<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [X]
Check the appropriate box: [X]
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TRIDENT MICROSYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
[TRIDENT LOGO]
October 28, 1998
Dear Stockholder:
This year's annual meeting of stockholders will be held on Thursday,
December 17, 1998 at 9:00 a.m. local time, at Trident Microsystems, Inc., 189
North Bernardo Avenue, Mountain View, California. You are cordially invited to
attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement,
which describe the formal business to be conducted at the meeting, follow this
letter.
After reading the Proxy Statement, please promptly mark, sign, and
return the enclosed proxy in the prepaid envelope to assure that your shares
will be represented. Your shares cannot be voted unless you date, sign, and
return the enclosed proxy or attend the annual meeting in person. Regardless of
the number of shares you own, your careful consideration of, and vote on, the
matters before our stockholders are important.
A copy of the Company's 1998 Annual Report is also enclosed.
The Board of Directors and Management look forward to seeing you at the
annual meeting.
Very truly yours,
/s/ FRANK C. LIN
----------------
FRANK C. LIN
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 3
TRIDENT MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 1998
To The Stockholders:
Please take notice that the annual meeting of the stockholders of
Trident Microsystems, Inc. (the "Company"), will be held on December 17, 1998,
at 9:00 a.m. at Trident Microsystems, Inc., 189 North Bernardo Avenue, Mountain
View, California, for the following purposes:
1. To elect two Class III directors to hold offices for
three-year terms and until their successors are elected and
qualified.
2. To approve certain additional anti-takeover measures under the
Company's Certificate of Incorporation and By-Laws as follows:
A. To provide that members of the board of directors are
removable only for cause.
B. To approve certain limitations on the ability to call
special meetings.
3. To approve the Company's 1998 Employee Stock Purchase Plan.
4. To approve an amendment to the Company's 1994 Outside
Directors Stock Option Plan.
5. To consider and vote upon a proposal to ratify the appointment
of PricewaterhouseCoopers LLP as the Company's independent
public accountants for the fiscal year ending June 30, 1999.
6. To transact such other business as may properly come before
the meeting.
Stockholders of record at the close of business on October 21, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at the principal office of Trident Microsystems, Inc.
By order of the Board of Directors,
/s/ FRANK C. LIN
--------------------------------------
FRANK C. LIN
Chairman of the Board of Directors,
President and Chief Executive Officer
Mountain View, California
October 28, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING POST-PAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE> 4
<TABLE>
<S> <C>
SOLICITATION AND VOTING OF PROXIES ........................................................ 1
INFORMATION ABOUT TRIDENT MICROSYSTEMS, INC ............................................... 2
Stock Ownership of Certain Beneficial Owners and Management ...................... 2
Management ....................................................................... 4
EXECUTIVE COMPENSATION AND OTHER MATTERS .................................................. 6
Summary Compensation Table ....................................................... 6
Option Grants In Last Fiscal Year ................................................ 8
Option Exercises and Fiscal 1998 Year-End Value .................................. 9
Aggregate Option Exercises in Last Fiscal Year And Fiscal Year-End Values ........ 9
Repricing of Stock Options ....................................................... 10
Ten-Year Option Repricings ....................................................... 10
Compensation of Directors ........................................................ 11
Compensation Committee Interlocks and Insider Participation ...................... 12
Change in Control Arrangements ................................................... 12
Certain Relationships and Related Transactions ................................... 12
Section 16(a) Beneficial Ownership Reporting Compliance .......................... 12
REPORT OF THE COMPENSATION COMMITTEE ON REPRICING OF OPTIONS .............................. 13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION ............................ 14
Compensation Committee ........................................................... 14
Compensation Philosophy .......................................................... 14
Forms of Compensation ............................................................ 15
COMPARISON OF STOCKHOLDER RETURN .......................................................... 16
Comparison of Cumulative Total Return From June 30, 1993 through June 30, 1998 ... 16
ELECTION OF DIRECTORS ..................................................................... 17
ADDITIONAL ANTI-TAKEOVER MEASURES ......................................................... 18
Summary of Existing Anti-Takeover Measures ....................................... 19
Summary of Additional Anti-Takeover Measures ..................................... 20
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE .................................... 22
Vote Required and Recommendation of the Board of Directors ....................... 22
LIMITATION ON ABILITY TO CALL SPECIAL MEETINGS ............................................ 23
Vote Required and Recommendation of the Board of Directors ....................... 23
APPROVAL OF THE COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN ............................... 24
Summary of the Purchase Plan ..................................................... 24
Summary of United States Federal Income Tax Consequences ......................... 26
New Plan Benefits ................................................................ 27
Vote Required and Board of Directors' Recommendation ............................. 27
AMENDMENT TO THE 1994 OUTSIDE DIRECTORS STOCK OPTION PLAN ................................. 28
Summary of the Directors Plan, as Amended ........................................ 28
Summary of United States Federal Income Tax Consequences ......................... 30
Amended Plan Benefits and Additional Information ................................. 30
Vote Required and Board of Directors' Recommendation ............................. 31
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS ............................. 32
</TABLE>
-i-
<PAGE> 5
<TABLE>
<S> <C>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING .............................. 33
TRANSACTION OF OTHER BUSINESS ............................................................. 33
LIST OF ATTACHMENTS:
EXHIBIT 1 CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
(Proposal No. 2-A)
EXHIBIT 2 LIMITATION ON THE ABILITY TO CALL SPECIAL MEETINGS (Proposal No. 2-B)
APPENDIX A TRIDENT MICROSYSTEMS, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN
(Proposal No. 3)
APPENDIX B EXHIBIT 4 TRIDENT MICROSYSTEMS, INC. 1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
(Proposal No. 4)
</TABLE>
-ii-
<PAGE> 6
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TRIDENT MICROSYSTEMS, INC.
189 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
The accompanying proxy is solicited by the Board of Directors of
Trident Microsystems, Inc., a Delaware corporation ("Trident" or the "Company"),
for use at the Annual Meeting of Stockholders to be held December 17, 1998, or
any adjournment thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting. The date of this Proxy Statement is October 28, 1998, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to stockholders.
SOLICITATION AND VOTING OF PROXIES
The cost of soliciting proxies will be borne by the Company. In
addition to soliciting stockholders by mail through its regular employees, the
Company will request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of the Company registered
in the names of such persons and will reimburse them for their reasonable,
out-of-pocket costs. The Company may use the services of its officers,
directors, and others to solicit proxies, personally or by telephone, without
additional compensation.
Only stockholders of record as of the close of business on October 21,
1998, will be entitled to vote at the meeting and any adjournment thereof. As of
that date, there were _____________ shares of common stock of the Company, par
value $.001 per share ("Common Stock"), issued and outstanding. Stockholders may
vote in person or by proxy. Each holder of shares of Common Stock is entitled to
one (1) vote for each share of stock held on the proposals presented in this
Proxy Statement. The Company's By-Laws provide that a majority of all of the
shares of the stock entitled to vote, whether present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
meeting.
All valid proxies received prior to the meeting will be voted. All
shares represented by a proxy will be voted, and where a stockholder specifies
by means of the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made. If no choice
is indicated on the proxy, the shares will be voted in favor of the proposal. A
stockholder giving a proxy has the power to revoke his or her proxy, at any time
prior to the time it is voted, by delivering to the Secretary of the Company a
written instrument revoking the proxy or a duly executed proxy with a later
date, or by attending the meeting and voting in person.
An annual report for the fiscal year ended June 30, 1998 is enclosed
with this Proxy Statement.
1
<PAGE> 7
INFORMATION ABOUT TRIDENT MICROSYSTEMS, INC.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of August 31,
1998, with respect to the beneficial ownership of the Company's Common Stock by
(i) all persons known by the Company to be the beneficial owners of more than 5%
of the outstanding Common Stock of the Company, (ii) each director and
director-nominee of the Company, (iii) the Chief Executive Officer and the four
other most highly compensated executive officers of the Company as of June 30,
1998, whose salary and incentive compensation for the fiscal year ended June 30,
1998 exceeded $100,000, and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OWNED (1)
BENEFICIAL OWNERS --------------------------------
- ----------------------- NUMBER PERCENTAGE
OF SHARES OF CLASS
---------- ----------
<S> <C> <C>
Glen M. Antle(2) ....................... 42,000 *
Yasushi Chikagami(3) ................... 142,877 1.11%
Charles A. Dickinson(4) ................ 48,400 *
Frank C. Lin(5) ........................ 1,809,119 14.01%
c/o Trident Microsystems, Inc.
189 North Bernardo Avenue
Mountain View, CA 94043
Millard Phelps(6) ...................... 17,756 *
Jung-Herng Chang(7) .................... 189,047 1.46%
Peter Jen(8) ........................... 155,304 1.20%
Gerry Liu(9) ........................... 65,944 *
Amir Mashkoori(10) ..................... 32,500 *
Executive officers and directors
as a group (10 persons)(11) ............ 2,528,514 19.58%
</TABLE>
- --------------------
* Less than 1%
(1) Except as otherwise noted, the persons named in the table have the sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to the information contained in the
footnotes to this table.
(2) Includes 30,000 shares subject to options exercisable by Mr. Antle
within sixty days of August 31, 1998.
(3) Includes 5,000 shares held by a joint tenant account for Mr.
Chikagami's wife, son and daughter. Also includes 17,877 shares subject
to options exercisable by Mr. Chikagami within sixty days of August 31,
1998.
(4) Includes 11,250 shares subject to options exercisable by Mr. Dickinson
within sixty days of August 31, 1998.
2
<PAGE> 8
(5) Includes 220,000 shares subject to options exercisable by Mr. Lin
within sixty days of August 31, 1998. Also includes 10,500 shares held
by Mr. Lin's wife and 29,956 shares held by a custodian for the benefit
of Mr. Lin's two minor children.
(6) Includes 16,301 shares subject to options exercisable by Mr. Phelps
within sixty days of August 31, 1998.
(7) Includes 147,500 shares subject to options exercisable by Mr. Chang
within sixty days of August 31, 1998.
(8) Includes 118,334 shares subject to options exercisable by Mr. Jen
within sixty days of August 31, 1998.
(9) Includes 62,500 shares subject to options exercisable by Mr. Liu within
sixty days of August 31, 1998.
(10) Includes 32,500 shares subject to options exercisable by Mr. Mashkoori
within sixty days of August 31, 1998.
(11) Includes 681,829 shares subject to options exercisable within sixty
days of August 31, 1998.
3
<PAGE> 9
MANAGEMENT
Directors. This section sets forth the ages and backgrounds of the Company's
current Directors, except for the Class II nominee to be elected at this
meeting.
<TABLE>
<CAPTION>
POSITIONS DIRECTOR
NAME AGE WITH THE COMPANY SINCE
- ---- --- ---------------- --------
<S> <C> <C> <C>
Class III Directors whose terms
expire at the 1998 Annual
Meeting of Stockholders:
Frank C. Lin 53 President, Chief Executive Officer 1987
and Chairman of the Board of Directors
Glen M. Antle 60 Director 1992
Class I Directors whose terms
expire at the 1999 Annual
Meeting of Stockholders:
Charles A. Dickinson 74 Director 1993
Yasushi Chikagami 59 Director 1994
Class II Director nominated for
election at the 2000 Annual
Meeting of Stockholders:
Millard Phelps 70 Director 1995
</TABLE>
Mr. Phelps has served as a Director of the Company since September
1995. From September 1984 to May 1994, he served as a senior technology analyst
for Hambrecht & Quist, an investment banking firm and since May 1994, Mr. Phelps
has served as an advisory director of Hambrecht & Quist. Mr. Phelps serves on
Trident's Board in an individual capacity and not as a representative of
Hambrecht & Quist. Mr. Phelps is also a director of DSP Group, Inc., a
semiconductor engineering services company.
Mr. Lin founded the Company and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
July 1987. From June 1984 to July 1987, he was Vice President of Engineering at
Genoa Systems, Inc., a graphics and storage product company that he co-founded.
From 1982 to 1984, Mr. Lin was a senior manager at Olivetti Advanced Technical
Center, a PC peripheral equipment design company. Mr. Lin is also a director of
United Integrated Circuits Corporation, a Taiwanese company jointly formed by
Trident, UMC and a number of other fabless semiconductor companies to build and
manage a semiconductor manufacturing facility located in Taiwan, Republic of
China.
