any reason other than death, or for no reason, the
option expires after 12 months. The exercise price of each option shall be 100%
of the fair market value of the stock subject to such option on the date such
option is granted. Payment of the exercise price of each option is due in full
in cash upon any exercise when the number of shares being purchased upon such
exercise is less than 1,000 shares; when the number of shares being purchased
upon an exercise is 1,000 or more shares, the optionee may elect to make payment
of the exercise price either by payment of the exercise price per share in cash
at the time of exercise; or by delivery of shares of common stock of the Company
already owned by the optionee, or by a combination of the two methods. The
option shall become exercisable upon the date of grant.
Effect Of Certain Corporate Events; Adjustments Upon Changes In Stock. The
Directors' Plan provides for appropriate adjustments of the number of shares
subject to outstanding options and the exercise price in the event the Company's
shares are changed by reason of a subdivision or consolidation or shares, stock
split or other similar corporate transaction. In the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, or a
merger or consolidation in which the Company is not the surviving corporation or
other change in control transaction as identified in the Directors' Plan, all
previously issued options which are subject to vesting provisions shall be
accelerated to permit the optionee to exercise all such options in full prior to
such event, and the options shall terminate if not exercised prior to such
event.
Amendment Of The Plan. The Board at any time may amend the Directors' Plan;
provided, however, that the Board shall not amend the plan more than once every
6 months, with respect to the provisions of the Directors' Plan which relate to
the amount, price and timing of grants, unless as needed to comply with the
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Internal Revenue Code. Except as provided for adjustments upon changes in stock,
described above, no amendment shall be effective unless approved by the
shareholders of the Company within 12 months before or after the adoption of the
amendment, where the amendment will increase the number of shares, modify the
requirements as to eligibility for participation, or if shareholder approval is
required for Directors' Plan modifications under the Internal Revenue Code or
federal securities laws.
Termination Or Suspension Of The Plan. The Board in its discretion, may suspend
or terminate the Directors' Plan at any time. No options may be granted under
the Directors' Plan while it is suspended or after it is terminated. Rights and
obligations under any option granted while the Directors' Plan is in effect
shall not be impaired by suspension or termination of the Directors' Plan,
except with the consent of the person to whom the option was granted.
Federal Income Tax Information. Options granted under the Directors' Plan are
nonstatutory options. An optionee will not recognize any taxable income at the
time he or she is granted a nonstatutory option. However, upon its exercise, the
optionee will recognize ordinary income for tax purposes measured by the excess,
if any, of the then fair market value of the shares on the date of exercise over
the exercise price. Upon sale of such shares by the optionee, any difference
between the sale price and the exercise price, to the extent not recognized as
ordinary income as provided above, will be treated as a capital gain or loss,
and will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee.
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PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, formerly
Coopers & Lybrand LLP, as the Company's independent accountants for the fiscal
year ending December 31, 1999 and has further directed that management submit
the selection of independent accountants for ratification by the shareholders at
the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company's
financial statements since 1991. Representatives of PricewaterhouseCoopers LLP
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 PricewaterhouseCoopers LLP as
the Company's independent accountants is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP 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 accountants
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 PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
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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 May 31, 1999 by: (i) each director and each
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table (page 26) employed by the Company in that capacity on May 31,
1999; (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) 3,670,000 15.7%
Ching S. Jenq 1,980,000 8.5
13030 Cumbra Vista Court
Los Altos Hills, CA 94022
Tseng Family Trust Dtd 12/26/96, 1,510,000 6.5
Carter and Su Hwa Tseng, trustees
22, R&D Road 2
Hsin-Chu Science Park
Taiwan, R.O.C. 30077
Michael Briner (3) 119,837 *
Derek Best (4) 33,750 *
Isao Nojima (5) 351,084 1.5
Yaw Wen Hu (6) 338,870 1.4
Tsuyoshi Taira (7) 26,209 *
Yasushi Chikagami (7) 26,209 *
Ronald Chwang (8) 19,394 *
All executive officers and directors as a group
(eleven persons) (9) 4,826,292 20.0%
- ----------
* 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 23,364,423 shares of the Company's Common
Stock outstanding as of May 31, 1999 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 30,000 shares purchased
under an IRA account in the name of Bing Yeh.
(3) Includes 8,000 shares under the name of Tammy Briner CSDN Jeffrey Daniel
Briner under the Uniform TRFS To Minors Act/CA and 56,000 shares issuable
subject to options exercisable on or before July 30, 1999.
(4) Includes 33,750 shares issuable subject to options exercisable on or before
July 30, 1999.
23
<PAGE>
(5) Includes 271,620 shares issuable subject to options exercisable on or
before July 30, 1999.
(6) Includes (i) 5,000 shares held by each of Dr. Hu's two minor children and
(ii) 201,726 shares issuable subject to options exercisable on or before
July 30, 1999.
(7) Includes 26,209 shares issuable subject to options exercisable on or before
July 30, 1999.
(8) Includes 2,876 shares issuable subject to options exercisable on or before
July 30, 1999.
(9) Includes 813,329 shares subject to stock options held by directors and
executive officers as a group exercisable on or before July 30, 1999. See
footnotes (3) through (8).
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, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
24
<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"), amended in April 1999. 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 was automatically be
granted an option to purchase 24,000 shares of the Company's Common Stock, until
the Directors' Plan was amended in April 1999, at which time the amount of the
initial grant upon election to the Board of Directors was changed to an option
to purchase 15,000 shares of the Company's Common Stock. Each year non-employee
directors who have served as directors for the prior year are granted an option
to purchase 6,000 shares of the Company's Common Stock. 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 on the date of grant. 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 options issued prior to April 1999 will accelerate and the option
will terminate if not exercised prior to the consummation of the transaction. At
May 31, 1999, options (net of canceled or expired options) covering an aggregate
of 103,000 shares had been granted under the Directors' Plan and 47,000 shares
of the Company's Common Stock remained available for grant under the Directors'
Plan.
During fiscal year 1998, the Company granted options covering 18,000 shares
to non-employee directors of the Company at exercise price of $2.031 per share
based on the closing sales price reported in the Nasdaq National Market on the
date of grant. As of May 31, 1999, 11,518 options had been exercised under the
Directors' Plan at a weighted average exercise price of $3.055 per share.
25
<PAGE>
Compensation of Executive Officers
Summary of Compensation
The following table shows for the fiscal years ended December 31, 1998,
December 31, 1997 and December 31, 1996 compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and the Company's other four
most highly compensated executive officers at December 31, 1998 (the "Named
Executive Officers"):
<TABLE>
<CAPTION>
Long-Term Compensation All Other
---------------------------- ---------------------
Salary Bonus Securities Underlying Compensation
Name and Principal Position Year ($) ($) (1) Stock Options ($) (2)
- ----------------------------------------- ---- --------------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bing Yeh
President and Chief Executive Officer 1998 221,905 -- -- 600
1997 207,121 -- -- 1,480
1996 195,000 78,682 -- 2,592
Michael Briner 1998 187,739 -- -- --
Vice President, Products 1997 26,939 -- -- --
Derek Best 1998 162,097 -- -- 2,960
Vice President, Sales and Marketing 1997 90,417 -- -- --
Yaw-Wen Hu 1998 149,297 -- -- --
Vice President, Process 1997 137,280 -- 25,640(3) 280
Development and Wafer Manufacturing 1996 132,000 40,814 -- 1,792
Isao Nojima 1998 148,601 -- -- 260
Vice President, 1997 141,353 -- 24,420(3) --
Advanced Development 1996 135,000 41,851 -- 1,072
</TABLE>
(1) Bonuses received pursuant to the Company's profit sharing plan.
(2) Other compensation for travel time, new hire referrals, and amounts paid by
the Company for supplemental term life insurance.
(3) Stock option grant, net of impact of repriced stock options.
26
<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 May 31, 1999, options to purchase a
total of 2,982,000 shares were outstanding under the Incentive Plan and options
to purchase 845,000 shares remained available for grant thereunder.