Mr. Antle has served as a Director of the Company since July 1992. From
July 1996 to August 1997 Mr. Antle was a director of Compass Design Automation,
a company providing EDA tools and libraries. From February 1991 to June 1993, he
served as Chairman of the Board of Directors of PiE Design Systems, an
electronic design automation company, and from August 1992 to June 1993 as its
Chief Executive Officer. In June 1993, PiE merged into Quickturn Design Systems,
Inc., also an electronic design automation company, and Mr. Antle has served as
Chairman of the Board of Directors of Quickturn since that date. From June 1989
to February 1991 Mr. Antle was retired. Mr. Antle was a co-founder of ECAD,
Inc., now Cadence Design Systems, Inc., and served as its Co-Chairman of the
Board of Directors from May 1988 to June 1989 and as Chairman of the Board of
Directors and Chief Executive Officer from August 1982 to May 1988.
Mr. Dickinson has served as a Director of the Company since June 1993.
Since July 1984 Mr. Dickinson has been a member of the Board of Directors of
Solectron Corporation, an electronics manufacturing company. From March 1994
until September 1996, Mr. Dickinson served as the Chairman of the Board of
Directors of Solectron Corporation, and from November 1993 to February 1, 1996
as its President, Europe. From March 1989 to November 1993, Mr. Dickinson was
self employed as a business consultant. Mr. Dickinson is also a Director of
4
<PAGE> 10
Aavid Thermal Technologies, Inc., a company providing thermal transfer
solutions, Lecroy, a company manufacturing digital oscilliscopes, and Dense Pac
Microsystems, a company manufacturing stacked memory modules.
Mr. Chikagami has served as a Director of the Company since April 1994.
From 1974 to January 1996, Mr. Chikagami served as Chairman of the EI-EN Group,
a group of private companies located in Asia engaged in the electronics
components and computer peripherals business. Since January 1996, Mr. Chikagami
has served as Chairman of KEIAN Corporation, a computer and communications
component company, operating in Japan. Mr. Chikagami has also served as Vice
Chairman of Eastern Computer Group Co. in China since 1988. He was also a
founder of GVC Corporation, a publicly held Taiwanese company engaged in
activities including the manufacture of electronics components and computer
peripherals. Mr. Chikagami is also a director of Silicon Storage Technology,
Inc.
Management's nominees for election at the Annual Meeting of
Stockholders to Class III of the Board of Directors are Frank C. Lin and Glen M.
Antle, two of the three current Class III Directors.
Meetings of the Board of Directors. During the fiscal year ended June
30, 1998, the Board of Directors held six (6) meetings. Except for Yasushi
Chikagami (who attended 4 out of 6 meetings) and Leonard Liu (who attended 3 out
of 5 meetings), and Glen Antle (who attended 50% of the Audit Committee
meetings), all directors attended at least 75% of the aggregate of the number of
meetings of the Board of Directors and of the committees of the Board of
Directors on which such director served during fiscal 1998.
The Company does not have a standing Nominating Committee, but does
have an Audit Committee and a Compensation Committee.
The Audit Committee's function is to review, with the Company's
independent public accountants, Management and the Board of Directors, the
Company's financial reporting processes and internal financial controls. The
Audit Committee reviews the results of the examination of the Company's
financial statements by the independent public accountants and the independent
public accountants' opinion. The Audit Committee also approves all professional
services performed by the independent public accountants, recommends the
retention of the independent public accountants to the Board of Directors,
subject to ratification by the stockholders, and periodically reviews the
Company's accounting policies and internal accounting and financial controls.
During fiscal 1998, the Audit Committee was composed of Glen M. Antle and
Millard Phelps. The Audit Committee held four (4) meetings during the fiscal
year ended June 30, 1998.
The Compensation Committee's primary function is to review and
recommend salary levels of, to approve bonus plans for, and approve stock option
grants to executive officers, and to set the compensation of the Chief Executive
Officer. During fiscal 1998, the Compensation Committee was composed of Charles
A. Dickinson and Leonard Liu until Mr. Liu resigned as a director on April 21,
1998. The Compensation Committee held two meetings during the fiscal year ended
June 30, 1998.
5
<PAGE> 11
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation
during the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996 of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company as of June 30, 1998, whose salary
and incentive compensation for the fiscal year ended June 30, 1998 exceeded
$100,000. Amounts under the caption "Bonus" are amounts earned for performance
during the fiscal year including amounts paid after the end of the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#)
- --------------------------- ---- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Frank C. Lin 1998 $ 394,994 $ 0 $ 84,856(1) 220,000(2)
President and Chief 1997 $ 352,000 $ 229,336 $ 0 150,000(3)
Executive Officer 1996 $ 315,791 $ 150,318 $ 0 50,000
Jung-Herng Chang 1998 $ 211,000 $ 0 $ 16,801(1) 100,000(4)
Sr. Vice President, Graphics 1997 $ 183,500 $ 92,152 $ 0 60,000(5)
Engineering 1996 $ 172,103 $ 55,284 $ 0 20,000
Peter Jen 1998 $ 209,000 $ 0 $ 86,330(6) 100,000(7)
Sr. Vice President, Asia 1997 $ 174,220 $ 0 $ 85,827(8) 90,000(9)
Operations 1996 $ 162,783 $ 0 $ 87,300(8) 30,000
Amir Mashkoori 1998 $ 207,000 $ 0 $ 0 60,000(10)
Sr. Vice President, Operations 1997 $ 179,200 $ 89,600 $ 0 100,000(11)
and Business Development 1996 $ 92,727(12) $ 32,666(13) $ 0 100,000
Gerry Liu 1998 $ 194,000 $ 0 $ 0 90,000(14)
Sr. Vice President, Marketing 1997 $ 165,000 $ 82,500 $ 0 110,000(15)
1996 $ 57,727 $ 0 $ 0 40,000
</TABLE>
- --------------
(1) Accrued vacation pay-out.
(2) Includes option to purchase 100,000 shares granted on January 23, 1998,
in consideration for the cancellation of an option for an identical
number of shares granted in fiscal 1997. Also includes option to
purchase 60,000 shares granted on January 23, 1998, in consideration
for the cancellation of an option for an identical number of shares
granted in fiscal 1998.
(3) Includes option to purchase 50,000 shares granted on July 25, 1996, in
consideration for the cancellation of an option for an identical number
of shares granted in fiscal 1996.
(4) Includes option to purchase 40,000 shares granted on January 23, 1998,
in consideration for the cancellation of an option for an identical
number of shares granted in fiscal 1997. Also includes option to
purchase 30,000 shares granted on January 23, 1998, in consideration
for the cancellation of an option for an identical number of shares
granted in fiscal 1998.
(5) Includes option to purchase 20,000 shares granted on July 25, 1996, in
consideration for the cancellation of an option for an identical number
of shares granted in fiscal 1996.
6
<PAGE> 12
(6) Includes $48,815 representing commissions earned and $37,515
representing accrued vacation pay-out.
(7) Includes option to purchase 40,000 shares granted on January 23, 1998,
in consideration for the cancellation of an option for an identical
number of shares granted in fiscal 1997. Also includes option to
purchase 30,000 shares granted on January 23, 1998, in consideration
for the cancellation of an option for an identical number of shares
granted in fiscal 1998.
(8) All amounts shown represent commissions earned.
(9) Includes option to purchase 50,000 shares granted on July 25, 1996, in
consideration for the cancellation of an option for an identical number
of shares granted in fiscal 1996.
(10) Includes option to purchase 30,000 shares granted on January 23, 1998,
in consideration for the cancellation of an option for an identical
number of shares granted in fiscal 1998.
(11) Includes option to purchase 100,000 shares granted on July 25, 1996, in
consideration for the cancellation of an option for an identical number
of shares granted in fiscal 1996.
(12) Represents salary for the period from December 1995 to June 1996.
(13) Represents bonus for the period from December 1995 to June 1996.
(14) Includes option to purchase 30,000 shares granted on January 23, 1998,
in consideration for the cancellation of an option for an identical
number of shares granted in fiscal 1997. Also includes option to
purchase 30,000 shares granted on January 23, 1998, in consideration
for the cancellation of an option for an identical number of shares
granted in fiscal 1998.
(15) Includes option to purchase 40,000 shares granted on July 25, 1996, in
consideration for the cancellation of an option for an identical number
of shares granted in fiscal 1996.
7
<PAGE> 13
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock made during the fiscal
year ended June 30, 1998 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES OR BASE ------------------------------
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- ---- ------ ---- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Lin 60,000 1.77% $ 15.63 7/21/07 $ 589,589 $1,494,134
60,000(4) 1.77% $ 8.63 1/23/08 $ 325,453 $ 824,762
100,000(5) 2.95% $ 8.63 1/23/08 $ 542,422 $1,374,603
Jung-Herng Chang 30,000 .88% $ 15.63 7/21/07 $ 294,794 $ 747,067
30,000(4) .88% $ 8.63 1/23/08 $ 162,726 $ 412,381
40,000(5) 1.18% $ 8.63 1/23/08 $ 216,969 $ 549,841
Amir Mashkoori 30,000 .88% $ 15.63 7/21/07 $ 294,794 $ 747,067
30,000(4) .88% $ 8.63 1/23/08 $ 162,726 $ 412,381
Peter Jen 30,000 .88% $ 15.63 7/21/07 $ 294,794 $ 747,067
30,000(4) .88% $ 8.63 1/23/08 $ 162,726 $ 412,381
40,000(5) 1.18% $ 8.63 1/23/08 $ 216,969 $ 549,841
Gerry Liu 30,000 .88% $ 15.63 7/21/07 $ 294,794 $ 747,067
30,000(4) .88% $ 8.63 1/23/08 $ 162,726 $ 412,381
30,000(5) .88% $ 8.63 1/23/08 $ 162,726 $ 412,381
</TABLE>
- --------------------
(1) Generally, the right to exercise an option under the Company's 1992
Stock Option Plan (the "Option Plan") vests as to one-fourth of the
shares subject to the option on each anniversary of the date of grant.
The Option Plan permits the grant of both incentive stock options
within the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code"), and nonstatutory stock options. The exercise
price of incentive stock options must at least equal the fair market
value of the Common Stock of the Company on the date of grant. The
exercise price of nonstatutory stock options must equal at least 85% of
the fair market value of the Common Stock of the Company on the date of
grant. The exercise price of incentive stock options granted to any
person who at the time of grant owns stock representing more than 10%
of the voting power of all classes of stock of the Company or any
parent or subsidiary corporations must be at least 110% of the fair
market value of the Common Stock of the Company on the date of grant
and the term of such options cannot exceed five years.
(2) All options were granted at or above market value on the date of grant
as determined by the Compensation Committee.
(3) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange commission
rules. Actual gains, if any, on stock option exercises are dependent on
the future performance of the
8
<PAGE> 14
Common Stock, overall market conditions and the option-holders'
continued employment through the vesting period. The amounts reflected
in this table may not necessarily be achieved.
(4) These options represent options that were originally granted on July
21, 1997 and were repriced on January 23, 1998.
(5) These options represent options that were originally granted on
September 9, 1996 and were repriced on January 23, 1998.
OPTION EXERCISES AND FISCAL 1998 YEAR-END VALUE
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in the fiscal year
ended June 30, 1998, and unexercised options held as of June 30, 1998, by the
persons named in the Summary Compensation Table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON EXERCISE VALUE OPTIONS AT FY-END IN-THE-MONEY OPTIONS AT FY-END(2)
------------------------------ --------------------------------
NAME (#) REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- ----------- -------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jung-Herng Chang 0 $ 0 120,000 80,000 $ 21,875 $ 0
Peter Jen 0 $ 0 87,917 94,583 $ 41,344 $ 0
Frank Lin 0 $ 0 167,500 172,500 $ 0 $ 0
Gerry Liu 0 $ 0 37,500 102,500 $ 0 $ 0
Amir Mashkoori 25,000 $221,250 25,000 80,000 $ 0 $ 0
</TABLE>
- ---------------
(1) Company stock options generally become exercisable as to 25% on the
first anniversary of the date of grant and 25% per year thereafter.
(2) The value of the unexercised in-the-money options is based on the
closing price of the Company's Common Stock on June 30, 1998 ($5.3125
per share) and is net of the exercise price of such options.