Stock Option Grants Of Named Executive Officers In Last Fiscal Year
<TABLE>
<CAPTION>
Percent of Potential Realizable Value
Total Options At Assumed Annual Rates
Granted to Exercise Market of Stock Price Appreciation
Date Options Employees in Price Price Expiration for Option Term(3)
Name of Grant Granted Fiscal Year(1) ($/Sh)(2) ($/Sh) Date 0% 5% 10%
---- -------- ------- -------------- ---------------- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Derek Best Jul-98 26,483 3.04% $2.84 $2.84 7/6/08 -- $47,367 $120,037
Yaw-Wen Hu Jul-98 15,262 1.75% $2.84 $2.84 7/6/08 -- $27,297 $69,177
Isao Nojima Jul-98 9,768 1.12% $2.84 $2.84 7/6/08 -- $17,471 $44,274
</TABLE>
(1) The Company granted a total of 870,000 stock options to employees during
fiscal 1998.
(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 appreciation
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 either four or five years.
Aggregate Option Exercises Of Named Executive Officers
In Last Fiscal Year and Fiscal Year -End Option Values
<TABLE>
<CAPTION>
Number (#) of Securities $ Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired $ Value Options at December 31, 1998 December 31, 1998
Name on Exercise Realized (1) Exercisable / Unexercisable Exercisable / Unexercisable(2)
- ---- ----------- ------------ --------------------------- ------------------------------
<S> <C> <C> <C> <C>
Bing Yeh - - - -
Derek Best - - 22,500/63,983 $0/$0
Michael Briner - - 36,400/131,600 $0/$0
Isao Nojima 50,000 $ 105,000 264,794/24,394 $583,290/$0
Yaw-Wen Hu 40,000 $ 99,620 234,560/31,642 $515,346/$0
</TABLE>
(1) Based on the fair market value of the Company's Common Stock on the dates
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 ($2.438) on
December 31, 1998, the last trading day of the fiscal year, as reporting on
the Nasdaq National Market, minus the exercise price of the option,
multiplied by the number of shares underlying the option.
As of May 31, 1999, options to purchase a total of 789,000 shares were
outstanding and exercisable under the Incentive Plan for purchase by beneficial
owners and options to purchase a total of 49,000 shares were outstanding and
exercisable under the Directors' Plan for purchase by beneficial owners. Options
to purchase approximately 845,000 and 47,000 shares remained authorized and
available for grant as of that date for the Incentive Plan and the Directors'
Plan, respectively.
27
<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 Messrs.
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 Messrs. 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, Messrs. 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, 1998 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 Committee regularly compares 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 Committee believes 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 32 shall not be incorporated by
reference into any such filings.
28
<PAGE>
-- The Committee also believes 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
low-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.
Compensation of the Chief Executive Officer in Fiscal 1998
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 continue to honor Mr. Yeh's prior year request to be paid
at the low end of the range for his position until the Company returns to
profitability.
Mr. Yeh earned $221,905 in 1998 as base salary. Effective January 1, 1999,
his salary was increased to $231,305 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, and the recruitment of the Company's
new Chief Financial Officer and Vice President of Finance and Administration,
Mr. Jeffrey L. Garon and the Company's new Vice President of Manufacturing, Mr.
Joel C. Camarda. No profit sharing was earned by Mr. Yeh during 1998 due to the
operating loss for that year. Profit sharing is calculated and based on a
pre-determined formula which is applied to employees of the Company as described
below.
29
<PAGE>
Profit Sharing
Profit sharing is calculated for all employees, including executive
officers but excluding employees in the sales and marketing department, 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. A separate bonus plan is used for employees in the sales and marketing
department which is based on performance to pre-determined sales quotas and
marketing objectives. The Vice President of Sales & Marketing participates in
the overall Company profit sharing plan but not in the sales and marketing bonus
plan.
As the Company did not achieve its profitability goals for the period
January 1, 1998 through June 30, 1998 and for the period July 1, 1998 through
December 31, 1998, none of the Named Executive Officers, or any other employee,
were eligible for or received profit sharing related to fiscal 1998.
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.