9
<PAGE> 15
REPRICING OF STOCK OPTIONS
The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer of the Company since December 16, 1992, the date of the
Company's initial public offering.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
EXERCISE LENGTH OF
NUMBER OF PRICE AT ORIGINAL OPTION
SECURITIES MARKET PRICE OF TIME OF TERM REMAINING
UNDERLYING STOCK AT TIME REPRICING NEW AT DATE OF
REPRICING OPTIONS REPRICED OF REPRICING OR EXERCISE REPRICING OR
NAME AND POSITION DATE OR AMENDED (#) OR AMENDMENT($) AMENDMENT(#) PRICE ($) AMENDMENT
- ----------------- --------- ---------------- --------------- ------------ ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Frank Lin, President and 7/14/93 120,000 $5.00 $ 8.00 $ 5.00 9 years, 94 days
Chief Executive Officer 7/25/96(1) 50,000 $9.38 $20.49 $10.31(2) 4 years, 71 days
1/23/98(3) 100,000 $8.63 $11.28 $ 8.63 3 years, 229 days
1/23/98(3) 60,000 $8.63 $15.63 $ 8.63 9 years, 179 days
Jung-Herng Chang, Sr. 7/25/96(1) 20,000 $9.38 $18.63 $ 9.38 9 years, 71 days
Vice President, Graphics 1/23/98(3) 40,000 $8.63 $10.25 $ 8.63 8 years, 229 days
Engineering 1/23/98(3) 30,000 $8.63 $15.63 $ 8.63 9 years, 179 days
Peter Jen, Sr. Vice 7/14/93 30,000 $5.00 $ 5.50 $ 5.00 9 years, 49 days
President, Asia 7/14/93 10,000 $5.00 $ 8.00 $ 5.00 9 years, 95 days
Operations 7/25/96(1) 20,000 $9.38 $15.50 $ 9.38 8 years, 261 days
7/25/96(1) 30,000 $9.38 $18.63 $ 9.38 9 years, 71 days
1/23/98(3) 40,000 $8.63 $10.25 $ 8.63 8 years, 229 days
1/23/98(3) 30,000 $8.63 $15.63 $ 8.63 9 years, 179 days
Gerry Liu, Sr. Vice 7/25/96(1) 40,000 $9.38 $13.25 $ 9.38 9 years, 178 days
President, Marketing 1/23/98(3) 30,000 $8.63 $10.25 $ 8.63 8 years, 229 days
1/23/98(3) 30,000 $8.63 $15.63 $ 8.63 9 years, 179 days
Amir Mashkoori, Sr. Vice 7/25/96(1) 100,000 $9.38 $13.25 $ 9.38 9 years, 178 days
President, Operations 1/23/98(3) 30,000 $8.63 $15.63 $ 8.63 9 years, 179 days
and Business Development
Richard Hegberg, Former 7/25/96(1) 100,000 $9.38 $10.38 $ 9.38 9 years, 362 days
Vice President,
Worldwide Sales
James T. Lindstrom, 7/14/93 10,000 $5.00 $ 8.00 $ 5.00 9 years, 95 days
Former Vice President, 7/25/96(1) 20,000 $9.38 $18.63 $ 9.38 9 years, 71 days
Finance, Chief Financial
Officer and Secretary
Tung-Liang Chang, Former 7/14/93 30,000 $5.00 $ 8.00 $ 5.00 Z 9 years, 95 days
Vice President, ASIC
Technology
</TABLE>
(1) Options that were repriced on July 25, 1996 vest and become exercisable
according to the following schedule: (i) in three substantially equal
annual installments on the first three anniversaries of July 25, 1996,
if the holder of the exchanged option had completed twelve or more
months of continuous service as of July 25, 1996, (ii) 25% of the
number of shares subject to the new option on January 25, 1997 and the
remainder in three substantially equal annual installments on each of
the first three anniversaries of January 25, 1997, if the holder had
completed six months or more but less than twelve months of continuous
service as of July 25, 1996, or (iii) in four substantially equal
annual installments on the first four anniversaries of July 25, 1996,
if the holder had completed less than six months of continuous service
10
<PAGE> 16
as of July 25, 1996. See "REPORT OF THE COMPENSATION COMMITTEE ON
REPRICING OF OPTIONS."
(2) Represents 110% of the fair market value of the Company's Common Stock
on the date of grant, since Mr. Lin holds more than 10% of the Common
Stock of the Company.
(3) Options that were repriced on January 23, 1998 continue to vest at the
same rate as applied prior to their repricing but may not exercised
prior to January 24, 1999, except upon the holder's death, permanent
and total disability or involuntary termination other than for cause,
or in the event of a merger, liquidation or dissolution of the Company.
For substantially similar reasons as discussed in the "REPORT OF THE
COMPENSATION COMMITTEE ON REPRICING OF OPTIONS, and as a result of further price
declines, in October 1998 the Compensation Committee approved a further offer,
effective October 12, 1998, to exchange substantially all options under the
Company's 1992 Stock Option Plan and 1996 Nonstatutory Stock Option Plan for
options with an exercise price equal to $3.50 (the current trading price).
COMPENSATION OF DIRECTORS
Board members other than the Company's outside directors receive no
compensation for attending Board meetings, except for reimbursement of certain
expenses in connection with attendance at Board meetings and Committee meetings.
The Company's outside directors receive $10,000 per year as an annual retainer.
In addition, each outside director receives $1,250 for each Board or Committee
meeting attended in person, and $750 for each Board or Committee meeting
attended by phone.
The Company's 1994 Outside Directors Stock Option Plan (the "Outside
Directors Plan") provides that on the day immediately following the initial
election or appointment of each new non-employee director (an "Outside
Director"), such Outside Director will automatically receive a grant of an
option to purchase 5,000 shares of the Company's Common Stock, subject to
proration of the number of shares if appointed to fill a vacancy between annual
meetings of the stockholders. Each Outside Director previously granted an option
under the Outside Directors Plan will automatically receive an additional option
to purchase 5,000 shares of the Company's Common Stock on the day immediately
following each annual meeting of the stockholders of the Company.
On October 16, 1998, each of the outside members of the Board of
Directors was granted an option to acquire 6,250 shares of Common Stock as
additional compensation and incentive to such directors, at an exercise price
per share of $3.375.
If the proposed amendment to the Outside Directors Plan is approved by
the stockholders of the Company at the Annual Meeting, then, in lieu of the
foregoing, each Outside Director remaining in office following the Annual
Meeting will automatically receive an option to purchase 20,000 shares of the
Company's Common Stock on the date of the meeting and an additional option to
purchase 20,000 shares of the Company's Common Stock on the date of each third
annual meeting of the stockholders thereafter, provided that he or she remains
in office. Following the Annual Meeting, each new Outside Director will
automatically receive an option to purchase 20,000 shares of the Company's
Common Stock on the date of his or her initial election or appointment and an
additional option to purchase 20,000 shares of the Company's Common Stock on the
date of the first annual meeting of the stockholders following the third
anniversary of his or her previous Outside Directors Plan option grant, provided
that he or she remains in office. See "PROPOSAL NO. 4--AMENDMENT TO THE 1994
OUTSIDE DIRECTORS STOCK OPTION PLAN."
In August 1995, the Company entered into a joint venture agreement with
United Microelectronic Corporation ("UMC") pursuant to which the Company is
committed to invest a certain amount over a three year period for a 10% equity
interest in the joint venture entity, United Integrated Circuits Corporation
("UICC"), which constructed a wafer fabrication facility in Taiwan. Following
the consummation of this transaction, Frank Lin was appointed as a director of
UICC.
11
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the Compensation Committee was composed of two
independent, non-employee directors of the Company, Charles A. Dickinson and
Leonard Liu. See "REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION."
CHANGE IN CONTROL ARRANGEMENTS
The Company's 1992 Stock Option Plan (the "Option Plan") provides that
in the event of a merger of the Company with or into another corporation, unless
the successor corporation assumes or substitutes equivalent options for options
granted under the Option Plan, the Board of Directors shall provide that all
outstanding options under the Option Plan will be fully exercisable prior to the
merger. Options which are neither assumed or substituted for by the successor
corporation nor exercised prior to the expiration of a 15-day notice period will
terminate upon the expiration of such period. All shares subject to options
granted under the Outside Directors Plan will become fully vested and
exercisable as of the date 15 days prior to a change in control of the Company
as defined in the Outside Directors Plan unless the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "Acquiring Corporation"), either assumes or substitutes Acquiring
Corporation options for options outstanding under the Outside Directors Plan.
Any such options which are neither assumed or substituted for by the Acquiring
Corporation nor exercised will terminate as of the date of the change in
control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 1997, the Company and Amir Mashkoori entered into a loan
agreement pursuant to which Mr. Mashkoori borrowed $180,000 from the Company,
payable on May 5, 1998 together with interest at a rate of 6.23% per annum. On
September 2, 1997, Mr. Mashkoori paid to the Company $110,000 of the principal
amount of the loan and $3,687 of accrued interest to date. On May 5, 1998, the
term of loan agreement was extended for two years, making the loan payable on
May 5, 2000. The current balance of such loan is a principal sum of $70,000 plus
interest on such amount.
On July 9, 1997, W. Steven Rowe entered into a loan agreement pursuant
to which Mr. Rowe borrowed $150,000 from the Company, payable on July 9, 1999
and interest to be paid annually with the first interest payment being due on
July 9, 1998 with interest at a rate of 6.07% per annum. The current balance of
such loan is a principal sum of $150,000 plus interest on such amount.
In October 1998, Frank Lin entered into a loan agreement pursuant to
which Mr. Lin borrowed $500,000 from the Company, payable in October 2000 and
interest to be paid annually with the first interest payment being due in
October 1999 with interest at a rate of [5.56]% per annum.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that, during fiscal 1998, all filing requirements applicable to the
Company's executive officers, directors and more than 10% stockholders were met,
except that late annual statements reporting one and two exempt transaction(s),
respectively, were filed by Mr. Lin and Mr. Jen, and initial reports timely
filed by each of Messrs. Liu and Mashkoori were amended to include inadvertently
omitted holdings of, respectively, shares of stock by Mr. Liu and two employee
stock options by Mr. Mashkoori.
12
<PAGE> 18
REPORT OF THE COMPENSATION COMMITTEE
ON REPRICING OF OPTIONS
In January 1998, the Compensation Committee, consisting of Charles A.
Dickinson and Leonard Y. Liu, considered the options held by the Company's
executive officers and employees and the fact that a broad decline in the price
of the Common Stock of the Company had resulted in a substantial number of stock
options granted pursuant to the Company's 1992 Stock Option Plan (the "1992
Plan") and the 1996 Nonstatutory Stock Option Plan (the "1996 Plan")
(collectively, the "Plans") having exercise prices well above the recent
historical trading prices of the Common Stock. The Company's Management advised
the Committee that it believed employee turnover was likely to increase in part
because the Company's total compensation package for long-term employees, which
included substantial options with exercise prices well above the then current
trading price, was less attractive than compensation offered by other companies
in the same geographic location, since options granted to new hires at other
companies would be granted at current trading prices.
The Committee determined (i) that the Company's success in the future
would depend in large part on its ability to retain a number of its highly
skilled technical and managerial personnel, (ii) that competition for such
personnel would be intense, (iii) that the loss of key employees could have a
significant adverse impact on the Company's business, (iv) that it would be
important and cost-effective to provide equity incentives to employees and
executive officers of the Company to improve the Company's performance and the
value of the Company for its stockholders, and (v) that the morale of long-term
employees holding stock options with exercise prices well below the current
trading price would decrease as more recently hired employees are granted
options with exercise prices set at current, lower market prices. The Committee
recognized that an exchange of existing options with exercise prices higher than
fair market value for options granted at fair market value would restore
incentives to employees because of the increased potential for appreciation. The
Committee also recognized that it could require the new options to be subject to
restrictions on exercise so that optionees participating in the exchange would
have incentives to remain with the Company. Considering these factors, the
Committee determined it to be in the best interests of the Company and its
stockholders to restore the incentives for employees and executive officers to
remain as employees of the Company and to exert their maximum efforts on behalf
of the Company by granting replacement stock options under the Plans at the
optionee's election, with exercise restrictions and with exercise prices equal
to the then current market value.
Accordingly, in January 1998, the Committee approved an offer,
effective January 23, 1998, to all employees of the Company, including executive
officers, to exchange outstanding options granted after January 25, 1996 with
exercise prices above the then current trading price for new options with
exercise prices equal to the current trading price ("New Options"). The
Committee provided that New Options would not be exercisable during a 12-month
period ending on January 23, 1999, except in certain limited circumstances. Such
circumstances are (i) the employee's involuntary termination other than for
cause, (ii) the employee's death or permanent and total disability, or (iii) a
merger, liquidation or dissolution of the Company. All New Options terminate no
later than ten years from the date of the exchange. Optionees who participated
in the exchange received a lower exercise price in exchange for the cancellation
of the holder's exchanged option. Options for 1,701,500 shares with exercise
prices ranging from $8.875 to $20.00 were exchanged for options for an equal
number of shares at an exercise price of $8.625, the fair market value of the
Company's Common Stock on January 23, 1998, the effective date of the repricing.
See EXECUTIVE COMPENSATION AND OTHER MATTERS - "Ten-Year Option Repricings"
table for further information concerning the repricing.
1998 COMPENSATION COMMITTEE
Charles A. Dickinson
Leonard Y. Liu
13
<PAGE> 19
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Compensation Committee was composed of two independent,
non-employee directors of the Company during the 1998 fiscal year. No such
persons were former employees of the Company. During fiscal 1998, the
Compensation Committee members were Charles A. Dickinson and Leonard Y. Liu
until Mr. Liu resigned as a director on April 21, 1998. The Compensation
Committee's primary function is to review and recommend salary levels of, to
approve bonus plans for, and to approve stock option grants to executive
officers, and to set the compensation of the Chief Executive Officer.
COMPENSATION PHILOSOPHY
The Compensation Committee strives to align executive compensation with
the value achieved by the executive team for the Company's stockholders. Toward
that goal, the Company's compensation program emphasizes both short- and
long-term incentives designed to attract, motivate, and retain highly qualified
executives who will effectively manage the Company and maximize stockholder
value. The Company uses salary, executive officer bonuses and stock options to
motivate executive officers to achieve the Company's business objectives and to
align the incentives of officers with the long-term interests of stockholders.
The Compensation Committee reviews and evaluates each executive officer's base
and variable compensation annually relative to corporate performance and
comparative market information.
In setting total compensation, the Compensation Committee considers
individual and Company performance, as well as market information in the form of
published survey data provided to the Compensation Committee by the Company's
human resources staff. The market data consists primarily of base salary and
total cash compensation rates, as well as incentive bonus and stock programs, of
companies considered by the Compensation Committee to be comparable technology
companies as well as companies in the semiconductor design industry. The
Compensation Committee's policy is generally to target levels of cash and equity
compensation paid to its executive officers so that such compensation is
competitive with that paid by such comparable companies.
In preparing the performance graph for this Proxy Statement, the
Company has selected the H&Q Semiconductors Sector Index, and the Nasdaq Stock
Market-U.S. Index as its peer groups. The companies that the Company included in
its stratified salary surveys are not necessarily those included in the indices,
as such companies may not be competitive with the Company for executive talent
particularly those companies located outside the Silicon Valley, where
competition for employees has been intense.
The Company has considered the potential impact of Section 162(m) of
the Internal Revenue Code ("Section 162(m)") adopted under the federal Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction to any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year paid to the chief executive officers or any of the four other
most highly compensated executive officers, unless the compensation is
performance-based. The Company's policy is to qualify to the extent reasonable
its executive officers' compensation for deductibility under applicable tax
laws. Since the targeted cash compensation of each of the named executive
officers is well below the $1 million threshold and the Company believes that
compensation attributable to any options granted under the Company's 1992 Stock
Option Plan as of June 30, 1998 qualified as performance-based in accordance
with the regulations under Section 162(m), the Compensation Committee believes
that Section 162(m) will not reduce the tax deduction available to the Company
with the exception of options for 170,000 shares granted to Mr. Lin and for
40,000 shares granted to Mr. Gerry Liu. However, as a result of the stock option
repricing effective October 12, 1998 (See "REPORT OF THE COMPENSATION COMMITTEE
ON REPRICING OF OPTIONS"), options for an aggregate of 460,000 shares granted to
persons named in the Summary Compensation Table do not qualify as
performance-based for purposes of Section 162(m).
14
<PAGE> 20
FORMS OF COMPENSATION
Salary. The Company strives to offer executive officers salaries that
are competitive with comparable companies in the technology sector generally and
in the semiconductor design industry. Frank C. Lin, President and Chief
Executive Officer of the Company, approves executive salaries at the time
executives join the Company, which are subject to review and approval by the
Compensation Committee. Thereafter, Mr. Lin periodically reviews salaries of the
executive officers and recommends adjustments to the base salaries of those
officers which are subject to review and approval by the Compensation Committee.
The Compensation Committee reviews Mr. Lin's performance and makes adjustments
to his salary. Adjustments made by Mr. Lin and the Compensation Committee are
based on individual executive officer performance, cost of living increases,
Company performance, and adjustments to retain qualified personnel. Mr. Lin's
base salary is reviewed annually by the Compensation Committee and reflects his
position, duties, and responsibilities.
Incentive Compensation. The Board of Directors reviews and approves an
executive bonus plan ("Plan") based upon Company and individual performance. The
Compensation Committee believes that significant bonus incentives based on
performance of the Company and personal performance provide substantial
motivations to achieve corporate goals. Under the Plan, Company performance is
measured for the fiscal year on a basis of actual operating profit as compared
with budgeted operating profit. The Company performance portion of any
executive's incentive bonus could be higher if the Company's performance
exceeded the goal. Individual performance against management-by-objective
("MBO") goals comprises a significant component of the bonus for most
executives; however, Company performance is given more weight in any bonus
calculation. The Plan is approved by the Compensation Committee with Mr. Lin
determining whether executive officers, other than himself, met their individual
MBO goals and with the Compensation Committee making such determination as to
Mr. Lin. The Compensation Committee believes the incentives paid to the
Company's executives on a basis of Company performance and individual
performance are comparable to those paid under industry standard incentive
compensation programs.
Subsequent to the Compensation Committee reviewing salaries and the
Plan for Fiscal 1998, the Company failed to meet its revenue and profit
objectives. Management determined to reduce management salaries by 10%, and not
to pay any bonuses for fiscal 1998, whether or not such bonuses were earned
under the terms of the Plan. The Compensation Committee has not meet during
fiscal 1999, and salaries remain at the reduced levels paid in 1998. It is
anticipated that the Compensation Committee will approve a bonus plan for fiscal
1999, but the parameters of the plan may be different than in 1998. Mr. Lin did
not receive a bonus for fiscal 1998.
Stock Options. The Compensation Committee strives to maintain the
equity position of all executive officers at levels competitive with comparable
companies. The Compensation Committee believes that equity ownership provides
significant additional motivation to executive officers to maximize value for
the Company's stockholders, and therefore grants stock options under the
Company's 1992 Stock Option Plan at the commencement of an executive officer's
employment and, depending on that officer's performance and the appropriateness
of additional awards to retain key employees, periodically thereafter. Stock
options are granted at the prevailing market price, vest over a period of years
and will only have value if the Company's stock price increases over the
exercise price. Therefore, the Compensation Committee believes that stock
options serve to align the interests of executive officers closely with other
stockholders because of the direct benefit executive officers receive through
improved stock price performance.
In July 1997, the Compensation Committee granted options to executive
officers, including Mr. Lin. Mr. Lin received a grant of 60,000 shares with an
exercise price of $15.625. The grant is based on Mr. Lin's senior position, his
responsibilities, and his past and expected contributions to the Company's
future success and was intended to provide competitive equity compensation for
the Company's 1998 fiscal year.
1998 COMPENSATION COMMITTEE
Charles A. Dickinson
Leonard Y. Liu
15
<PAGE> 21
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the cumulative
total return of the Hambrecht & Quist Semiconductors Sector Index ("H&Q
Semiconductor Index") and the Nasdaq Stock Market Index (U.S. Companies)
("Nasdaq US") for the period commencing on June 30, 1993 and ending on June 30,
1998.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
JUNE 30, 1993 THROUGH JUNE 30, 1998(1):
TRIDENT MICROSYSTEMS, INC., HAMBRECHT & QUIST SEMICONDUCTORS SECTOR INDEX AND
THE NASDAQ STOCK MARKET (U.S. COMPANIES)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq US $100.00 $100.32 $132.64 $168.39 $204.92 $269.24
Trident Microsystems $100.00 $119.05 $395.24 $240.48 $214.29 $101.19
H&Q Semiconductor Index $100.00 $294.45 $227.50 $168.67 $305.34 $250.09
</TABLE>
(1) Assumes that $100.00 was invested on June 30, 1993 in the Company's
Common Stock and each index, and that all dividends were reinvested. No
dividends have been declared on the Company's Common Stock. Stockholder
returns over the indicated period should not be considered indicative
of future stockholder returns.
16
<PAGE> 22
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company has a classified Board of Directors currently consisting of
two Class I Directors (Charles A. Dickinson and Yasushi Chikagami), one Class II
Director (Millard Phelps) and two Class III Directors (Frank C. Lin and Glen M.
Antle), who will serve until the annual meetings of stockholders to be held in
1999, 2000 and 1998, respectively, and until their respective successors are
duly elected and qualified. At each annual meeting of stockholders, Directors
are elected for a full term of three years to succeed those Directors whose
terms expire on the annual meeting dates. Vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification or other cause
(other than removal from office by vote of the stockholders) may be filled by a
majority vote of the Directors then in office, and Directors so chosen shall
hold office for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which they have been elected expires.
The terms of the Class III Directors will expire on the date of the
upcoming annual meeting. Two people are to be elected to serve as Class III
Directors of the Board of Directors at that meeting. Management's nominees for
election by the stockholders to these positions are Frank C. Lin and Glen M.
Antle, two of the current Class III members of the Board of Directors.
If elected, Management's nominees will serve as Directors until the
Company's annual meeting of stockholders in 2001, and until their successors are
elected and qualified. If any of the nominees decline to serve, the proxies may
be voted for such substitute nominees as the Company may designate. Proxies may
not be voted for more than two nominees.
If a quorum is present and voting, the two nominees for Class III
Directors receiving the highest number of votes will be elected as Class III
Directors. Abstentions and shares held by brokers that are present, but not
voted because the brokers were prohibited from exercising discretionary
authority, i.e., "broker non-votes," will be counted as present for purposes of
determining if a quorum is present.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
MESSRS. LIN AND ANTLE.
17
<PAGE> 23
PROPOSAL NO. 2
ADDITIONAL ANTI-TAKEOVER MEASURES
The Board of Directors has unanimously approved a proposal to amend the
Company's Certificate of Incorporation ("Certificate") and By-Laws ("By-Laws")
to include certain provisions available to public companies under Delaware law
that deter hostile take-over attempts, as more particularly described below.
In considering the proposals, stockholders should be aware that the
overall effect of certain of the proposed provisions is to make it more
difficult for holders of a majority of the outstanding shares of Common Stock to
change the composition of the Board of Directors and to remove existing
management in circumstances where a majority of the stockholders may be
dissatisfied with the performance of the incumbent directors or otherwise desire
to make changes. These provisions, if included in the Company's Certificate and
By-Laws, could make a proxy contest a less effective means of removing or
replacing existing directors or could make it more difficult to make a change in
control of the Company which is opposed by the Board of Directors. This
strengthened tenure and authority of the Board of Directors could enable the
Board of Directors to resist change and otherwise thwart the desires of a
majority of the stockholders. Because these provisions may have the effect of
continuing the tenure of the current Board of Directors, the Board has
recognized that the individual directors have a personal interest in this
provision that may differ from those of the stockholders. However, the Board
believes that these provisions' primary purpose is to ensure that the Board will
have sufficient time to consider fully any proposed takeover attempt in light of
the short and long-term benefits and other opportunities available to the
Company and, to the extent the Board determines to proceed with the takeover, to
effectively negotiate terms that would maximize the benefits to the Company and
its stockholders.
A hostile takeover attempt may have a positive or a negative effect on
the Company and its stockholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the board of directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
stockholders the risk of terms which may be less than favorable to all of the
stockholders than would be available in a Board-approved transaction.
Board-approved transactions may be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the corporation and all of
its stockholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate assets.
In addition, in the case of a proposal which is presented to the board of
directors, there is a greater opportunity for the board of directors to analyze
the proposal thoroughly, to develop and evaluate alternatives, to negotiate for
improved terms and to present its recommendations to the stockholders in the
most effective manner.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to stockholders, providing all stockholders with
considerable value for their shares. However, the Board of Directors believes
that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its stockholders.