In addition, compensation at the executive level includes short-term
incentives offered through stock option grants that may vest from one year to
five years from the date of grant and may have performance targets attached
which may accelerate the vesting of these options. Such stock option grants are
designed to provide short-term incentives to accomplish such strategic
initiatives as the completion of product development, the successful
introduction of new products into the marketplace, and the reduction of
manufacturing and other costs needed to achieve the Company's goals. The size of
individual stock option grants is intended to reflect the employee's position
with the Company and anticipated contribution to the Company. 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.
30
<PAGE>
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.
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.
31
<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 (the
Company has not paid dividends) and are calculated as of December 31, 1996 and
1997 and 1998.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------
11/21/95 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C>
SILICON STORAGE TECHNOLOGY, INC. 100 147 54 35 27
NASDAQ STOCK MARKET (U.S.) 100 103 127 155 218
HAMBRECHT & QUIST SEMICONDUCTORS 100 91 118 125 175
</TABLE>
(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.
32
<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, 1997, and 1998 this customer
accounted for 12.7% ($11.8 million), 15.4% ($11.6 million) and 14.7% ($10.2
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 and one of two customers that accounted for more than 10% of the
Company's net revenues in 1998.
Dr. Chwang is the President of Acer Capital America, director of Acer
America, a privately-held company, 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. In 1998, this customer accounted for 7.3% or $5.1 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
/s/ JEFFREY L. GARON
JEFFREY L. GARON
Secretary
June 15, 1999
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, 1998 is available without
charge upon written request to: Corporate Secretary, Silicon Storage Technology,
Inc., 1171 Sonora Court, Sunnyvale, California 94086.
33
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
1995 EQUITY INCENTIVE PLAN
Adopted on October 3, 1995
Approved by the Stockholders November 1995
Amended by the Board of Directors June 1998 and
Amended by the Board of Directors April 1999
INTRODUCTION
This Silicon Storage Technology, Inc. 1995 Equity Incentive Plan is an
amendment and restatement of the Silicon Storage Technology, Inc. 1990 Stock
Option Plan as amended June 1998. Shares reserved for issuance under the 1990
Stock Option Plan shall hereafter be reserved for issuance, and issued, under
the terms of this 1995 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.
<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.
<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.
(u) "Plan" means this Silicon Storage Technology, Inc. 1995 Equity
Incentive Plan.
<PAGE>
(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.
(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
<PAGE>
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 seven million seven hundred fifty thousand
(7,750,000) 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.
(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.
<PAGE>
(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.
(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
<PAGE>
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.
(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,
<PAGE>
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 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.
<PAGE>
(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.
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.
<PAGE>
(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, 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.
<PAGE>
(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 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.
<PAGE>
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.
(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.
<PAGE>
(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.
(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,
<PAGE>
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:
(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.
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(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 April 12, 2009, which shall be within
ten (10) years from the date the amended 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.
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.
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
Adopted October 3, 1995
Approved by the Shareholders November 1995
Amended by the Board of Directors April 1999
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Silicon Storage Technology, Inc., a
California corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which
need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
<PAGE>
(iii) To construe and interpret the Plan and rights 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, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section
423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, 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.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate one million two hundred thousand
(1,200,000) shares (after giving effect to the 2-for-1 stock split effected in
October 1995) of the Company's common stock (the "Common Stock"). If any right
granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven
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<PAGE>
(27) months beginning with the Offering Date, and the substance of the
provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be greater than two (2) years. In
addition, unless otherwise determined by the Board or the Committee and set
forth in the terms of the applicable Offering, no employee of the Company or any
Affiliate shall be eligible to be granted rights under the Plan, unless, on the
Offering Date, such employee's customary employment with the Company or such
Affiliate is for at least twenty (20) hours per week and at least five (5)
months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company
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<PAGE>
and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit
such employee's rights to purchase stock of the Company or any Affiliate to
accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair
market value of such stock (determined at the time such rights are granted) for
each calendar year in which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding ten percent (10%) of such employee's
Earnings (as defined in subparagraph 7(a)) during the period which begins on the
Offering Date (or such later date as the Board or the Committee determines for a
particular Offering) and ends on the date stated in the Offering, which date
shall be no later than the end of the Offering. The Board or the Committee shall
establish one or more dates during an Offering (the "Purchase Date(s)") on which
rights granted under the Plan shall be exercised and purchases of Common Stock
carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
4
<PAGE>
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company that
is intended to comply with Section 125, Section 401(k), Section 402(h) or
Section 403(b) of the Code or that provides non-qualified deferred
compensation), which shall include overtime pay, but shall exclude bonuses,
commissions, incentive pay, profit sharing, other remuneration paid directly to
the employee, the cost of employee benefits paid for by the Company or an
Affiliate, education or tuition reimbursements, imputed income arising under any
group insurance or benefit program, traveling expenses, business and moving
expense reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation, as determined by the Board or the
Committee. The payroll deductions made for each participant shall be credited to
an account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero) or
increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for in
the Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in
5
<PAGE>
paragraph 14 and, otherwise during his or her lifetime, shall be exercisable
only by the person to whom such rights are granted.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 7(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of shares which is equal to the amount required to purchase whole
shares of stock on the final Purchase Date of an Offering shall be distributed
in full to the participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be
6
<PAGE>
required to issue and sell shares of stock upon exercise of the rights granted
under the Plan. 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 rights unless and until such authority is
obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. 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 or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(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; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, as determined by the Board in its sole discretion (i)
any surviving corporation may assume outstanding rights or substitute similar
rights for those under the Plan, (ii) such rights may continue in full force and
effect, or (iii) participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above and
the participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment
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<PAGE>
shall be effective unless approved by the shareholders of the Company within
twelve (12) months before or after the adoption of the amendment, where the
amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires shareholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
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<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the day immediately after the approval
of the Board of Directors (the "Effective Date"), but no rights granted under
the Plan shall be exercised unless and until the Plan has been approved by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board or the Committee, which date may be prior to
the Effective Date.
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<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on October 3, 1995
Approved by the Shareholders November 1995
Amended by the Board of Directors April 1999
1. PURPOSE.
(a) The purpose of the Silicon Storage Technology, Inc. 1995 Non-Employee
Directors' Stock Option Plan (the "Plan") is to provide a means by which each
director of Silicon Storage Technology, Inc. (the "Company") who is not
otherwise an employee of the Company or of any Affiliate of the Company (each
such person being hereafter referred to as a "Non-Employee Director") will be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
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(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, 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.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate two hundred thousand (200,000) shares
(after giving effect to the 2-for-1 effected in October 1995) of the Company's
common stock. If any option granted under the Plan shall for any reason expire
or otherwise terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Upon the date of the effectiveness of the Company's initial public
offering (the "Effective Date"), each person who is then a Non-Employee director
automatically shall be granted an option to purchase twenty four thousand
(24,000) shares (after giving effect to the 2-for-1
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stock split effected in October 1995) of common stock of the Company on the
terms and conditions set forth herein.
(b) Each person who, after the Effective Date, is elected for the first
time to be a Non-Employee Director automatically shall be granted, upon the date
of initial election to be a Non-Employee Director by the Board or shareholders
of the Company, an option to purchase fifteen thousand (15,000) shares (after
giving effect to the 2-for-1 stock split effected in October 1995) of common
stock of the Company on the terms and conditions set forth herein.
(c) On the date of each annual meeting of the Company after the Effective
Date, commencing with the annual meeting held in 1997, (i) each person who is
then a Non-Employee Director and continuously has been a Non-Employee Director
since the Company's annual meeting in the immediately preceding year
automatically shall be granted an option to purchase six thousand (6,000) shares
(after giving effect to the 2-for-1 stock split effected in October 1995) of
common stock of the Company on the terms and conditions set forth herein, and
(ii) each other person who is then a Non-Employee Director automatically shall
be granted an option to purchase, on the terms and conditions set forth herein,
the number of shares of common stock of the Company (rounded up to the nearest
whole share) determined by multiplying six thousand (6,000) shares (after giving
effect to the 2-for-1 stock split effected in October 1995) by a fraction, the
numerator of which is the number of days the person continuously has been a
Non-Employee Director as of the date of such grant and the denominator of which
is 365.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ten (10) years from
the date of grant (the
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"Expiration Date"). If the optionee's service as a Non-Employee Director or
employee of or consultant to the Company or any Affiliate terminates for any
reason or for no reason, the option shall terminate on the earlier of the
Expiration Date or the date twelve (12) months following the date of termination
of all such service; provided, however, that if such termination of service is
due to the optionee's death, the option shall terminate on the earlier of the
Expiration Date or eighteen (18) months following the date of the optionee's
death. In any and all circumstances, an option may be exercised following
termination of the optionee's service as a Non-Employee Director or employee of
or consultant to the Company or any Affiliate only as to that number of shares
as to which it was exercisable on the date of termination of all such service
under the provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent (100%)
of the fair market value of the stock subject to such option on the date such
option is granted.