Accordingly, the Board has separately proposed certain measures for inclusion in
the Certificate and By-Laws that may have the effect of discouraging or
deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to
stockholders of the proposed changes, stockholders should recognize that one of
the effects of such changes may be to discourage a future attempt to acquire
control of the Company which is not presented to and approved by the Board of
Directors, but which a substantial number, and perhaps even a majority, of the
Company's stockholders might believe to be in their best interests or in which
stockholders might receive a substantial premium for their shares over the
current market price. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so.
In addition, by increasing the probability that any person or group
seeking control of the Company would be forced to negotiate directly with the
Board of Directors, the proposed takeover defenses could discourage takeover
bids by means of a hostile tender offer, proxy contest or otherwise without the
approval of the Board. Thus, the principal disadvantages to the stockholders
which result from discouraging such hostile takeover bids
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<PAGE> 24
would be to (i) reduce the likelihood that any acquiror would make a hostile
tender offer for the outstanding shares of stock of the Company at a premium
over the market rate and (ii) increase the difficulty of removing the existing
Board of Directors and management even if, in a particular case, removal would
be beneficial to stockholders generally.
It should be noted, however, that the Board of Directors has a
fiduciary duty to the stockholders to negotiate for the best interests of the
stockholders and not for its own interests. Further, while the proposed takeover
defenses may discourage hostile takeover attempts, these provisions would not
prevent a hostile acquisition of the Company.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions described below outweigh
the possible disadvantages. In particular, the Board believes that the benefits
associated with enabling the Board to fully consider and negotiate proposed
takeover attempts make these proposals beneficial to the Company and its
stockholders.
The proposal to include these anti-takeover provisions in the
Certificate and By-Laws does not reflect knowledge on the part of the Board of
Directors or management of any proposed takeover or other attempt to acquire
control of the Company. Management may in the future propose or adopt other
measures designed to discourage takeovers apart from those proposed in this
Proxy Statement, if warranted from time to time in the judgment of the Board of
Directors, although the Board has no such intention at the present time.
SUMMARY OF EXISTING ANTI-TAKEOVER MEASURES
The following represent the existing provisions of the Certificate and
By-Laws which could have an antitakeover effect against persons seeking to take
control of the Company and that are not proposed to be amended at this Annual
Meeting. Other than these provisions and the proposed amendments, no other
antitakeover provisions are currently contemplated by the Board of Directors.
The Board of Directors is currently divided into three classes, with
each class serving terms of three years in staggered succession. The staggered
terms prevent the stockholders from voting on the election of more than one
class of directors at each annual meeting and thus may delay a change in control
of the Company or defer a bid for control of the Company. The effect of the
classified Board of Directors is that it could take two as opposed to one annual
meeting of stockholders for persons seeking a takeover of the Company to achieve
majority control of the members of the Board of Directors.
The Certificate does not provide for cumulative voting. As a result, in
order to be assured of representation on the Company's Board of Directors, a
stockholder must control the votes of a majority of the votes present and voting
at a stockholder meeting at which a quorum is present. The absence of cumulative
voting requires a person seeking a takeover to acquire a substantially greater
number of shares to be assured of representation on the Board of Directors than
would be necessary were cumulative voting available.
The Certificate provides that actions required or permitted to be taken
at any annual or special meeting of the stockholders may be taken only upon the
vote of the stockholders at a meeting duly called and may not be taken by
written consent of the stockholders. This provision ensures that all
stockholders would have advance notice of any attempted major corporate action
by stockholders, and that all stockholders would have an equal opportunity to
participate at the meeting of stockholders where such action was being
considered. The provision encourages a potential acquiror to negotiate directly
with the Board of Directors. Such a provision could be characterized as
increasing management's and the Board of Directors' ability to retain their
positions with the Company and to resist a transaction which may be deemed
advantageous by even a majority of the stockholders. Persons attempting a
takeover bid could be delayed or deterred by not being able to propose a
transaction at a time advantageous for them.
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<PAGE> 25
The Board of Directors has authority to issue up to 500,000 shares of
Preferred Stock of the Company, par value $.001 per share (the "Preferred
Stock"), of which 300,000 shares have been designated as Series A Preferred
Stock (the "Series A Stock"), and to fix the rights, preferences, privileges and
restrictions, including voting rights, of the Preferred Stock without any vote
or action by the stockholders. The Board's authority to issue the Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company.
On July 24, 1998, the Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (each a "Right" and
collectively the "Rights") for each outstanding share of Common Stock of the
Company. The distribution was paid as of August 14, 1998 to stockholders of
record on that date. Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of the Series A Stock at a price of
$50.00. The Rights have certain anti-takeover effects. Under certain
circumstances the Rights could cause substantial dilution to a person or group
who attempts to acquire the Company on terms not approved by the Company's Board
of Directors. However, the Rights should not interfere with any merger or other
business combination approved by the Board because Board approval of a
particular transaction will prevent the Rights from becoming exercisable. The
Rights can also be redeemed by the Board prior to a triggering event for a
nominal price.
The Company is also afforded the protections of Section 203 of the
Delaware General Corporation Law, which could delay or prevent a change in
control of the Company or could impede a merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
the Company. Section 203 provides that a corporation may not engage in any
business combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder unless
(i) prior to the date the stockholder became an interested stockholder the Board
of Directors approved the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder, or (ii) upon consummation
of the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
by persons who are both directors and officers and employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) the business combination is approved by the Board of Directors and
authorized by 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. An interested stockholder means any person that is
the owner of 15% or more of the outstanding voting stock; however, the statute
provides for certain exceptions to parties who otherwise would be designated
interested stockholders, including an exception for parties that held 15% or
more of the outstanding voting stock as of December 23, 1987. Any corporation
may decide to opt out of the statute in its original Certificate of
Incorporation or at any time by action of its stockholders. The Company has not
opted out of the statute.
The Certificate and By-Laws contain certain provisions that require
approval by a super-majority (66 2/3%) of the outstanding shares before they
can be amended or repealed. The super-majority voting requirement makes it more
difficult for a person or group attempting to acquire the Company to amend or
repeal the anti-takeover provisions included in the Certificate and By-Laws.
SUMMARY OF ADDITIONAL ANTI-TAKEOVER MEASURES
The separate proposals are summarized in the chart below. The following
chart does not purport to be an exhaustive discussion. It is qualified in its
entirety by reference to the Delaware General Corporation Law and the
Certificate and By-Laws. Stockholders are requested to read the following chart
in conjunction with the discussion following the chart and the Certificate and
By-Laws attached to this Proxy Statement. Stockholders should note that each of
these proposals is proposed for separate consideration and vote by the
stockholders and approval of one proposal is not conditioned on approval of the
other proposal.
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<PAGE> 26
<TABLE>
<CAPTION>
ISSUE AMENDED CHARTER CURRENT CHARTER
----- --------------- ---------------
<S> <C> <C>
Removal of Classified Board Delaware law permits the removal of a The Company's current Certificate and
director on a classified board only for By-Laws permit the removal of a director
cause, unless otherwise specified in the with or without cause by affirmative
corporation's Certificate of Incorporation vote of a majority of the outstanding
and By-Laws. The Board proposes that the shares.
Certificate and By-Laws be amended to
permit removal of directors only
for cause by affirmative vote of the
majority of the outstanding shares of
voting stock entitled to vote at an
election of directors.
Call of Special Meetings by Delaware law provides that special The Company's current Certificate and
Stockholders meetings may be called only by the board By-Laws provide that special meetings
of directors or any person as may be may be called by the Board or holders of
designated in the corporation's Certificate 10% or more of the outstanding voting
of Incorporation and By-Laws. The Board power.
proposes that the Certificate and By-Laws
be amended to provide that special
meetings may be called only by the Board.
</TABLE>
21
<PAGE> 27
PROPOSAL NO. 2-A
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
The Company has proposed certain amendments to its Certificate and
By-Laws designed to protect stockholder interests in the event of hostile
takeover attempts against the Company. The Board believes that these measures
will enable it to more effectively consider any proposed takeover attempt and to
negotiate terms that maximize the benefit to the Company and its stockholders. A
classified Board of Directors removable only for cause is one such measure.
As discussed above, the Company has a classified Board of Directors
with staggered terms. Under Delaware law, a director on a classified board of
directors can be removed from office during his term by stockholders only for
cause unless the Certificate of Incorporation provides otherwise. The Board of
Directors has proposed that the Certificate and By-Laws be amended to provide
that the Company's directors may be removed from office only for cause by the
affirmative vote of the holders of a majority of the voting power of the
then-outstanding shares of voting stock of the Company entitled to vote in the
election of directors.
If the Certificate and By-Laws are amended to provide that directors
can only be removed for cause, it will require at least two annual meetings of
stockholders for a majority of stockholders to make a change in control of the
Board of Directors, since only a portion of the directors will be elected at
each meeting. A significant effect of a classified Board of Directors removable
only for cause may be to deter hostile takeover attempts because an acquirer
would experience delay in replacing a majority of the directors. However, a
classified Board of Directors removable only for cause also makes it more
difficult for stockholders to effect a change in control of the Board of
Directors, even if such a change in control is sought due to dissatisfaction
with the performance of the Company's directors.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of sixty-six and two-thirds percent (66 2/3%)
of the voting power of all outstanding capital stock of the Company is required
for approval of this proposal. Abstentions and broker non-votes will each have
the same effect as a negative vote on this proposal.
THE BOARD BELIEVES THAT THE PROPOSED AMENDMENTS TO THE CERTIFICATE AND BY-LAWS
ARE IN THE BEST INTEREST OF THE STOCKHOLDERS AND THE COMPANY FOR THE REASONS
STATED ABOVE. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THIS PROPOSAL.
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<PAGE> 28
PROPOSAL NO. 2-B
LIMITATION ON ABILITY TO CALL SPECIAL MEETINGS
The Company has proposed certain amendments to its Certificate and
By-Laws designed to protect stockholder interests in the event of hostile
takeover attempts against the Company. The Board believes that these measures
will enable it to more effectively consider any proposed takeover attempt and to
negotiate terms that maximize the benefit to the Company and its stockholders.
Limiting the manner in which special meetings are called is one such measure.
Under the Company's current Certificate and By-Laws, special meetings
of stockholders may be called by the Board or the holders of 10% or more of the
outstanding voting power. Delaware law, however, provides that special meetings
of stockholders may only be called by the Board or by any other person as may be
designated in the Certificate of Incorporation or By-Laws of a corporation. The
Board of Directors has proposed to amend the Certificate and By-Laws to provide
that special meetings of stockholders may be called only by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors. Such a provision precludes a stockholder from mounting a
proxy contest or taking action to amend charter documents until the next annual
meeting. Such a provision could have the affect of deterring efforts to seek
control of the Company on a basis which some stockholders might deem favorable.
In the event this proposal is not approved by the requisite vote of the
stockholders, the Certificate and By-Laws will provide that special meetings of
stockholders may be called by the Board of Directors or the holders of 10% or
more of the outstanding voting power. In the event this proposal is approved,
the Certificate and By-Laws will provide that special meetings of stockholders
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of sixty-six and two-thirds percent (66 2/3%)
of the voting power of all outstanding capital stock of the Company is required
for approval of this proposal. Abstentions and broker non-votes will each have
the same effect as a negative vote on this proposal.
THE BOARD BELIEVES THAT THE PROPOSED AMENDMENTS TO THE CERTIFICATE AND BY-LAWS
ARE IN THE BEST INTEREST OF THE STOCKHOLDERS AND THE COMPANY FOR THE REASONS
STATED ABOVE. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THIS PROPOSAL.
23
<PAGE> 29
PROPOSAL NO. 3
APPROVAL OF THE COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders will be asked to approve the
Trident Microsystems, Inc. 1998 Employee Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan authorizes the issuance of up to 500,000 shares of the
Company's Common Stock (subject to adjustment for certain changes in the capital
structure of the Company).
The Purchase Plan is intended to replace the Company's 1992 Employee
Stock Purchase Plan (the "1992 Plan"). As of April 30, 1998, the most recent
purchase date under the 1992 Plan, of the aggregate of 500,000 shares of Common
Stock authorized for issuance under the 1992 Plan, a total of 339,217 shares had
been issued and up to 160,783 shares remained available for employee purchases
on October 30, 1998, the final purchase date under the 1992 Plan. The Board of
Directors has elected to terminate the 1992 Plan immediately following the
October 30, 1998 purchase date.
The Board of Directors believes that the Purchase Plan benefits the
Company and its stockholders by providing its employees with an opportunity
through payroll deductions to purchase shares of Common Stock that is helpful in
attracting, retaining, and motivating valued employees. To provide an adequate
reserve of shares to permit the Company to continue offering employees a stock
purchase opportunity, the Board of Directors has adopted the Purchase Plan,
subject to and effective upon the date (the "Effective Date") of stockholder
approval.
SUMMARY OF THE PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety
by the specific language of the Purchase Plan, a copy of which is available to
any stockholder upon request.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each offering under the plan (an "Offering")
the right to purchase through accumulated payroll deductions up to a number of
shares of the Common Stock of the Company (a "Purchase Right") determined on the
first day of the Offering. The Purchase Right is automatically exercised on each
purchase date during the Offering unless the participant has withdrawn from
participation in the Purchase Plan prior to such date.
Shares Subject to Plan. A maximum of 500,000 of the Company's
authorized but unissued or reacquired shares of Common Stock may be issued under
the Purchase Plan, subject to appropriate adjustment in the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company, or
in the event of any merger, sale of assets or other reorganization of the
Company. If any Purchase Right expires or terminates, the shares subject to the
unexercised portion of such Purchase Right will again be available for issuance
under the Purchase Plan.
Administration. The Purchase Plan is administered by the Board of
Directors or a duly appointed committee of the Board (hereinafter referred to as
the "Board"). Subject to the provisions of the Purchase Plan, the Board
determines the terms and conditions of Purchase Rights granted under the plan.
The Board will interpret the Purchase Plan and Purchase Rights granted
thereunder, and all determinations of the Board will be final and binding on all
persons having an interest in the Purchase Plan or any Purchase Right. The
Purchase Plan provides, subject to certain limitations, for indemnification by
the Company of any director, officer or employee against all reasonable
expenses, including attorneys' fees, incurred in connection with any legal
action arising from such person's action or failure to act in administering the
plan.
Eligibility. Any employee of the Company or of any present or future
parent or subsidiary corporation of the Company designated by the Board for
inclusion in the Purchase Plan is eligible to participate in an Offering under
the plan so long as the employee is customarily employed for more than 20 hours
per week and has completed at least six months of continuous employment.
However, no employee who owns or holds options to purchase, or who, as a result
of participation in the Purchase Plan, would own or hold options to purchase,
five
24
<PAGE> 30
percent or more of the total combined voting power or value of all classes of
stock of the Company or of any parent or subsidiary corporation of the Company
is eligible to participate in the Purchase Plan. As of October 15, 1998,
approximately 240 employees, including 5 executive officers, would be eligible
to participate in the Purchase Plan were it then in effect.
Offerings. Generally, each Offering under the Purchase Plan will be for
a period of six months (an "Offering Period") commencing on or about May 1 and
November 1 of each year. However, if the Purchase Plan is approved by the
stockholders, the first Offering Period will commence on the Effective Date and
end on or about April 30, 1999. The Board may establish a different term for one
or more Offerings, not to exceed 27 months, or different commencement or ending
dates for any Offering Period.
Participation and Purchase of Shares. Participation in an Offering
under the Purchase Plan is limited to eligible employees who authorize payroll
deductions prior to the first day of an Offering Period (the "Offering Date").
Payroll deductions may not exceed 10% (or such other rate as the Board
determines) of an employee's compensation on any payday during the Offering
Period. An employee who becomes a participant in the Purchase Plan will
automatically participate in each subsequent Offering Period beginning
immediately after the last day of the Offering Period in which he or she is a
participant until the employee withdraws from the Purchase Plan, becomes
ineligible to participate, or terminates employment.
Subject to any uniform limitations or notice requirements imposed by
the Company, a participant may increase or decrease his or her rate of payroll
deductions or withdraw from the Purchase Plan at any time during an Offering.
Upon withdrawal, the Company will refund without interest the participant's
accumulated payroll deductions not previously applied to the purchase of shares.
Once a participant withdraws from an Offering, that participant may not again
participate in the same Offering.
Subject to certain limitations, each participant in an Offering is
granted a Purchase Right equal to the lesser of a number of whole shares
determined by dividing $12,500 by the fair market value of a share of Common
Stock on the Offering Date or 1,500 shares. These dollar and share amounts will
be prorated if the Board establishes an Offering Period of other than six
months. However, no participant may purchase shares of Common Stock under the
Purchase Plan or any other employee stock purchase plan of the Company having a
fair market value exceeding $25,000 in for each calendar year (measured by the
fair market value of the Company's Common Stock on the first day of the Offering
Period in which the shares are purchased) in which a Purchase Right is
outstanding at any time. Purchase Rights are nontransferable and may only be
exercised by the participant.
On the last day of each Offering Period (a "Purchase Date"), the
Company issues to each participant in the Offering the number of shares of the
Company's Common Stock determined by dividing the amount of payroll deductions
accumulated for the participant during the Offering Period by the purchase
price, limited in any case by the number of shares subject to the participant's
Purchase Right for that Offering. The price at which shares are sold under the
Purchase Plan is established by the Board but may not be less than 85% of the
lesser of the fair market value per share of Common Stock on the Offering Date
or on the Purchase Date. The fair market value of the Common Stock on any
relevant date generally will be the closing price per share as reported on the
Nasdaq National Market. On October 15, 1998, the closing price per share of
Common Stock was $3.50. Any payroll deductions under the Purchase Plan not
applied to the purchase of shares will be returned to the participant without
interest, unless the amount remaining is less than the amount necessary to
purchase a whole share of Common Stock, in which case the remaining amount may
be applied to the next Offering Period.
Change in Control. The Purchase Plan defines a "Change in Control" of
the Company as any of the following events upon which the stockholders of the
Company immediately before the event do not retain immediately after the event,
in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the event, direct or indirect
beneficial ownership of more than 50% of the total combined voting power of the
stock of the Company, its successor, or the corporation to which the assets of
the Company were transferred: (i) a sale or exchange by the stockholders in a
single or series of related transactions of more than 50% of the Company's
voting stock, (ii) a merger or consolidation in which the Company is a party,
(iii) the sale, exchange or transfer of all or substantially all of the assets
of the Company, or (iv) a liquidation or dissolution of the Company. If a Change
in Control occurs, the surviving, continuing, successor or purchasing
25
<PAGE> 31
corporation or parent corporation thereof may assume the Company's rights and
obligations under the Purchase Plan. However, if such corporation elects not to
assume the outstanding Purchase Rights, the Purchase Date of the then current
Offering Period will be accelerated to a date before the Change in Control
specified by the Board. Any Purchase Rights that are not assumed or exercised
prior to the Change in Control will terminate.
Termination or Amendment. The Purchase Plan will continue until
terminated by the Board or until all of the shares reserved for issuance under
the plan have been issued. The Board may at any time amend or terminate the
Purchase Plan, except that the approval of the Company's stockholders is
required within twelve months of the adoption of any amendment increasing the
number of shares authorized for issuance under the Purchase Plan, or changing
the definition of the corporations which may be designated by the Board as
corporations the employees of which may participate in the Purchase Plan.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law of participation
in the Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Generally, there are no tax consequences to an employee of either
becoming a participant in the Purchase Plan or purchasing shares under the
Purchase Plan. The tax consequences of a disposition of shares vary depending on
the period such stock is held before its disposition. If a participant disposes
of shares within two years after the Offering Date or within one year after the
Purchase Date on which the shares are acquired (a "disqualifying disposition"),
the participant recognizes ordinary income in the year of disposition in an
amount equal to the difference between the fair market value of the shares on
the Purchase Date and the purchase price. Such income may be subject to
withholding of tax. Any additional gain or resulting loss recognized by the
participant from the disposition of the shares is a capital gain or loss. If the
participant disposes of shares at least two years after the Offering Date and at
least one year after the Purchase Date on which the shares are acquired, the
participant recognizes ordinary income in the year of disposition in an amount
equal to the lesser of (i) the difference between the fair market value of the
shares on the date of disposition and the purchase price or (ii) the difference
between the fair market value of the shares on the Offering Date and purchase
price (determined as if the Purchase Right were exercised on the Offering Date).
Any additional gain recognized by the participant on the disposition of the
shares is a capital gain. If the fair market value of the shares on the date of
disposition is less than the purchase price, there is no ordinary income, and
the loss recognized is a capital loss. If the participant owns the shares at the
time of the participant's death, the lesser of (i) the difference between the
fair market value of the shares on the date of death and the purchase price or
(ii) the difference between the fair market value of the shares on the Offering
Date and purchase price (determined as if the Purchase Right were exercised on
the Offering Date) is recognized as ordinary income in the year of the
participant's death.
If the exercise of a Purchase Right does not constitute an exercise
pursuant to an "employee stock purchase plan" under section 423 of the Code, the
exercise of the Purchase Right will be treated as the exercise of a nonstatutory
stock option. The participant would therefore recognize ordinary income on the
Purchase Date equal to the excess of the fair market value of the shares
acquired over the purchase price. Such income is subject to withholding of
income and employment taxes. Any gain or loss recognized on a subsequent sale of
the shares, as measured by the difference between the sale proceeds and the sum
of (i) the purchase price for such shares and (ii) the amount of ordinary income
recognized on the exercise of the Purchase Right, will be treated as a capital
gain or loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the
shares for more than 12 months and short-term if the participant holds the
shares for 12 months or less. Currently, long-term capital gains are generally
subject to a maximum tax rate of 20%.
If the participant disposes of the shares in a disqualifying
disposition the Company should be entitled to a deduction equal to the amount of
ordinary income recognized by the participant as a result of the disposition,
except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder. In all other cases, no deduction is allowed
the Company.
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<PAGE> 32
NEW PLAN BENEFITS
Because benefits under the Purchase Plan will depend on employees'
elections to participate and the fair market value of the Company's Common Stock
at various future dates, it is not possible to determine the benefits that will
be received by executive officers and other employees if the Purchase Plan is
approved by the stockholders. Non-employee directors are not eligible to
participate in the Purchase Plan.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of this proposal requires a number of votes "For" the proposal
that exceeds the number of votes "Against" the proposal, provided a quorum
representing a majority of all outstanding shares of Common Stock is present or
represented by proxy and voting "For" or "Against" the proposal. Abstentions and
broker non-votes will be disregarded for purposes of determining whether a
quorum is voting on the proposal but otherwise will have no effect on the
outcome of the vote.
The Board of Directors believes that the opportunity to purchase shares
under the Purchase Plan is important to attracting and retaining qualified
employees essential to the success of the Company, and that stock ownership is
important to providing such persons with an incentive to perform in the best
interest of the Company and its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE PURCHASE PLAN.
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<PAGE> 33
PROPOSAL NO. 4
AMENDMENT TO THE 1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
At the Annual Meeting, the stockholders will be asked to approve an
amendment to the Trident Microsystems, Inc. 1994 Outside Directors Stock Option
Plan (the "Directors Plan") to change the formula for granting options on and
after the date of the Annual Meeting. The Directors Plan was adopted by the
Board of Directors in January 1994 and approved by the stockholders in December
1994. A total of 200,000 shares of the Company's Common Stock are currently
reserved for issuance under the Directors Plan, of which options to purchase an
aggregate of 79,890 shares were outstanding as of October 15, 1998 and
115,110 shares remained available for future option grants.
The Directors Plan is intended to assist the Company to attract and
retain highly qualified individuals to serve as directors of the Company and to
provide incentives directed toward increasing the value of the Company for its
stockholders. As initially adopted, the Directors Plan provides that each newly
elected or appointed non-employee director (an "Outside Director") is
automatically granted an option to purchase 5,000 shares of the Company's Common
Stock, subject to proration of the number of shares if appointed to fill a
vacancy between annual meetings of the stockholders. Further, each Outside
Director previously granted an option under the Directors Plan is automatically
granted an additional option to purchase 5,000 shares of the Company's Common
Stock on the day immediately following each annual meeting of the stockholders.
Subject to stockholder approval, the Board of Directors has approved an
amendment to the Directors Plan to change the formula for granting options
effective on and after date of the Annual Meeting. As further described below,
in lieu of annual options for 5,000 shares, Outside Directors would
automatically receive on the date of the Annual Meeting and on the date of each
third annual meeting of the stockholders thereafter an option to purchase 20,000
shares of the Company's Common Stock.