(c) Payment of the exercise price of each option is due in full in cash
upon any exercise when the number of shares being purchased upon such exercise
is less than 1,000 shares; when the number of shares being purchased upon an
exercise is 1,000 or more shares, the optionee may elect to make payment of the
exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise; or
(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned
by the optionee, held for the period required to avoid a charge to the
Company's reported earnings, and owned free and clear of any
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liens, claims, encumbrances or security interest, which common stock shall
be valued at its fair market value on the date preceding the date of
exercise; or
(iii) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which results in the receipt of cash (or check) by the Company prior to the
issuance of shares of the Company's common stock.
(d) An 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 under the Securities Exchange Act of
1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the person
to whom the option is granted only by such person (or by his guardian or legal
representative) or transferee pursuant to such an order. Notwithstanding the
foregoing, the optionee 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) The option shall become exercisable upon grant in accordance with its
terms.
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and (ii)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
These
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<PAGE>
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise of the option
has been registered under a then-currently-effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
(h) The Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities of the Company under the Securities Act, require that any optionee
not sell or otherwise transfer or dispose of any shares of common stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this
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<PAGE>
undertaking shall not require the Company to register under the Securities Act
either the Plan, any option granted under the Plan, or any stock issued or
issuable pursuant to any such option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the shareholders of the
Company provided for in the Bylaws of the Company and such other information
regarding the Company as the holder of such option may reasonably request.
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any
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Affiliate or shall affect any right of the Company, its Board or shareholders or
any Affiliate to terminate the service of any Non-Employee Director with or
without cause.
(d) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option granted pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal or lapse of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.
(f) As used in this Plan, "fair market value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market, 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;
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(ii) If the common stock is quoted on Nasdaq (but not on the National
Market 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;
(iii) In the absence of an established market for the common stock,
the fair market value shall be determined in good faith by the Board.
Notwithstanding the foregoing, the fair market value of the common stock
for an option granted on the Effective Date shall be the price per share at
which shares of common stock of the Company are first sold to the public in the
Company's initial public offering. 10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution, 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; (3) a reverse merger in
which the Company is the surviving corporation but the
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<PAGE>
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; or (4) any other capital reorganization
(including a sale of stock of the Company to a single purchaser or single group
of affiliated purchasers) after which less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation are owned by
shareholders of the Company immediately before such transaction, the time during
which options outstanding issued prior to January 1, 1999 under the Plan may be
exercised shall be accelerated to permit the optionee to exercise all such
options in full prior to such event, and the options shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six (6) months, with respect to the provisions of the Plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code or applicable regulations or rulings thereunder. Except as provided in
paragraph 10 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the shareholders of the Company within twelve
(12) months before or after the adoption of the amendment, where the amendment
will:
(i) Increase the number of shares which may be issued under the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires shareholder approval in
order for the Plan to comply with the requirements of Rule 16b-3); or
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<PAGE>
(iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to comply with the requirements
of Rule 16b-3 or Section 162(m) of the Code.
(b) Rights and obligations under any option granted before any amendment of
the Plan shall not be impaired by such amendment unless (i) the Company requests
the consent of the person to whom the option was granted and (ii) such person
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No options may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the approval of the Board of
Directors, subject to the condition that the Plan be approved by the
shareholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
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