The Board of Directors believes that approval of this amendment to the
Directors Plan is in the best interest of the Company and its stockholders in
order to provide a competitive equity incentive program that will enable the
Company to continue to recruit and retain the capable directors who are
essential to the long-term success of the Company. However, if the stockholders
do not approve the proposed amendment, the Directors Plan will remain in effect
with its current terms.
SUMMARY OF THE DIRECTORS PLAN, AS AMENDED
The following summary of the Directors Plan, assuming stockholder
approval of the proposed amendment, is qualified in its entirety by the specific
language of the Directors Plan, a copy of which is available to any stockholder
upon request.
General. The Directors Plan provides for the automatic grant of
nonstatutory stock options to Outside Directors of the Company and is intended
to qualify as a "formula plan" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.
Shares Subject to Plan. A maximum of 200,000 of the authorized but
unissued or treasury shares of the Common Stock of the Company may be issued
upon the exercise of options granted under the Directors Plan. Upon any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Directors
Plan, to the terms of the automatic grant of options described below, and to
outstanding options. To the extent that any outstanding option under the
Directors Plan expires or terminates prior to exercise in full or if shares
issued upon the exercise of an option are repurchased by the Company, the shares
of Common Stock for which such option is not exercised or the repurchased shares
are returned to the plan and again become available for grant.
Administration. The Directors Plan is intended to operate automatically
without discretionary administration. To the extent administration is necessary,
it will be performed by the Board of Directors or a duly appointed committee of
the Board (hereinafter referred to collectively as the "Board"). However, the
Board has no discretion to select the Outside Directors of the Company who are
granted options under the Directors Plan, to set
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<PAGE> 34
the exercise price of such options, to determine the number of shares for which
or the time at which particular options are granted or to establish the duration
of such options. The Board is authorized to interpret the Directors Plan and
options granted thereunder, and all determinations of the Board will be final
and binding on all persons having an interest in the Directors Plan or any
option.
Eligibility. Only directors of the Company who, at the time of grant,
are not employees of the Company or of any parent or subsidiary corporation of
the Company are eligible to participate in the Directors Plan. Currently, the
Company has four Outside Directors.
Automatic Grant of Options. Provided that the stockholders approve the
proposed amendment to the Directors Plan, each Outside Director remaining in
office following the Annual Meeting will be granted options for 20,000 shares of
the Company's Common Stock on the date of the Annual Meeting and on the date of
each third annual meeting of the stockholders thereafter following which he or
she remains in office. Each person first elected or appointed as an Outside
Director following the Annual Meeting will be granted options for 20,000 shares
of the Company's Common Stock on the day of his or her initial election or
appointment and, provided that he or she remains in office, on the date of the
first annual meeting of the stockholders following the third anniversary of his
or her initial grant under the Directors Plan and on the date of each third
annual meeting of the stockholders thereafter.
Terms and Conditions of Options. Each option granted under the
Directors Plan is evidenced by a written agreement between the Company and the
Outside Director specifying the number of shares subject to the option and the
other terms and conditions of the option, consistent with the requirements of
the Directors Plan. The exercise price per share of any option granted under the
Directors Plan must equal the fair market value, as determined pursuant to the
plan, of a share of the Company's Common Stock on the date of grant. Generally,
the fair market value of the Common Stock will be the closing price per share on
the date of grant as reported on the Nasdaq National Market. The exercise price
may be paid in cash, by check, or in cash equivalent, by the assignment of the
proceeds of a sale of some or all of the shares of Common Stock being acquired
upon the exercise of the option, or by any combination of these.
Currently, options granted under the Directors Plan become exercisable
on the day immediately preceding the first annual meeting of the stockholders
following the date on which the option was granted. Provided that the
stockholders approve the proposed amendment to the Directors Plan, each option
granted on the date of an annual meeting of the stockholders will become
exercisable in substantially equal annual installments on the days immediately
preceding each of the first three annual meetings following the date of grant,
provided in each instance that the Outside Director remains in office. An
initial option granted to an Outside Director newly appointed between annual
meetings of the stockholders will become exercisable in substantially equal
annual installments on each of the first three anniversaries of the date of
grant, provided in each instance that the Outside Director remains in office.
In general, during the lifetime of the optionee, the option may be
exercised only by the optionee and may not be transferred or assigned, except by
will or the laws of descent and distribution. However, in order to facilitate
estate planning by Outside Directors, with the consent of the Board, the
optionee may transfer all or a portion of the option to (i) an immediate family
member, (ii) a trust for the exclusive benefit of the optionee and/or one or
more immediate family members, (iii) a partnership in which the optionee and/or
one or more immediate family members are the only partners, or (iv) such other
person or entity as the Board permits. For this purpose, "immediate family
member" means the optionee's spouse, former spouse, and children or
grandchildren, whether natural or adopted.
Change in Control. The Directors Plan provides that in the event of (i)
a merger or consolidation in which the Company is not the surviving corporation
or in which the stockholders of the Company before such transaction do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company, (ii) the sale, exchange or transfer of all
or substantially all of the assets of the Company other than to one or more
subsidiary corporations, (iii) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such transaction do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company, or (iv) a liquidation or dissolution of the
Company (a "Change in Control"), then all options outstanding under the
Directors Plan will become immediately exercisable and vested in full as of the
date 15 days prior to the Change in Control
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<PAGE> 35
unless the surviving, continuing, successor, or purchasing corporation or parent
corporation thereof either assumes or substitutes new options for the options
outstanding under the Directors Plan. To the extent that the options outstanding
under the Directors Plan are not assumed, substituted for, or exercised prior to
the Change in Control, they will terminate.
Termination or Amendment. Unless earlier terminated by the Board, the
Directors Plan will terminate on January 13, 2004. The Directors Plan may be
terminated or amended by the Board at any time, subject to stockholder approval
only if such amendment would increase the total number of shares of Common Stock
reserved for issuance thereunder or would expand the class of persons eligible
to receive options. No termination or amendment of the Directors Plan may
adversely affect an outstanding option without the consent of the optionee.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law of participation
in the Directors Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Options granted under the Directors Plan are nonstatutory stock
options, that is, options that do not qualify as incentive stock options under
section 422 of the Code. Nonstatutory stock options have no special tax status.
An optionee generally recognizes no taxable income as the result of the grant of
such an option. Upon exercise of a nonstatutory stock option granted under the
Directors Plan, the optionee normally recognizes ordinary income in the amount
of the difference between the option exercise price and the fair market value of
the shares on the date of exercise. Upon the sale of stock acquired by the
exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the date of
option exercise, will be taxed as capital gain or loss. A capital gain or loss
will be long-term if the optionee's holding period following the date of
exercise is more than 12 months. No tax deduction is available to the Company
with respect to the grant of a nonstatutory stock option or the sale of the
stock acquired pursuant to such grant. The Company generally should be entitled
to a deduction equal to the amount of ordinary income recognized by the optionee
as a result of the exercise of a nonstatutory stock option, except to the extent
such deduction is limited by applicable provisions of the Code or the
regulations thereunder.
AMENDED PLAN BENEFITS AND ADDITIONAL INFORMATION
The following table sets forth the grants of stock options that will be
received under the Directors Plan during the fiscal year ending June 30, 1999 by
all current directors who are not executive officers provided that such persons
remain Outside Directors and provided that the foregoing proposal is adopted by
the stockholders. None of the other groups or individuals for whom disclosure
would otherwise be required are eligible to participate in the Directors Plan.
AMENDED PLAN BENEFITS
<TABLE>
<CAPTION>
NO. OF SHARES IN
NAME POSITION FISCAL 1999
- ---- -------- ----------------
<S> <C> <C>
Glen M. Antle Director 20,000
Yasushi Chikagami Director 20,000
Charles A. Dickinson Director 20,000
Millard Phelps Director 20,000
All Outside Directors as a Group (4 persons) 80,000
</TABLE>
From the inception of the Directors Plan through October 15, 1998, the
current directors who are not executive officers of the Company have received,
in the aggregate, options under the Directors Plan for the following numbers of
shares: Mr. Antle, 15,000 shares, Mr. Chikagami, 22,877 shares, Mr. Dickinson,
10,000
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<PAGE> 36
shares, and Mr. Phelps, 16,301 shares. In addition, former non-employee
directors who received Directors Plan options for 5% or more of the shares
authorized under the Directors Plan (excluding options canceled upon such
persons' resignation from office) are as follows: Leonard Liu, 20,712 shares and
Shyur-Jen Chien, 15,000 shares. Benefits under the Directors Plan depend on a
number of factors, including the fair market value of the Company's Common Stock
on future dates and the exercise decisions made by the optionees. Consequently
it is not possible to determine the dollar value of benefits that might be
received by persons granted options under the Directors Plan.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of this proposal requires a number of votes "For" the proposal
that exceeds the number of votes "Against" the proposal, provided a quorum is
present. Abstentions and broker non-votes will be counted as present for
purposes of determining the presence of a quorum but otherwise will have no
effect on the outcome of the vote.
The Board of Directors believes that approval of the foregoing
amendment to the Directors Plan is in the best interests of the Company and the
stockholders for the reasons stated above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE 1994 OUTSIDE DIRECTORS STOCK OPTION PLAN.
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<PAGE> 37
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected
PricewaterhouseCoopers LLP as independent public accountants to audit the
financial statements of the Company for the fiscal year ending June 30, 1999.
PricewaterhouseCoopers LLP has acted in such capacity since its appointment
during the fiscal year ending June 30,1991. A representative of
PricewaterhouseCoopers LLP is expected to be present at the annual meeting with
the opportunity to make a statement if the representative desires to do so, and
is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the annual
meeting of stockholders at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present and voting, either
in person or by proxy, is required for approval of this proposal. Abstentions
and "broker non-votes" will each be counted as present for purposes of
determining the presence of a quorum, but will not be counted as having been
voted on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE FISCAL YEAR ENDING JUNE 30, 1999.
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<PAGE> 38
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 189 North Bernardo Avenue, Mountain View, California 94043, no
later than June 25, 1999, and satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board
of Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Frank C. Lin
-------------------------------------
FRANK C. LIN
Chairman of the Board of Directors,
President and Chief Executive Officer
October 28, 1998
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<PAGE> 39
EXHIBIT 1
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
(PROPOSAL NO. 2-A)
Exhibit 1(A):
In the event Proposal No. 2-A of the Proxy Statement for the 1998
Annual Meeting of Stockholders (the "Proxy Statement") is approved by the
requisite vote of the stockholders at the Annual Meeting, Article Sixth, Section
C of the Certificate shall read in its entirety as follows:
"C. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders of at least a majority
of the voting power of all of the outstanding shares of capital stock
entitled to vote generally in the election of directors, voting
together as a single class. Vacancies in the Board of Directors
resulting from such removal may be filled by a majority of the
directors then in office, though less than a quorum, or by the
stockholders as provided in Article SIXTH, Section A above. Directors
so chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective
successors are elected, except in the case of the death, resignation,
or removal of any director."
Exhibit 1(B):
In the event Proposal No. 2-A of the Proxy Statement is approved by the
requisite vote of the stockholders at the Annual Meeting, Section 3 of the
By-Laws shall read in its entirety as follows:
"Section 3. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any directors, or the entire Board
of Directors, may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least a
majority of the voting power of all of the then outstanding shares of
capital stock entitled to vote generally in the election of directors,
voting together as a single class. Vacancies in the Board of Directors
resulting from such removal may be filled by a majority of the
directors then in office, though less than a quorum, or by the
stockholders as provided in Article II, Section 1 above. Directors so
chosen shall hold office until the new annual meeting of stockholders
at which the term of office of the class to which they have been
elected expires, and until their respective successors are elected,
except in the case of the death, resignation, or removal of any
director."
<PAGE> 40
EXHIBIT 2
LIMITATION ON THE ABILITY TO CALL SPECIAL MEETINGS
(PROPOSAL NO. 2-B)
Exhibit 2(A):
In the event Proposal No. 2-B of the Proxy Statement is approved by the
requisite vote of the stockholders at the Annual Meeting, Article Fifth, Section
D of the Certificate will read in its entirety as follows:
"D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors, pursuant to a resolution adopted by a
majority of the total number of authorized directors whether or not
there exists any vacancies in previously authorized directorships at
the time any such resolution is presented to the Board of Directors for
adoption."
Exhibit 2(B):
In the event Proposal No. 2-B of the Proxy Statement is approved by the
requisite vote of the stockholders at the Annual Meeting, Section 2 of the
By-Laws shall read in its entirety as follows:
"Section 2. Special Meetings. Special meetings of Stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized
directors whether or not there exists any vacancies in previously
authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption."
<PAGE> 41
APPENDIX A
TRIDENT MICROSYSTEMS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL NO. 3)
<PAGE> 42
TRIDENT MICROSYSTEMS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Trident Microsystems, Inc. 1998 Employee Stock
Purchase Plan (the "PLAN") is hereby established effective as of the date on
which it is approved by the stockholders of the Company (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
Company and its stockholders by providing an incentive to attract, retain and
reward Eligible Employees of the Participating Company Group and by motivating
such persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides Eligible Employees with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock. The
Company intends that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
Whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as specified by the Board. Unless the
powers of the Committee have been specifically limited, the Committee shall have
all of the powers of the Board granted herein, including, without limitation,
the power to amend or terminate the Plan at any time, subject to the terms of
the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Trident Microsystems, Inc., a Delaware
corporation, or any successor corporation thereto.
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<PAGE> 43
(e) "COMPENSATION" means, with respect to any Offering Period
and except as otherwise provided below, all amounts payable to a Participant in
cash and includable as "wages" subject to tax under Section 3101(a) of the Code
without applying the dollar limitation of Section 3121(a) of the Code and prior
to deduction of any such amount deferred under any program or plan maintained by
a Participating Company, including, without limitation, pursuant to Section
401(k) or Section 125 of the Code. For Participants who are not liable for
payment of U.S. individual income tax, this definition of Compensation shall be
applied as if such Participants are subject to such taxes. Compensation shall
not include reimbursements of expenses, allowances, long-term disability
payments, workers' compensation, or any amounts directly or indirectly paid
pursuant to the Plan or any other stock purchase or stock option plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while on any military
leave, sick leave, or other bona fide leave of absence approved by the Company
of ninety (90) days or less. If an individual's leave of absence exceeds ninety
(90) days, the individual shall be deemed to have ceased to be an Employee on
the ninety-first (91st) day of such leave unless the individual's right to
reemployment with the Participating Company Group is guaranteed either by
statute or by contract. The Company shall determine in good faith and in the
exercise of its discretion whether an individual has become or has ceased to be
an Employee and the effective date of such individual's employment or
termination of employment, as the case may be. For purposes of an individual's
participation in or other rights, if any, under the Plan as of the time of the
Company's determination, all such determinations by the Company shall be final,
binding and conclusive, notwithstanding that the Company or any governmental
agency subsequently makes a contrary determination.
(h) "FAIR MARKET VALUE" means, as of any date if on such date
the Stock is listed on a national or regional securities exchange or market
system, the closing sale price of a share of Stock (or the mean of the closing
bid and asked prices of a share of Stock if the Stock is so quoted instead) as
quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, as reported in the Wall Street Journal or such
other source as the Company deems reliable. If the relevant date does not fall
on a day on which the Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value is established shall be the last
day on which the Stock was so traded prior to the relevant date, or such other
appropriate day as determined by the Board, in its discretion. If, on the
relevant date, there is no public market for the Stock, the Fair Market Value of
a share of Stock shall be as determined by the Board.
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<PAGE> 44
(i) "OFFERING" means an offering of Stock as provided in
Section 6.
(j) "OFFERING DATE" means, for any Offering, the first day of
the Offering Period.
(k) "OFFERING PERIOD" means a period established in accordance
with Section 6.1.
(l) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "PARTICIPANT" means an Eligible Employee who has become a
participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan. The
Board shall have the sole and absolute discretion to determine from time to time
which Parent Corporations or Subsidiary Corporations shall be Participating
Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(p) "PURCHASE DATE" means, for any Offering, the last day of the
Offering Period; provided, however, that the Board in its discretion may
establish one or more additional Purchase Dates during any Offering Period.
(q) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased under the Plan, as determined in accordance with Section 9.
(r) "PURCHASE RIGHT" means an option granted to a Participant
pursuant to the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering Period in
which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.
(s) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(t) "SUBSCRIPTION AGREEMENT" means a written agreement in such
form as specified by the Company, stating an Employee's election to participate
in the Plan and authorizing payroll deductions under the Plan from the
Employee's Compensation.
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<PAGE> 45
(u) "SUBSCRIPTION DATE" means the last business day prior to the
Offering Date of an Offering Period or such earlier date as the Company shall
establish.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan, of any form of agreement or
other document employed by the Company in the administration of the Plan, or of
any Purchase Right shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan or the Purchase Right.
Subject to the provisions of the Plan, the Board shall determine all of the
relevant terms and conditions of Purchase Rights; provided, however, that all
Participants granted Purchase Rights shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The Company may,
from time to time, consistent with the Plan and the requirements of Section 423
of the Code, establish, change or terminate such rules, guidelines, policies,
procedures, limitations, or adjustments as deemed advisable by the Company, in
its discretion, for the proper administration of the Plan, including, without
limitation, (a) a minimum payroll deduction amount required for participation in
an Offering, (b) a limitation on the frequency or number of changes permitted in
the rate of payroll deduction during an Offering, (c) an exchange ratio
applicable to amounts withheld in a currency other than United States dollars,
(d) a payroll deduction greater than or less than the amount designated by a
Participant in order to adjust for the Company's delay or mistake in processing
a Subscription Agreement or in otherwise effecting a Participant's election
under the Plan or as advisable to comply with the requirements of Section 423 of
the Code, and (e) determination of the date and manner by which the Fair Market
Value of a share of Stock is determined for purposes of administration of the
Plan.
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<PAGE> 46
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided
in Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be five hundred thousand (500,000) and shall consist
of authorized but unissued or reacquired shares of Stock, or any combination
thereof. If an outstanding Purchase Right for any reason expires or is
terminated or canceled, the shares of Stock allocable to the unexercised portion
of that Purchase Right shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company, or
in the event of any merger (including a merger effected for the purpose of
changing the Company's domicile), sale of assets or other reorganization in
which the Company is a party, appropriate adjustments shall be made in the
number and class of shares subject to the Plan and each Purchase Right and in
the Purchase Price. If a majority of the shares of the same class as the shares
subject to outstanding Purchase Rights are exchanged for, converted into, or
otherwise become (whether or not pursuant to an Ownership Change Event) shares
of another corporation (the "NEW SHARES"), the Board may unilaterally amend the
outstanding Purchase Rights to provide that such Purchase Rights are exercisable
for New Shares. In the event of any such amendment, the number of shares subject
to, and the Purchase Price of, the outstanding Purchase Rights shall be adjusted
in a fair and equitable manner, as determined by the Board, in its discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded down to the nearest whole number,
and in no event may the Purchase Price be decreased to an amount less than the
par value, if any, of the stock subject to the Purchase Right. The adjustments
determined by the Board pursuant to this Section 4.2 shall be final, binding and
conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a Participating
Company is eligible to participate in the Plan and shall be deemed an Eligible
Employee, except the following:
(a) Any Employee who has not completed at least six (6) months
of continuous employment with the Participating Company Group as of the
commencement of the applicable Offering Period; or
(b) Any Employee who is customarily employed by the
Participating Company Group for twenty (20) hours or less per week.
5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding any provision of
the Plan to the contrary, no Employee shall be granted a Purchase Right under
the Plan if, immediately after such grant, the Employee would own or hold
options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%)
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<PAGE> 47
or more of the total combined voting power or value of all classes of stock of
such corporation, as determined in accordance with Section 423(b)(3) of the
Code. For purposes of this Section 5.2, the attribution rules of Section 424(d)
of the Code shall apply in determining the stock ownership of such Employee.
6. OFFERINGS.
The Plan shall be implemented on and after the Effective Date by
sequential Offerings of approximately six (6) months duration or such other
duration as the Board shall determine (an "OFFERING PERIOD"); provided, however,
that the first Offering Period (the "INITIAL OFFERING PERIOD") shall commence on
the Effective Date and end on or about April 30, 1999. Subsequent Offering
Periods shall commence on or about May 1 and November 1 of each year and end on
or about the last days of the next October and April, respectively, occurring
thereafter. Notwithstanding the foregoing, the Board may establish a different
duration effective for one or more future Offering Periods or different
commencing or ending dates for such Offering Periods; provided, however, that no
Offering Period may have a duration exceeding twenty-seven (27) months. If the
first or last day of an Offering Period is not a day on which the national
securities exchanges or Nasdaq Stock Market are open for trading, the Company
shall specify the trading day that will be deemed the first or last day, as the
case may be, of the Offering Period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a Participant
in an Offering Period by delivering a properly completed Subscription Agreement
to the office designated by the Company not later than the close of business for
such office on the Subscription Date established by the Company for such
Offering Period. An Eligible Employee who does not deliver a properly completed
Subscription Agreement to the Company's designated office on or before the
Subscription Date for an Offering Period shall not participate in the Plan for
that Offering Period or for any subsequent Offering Period unless the Eligible
Employee subsequently delivers a properly completed Subscription Agreement to
the appropriate office of the Company on or before the Subscription Date for
such subsequent Offering Period. An Employee who becomes an Eligible Employee
after the Offering Date of an Offering Period shall not be eligible to
participate in that Offering Period but may participate in any subsequent
Offering Period provided the Employee is still an Eligible Employee as of the
Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the
Purchase Date of each Offering Period in which the Participant participates
provided that the Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may
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<PAGE> 48
deliver a new Subscription Agreement for a subsequent Offering Period in
accordance with the procedures set forth in Section 7.1 if the Participant
desires to change any of the elections contained in the Participant's then
effective Subscription Agreement. In the event that the Board establishes
concurrent Offerings, Eligible Employees may not participate simultaneously in
more than one Offering.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the Offering
Date of each Offering Period, each Participant in that Offering Period shall be
granted automatically a Purchase Right consisting of an option to purchase the
lesser of (a) that number of whole shares of Stock determined by dividing Twelve
Thousand Five Hundred Dollars ($12,500) by the Fair Market Value of a share of
Stock on such Offering Date or (b) one thousand five hundred (1,500) shares of
Stock. No Purchase Right shall be granted on an Offering Date to any person who
is not, on such Offering Date, an Eligible Employee.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period (other
than the Initial Offering Period) of any duration other than six months, then
(a) the dollar amount in Section 8.1 shall be determined by multiplying
$2,083.33 by the number of months (rounded to the nearest whole month) in the
Offering Period and rounding to the nearest whole dollar, and (b) the share
amount in Section 8.1 shall be determined by multiplying 250 shares by the
number of months (rounded to the nearest whole month) in the Offering Period and
rounding to the nearest whole share.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any provision of
the Plan to the contrary, no Participant shall be granted a Purchase Right which
permits his or her right to purchase shares of Stock under the Plan to accrue at
a rate which, when aggregated with such Participant's rights to purchase shares
under all other employee stock purchase plans of a Participating Company
intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other
limit, if any, as may be imposed by the Code) for each calendar year in which
such Purchase Right is outstanding at any time. For purposes of the preceding
sentence, the Fair Market Value of shares purchased during a given Offering
Period shall be determined as of the Offering Date for such Offering Period. The
limitation described in this Section shall be applied in conformance with
applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be acquired in an
Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period or
(b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering Period,
the Purchase
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<PAGE> 49
Price for that Offering Period shall be eighty-five percent (85%) of the lesser
of (a) the Fair Market Value of a share of Stock on the Offering Date of the
Offering Period, or (b) the Fair Market Value of a share of Stock on the
Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any portion
of a Purchase Right may be paid for only by means of payroll deductions from the
Participant's Compensation accumulated during the Offering Period for which such
Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided herein,
the amount to be deducted under the Plan from a Participant's Compensation on
each payday during an Offering Period shall be determined by the Participant's
Subscription Agreement. The Subscription Agreement shall set forth the
percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions effective following the first payday during an Offering) or more than
ten percent (10%). The Board may change the foregoing limits on payroll
deductions effective as of any future Offering Date. Amounts deducted shall be
reduced by any amounts contributed by the Participant and applied to the
purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under Section 423 of the Code.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an Offering
Period, a Participant may elect to increase or decrease the rate of or to stop
deductions from his or her Compensation by delivering to the Company's
designated office an amended Subscription Agreement authorizing such change on
or before the Change Notice Date, as defined below. A Participant who elects,
effective following the first payday of an Offering Period, to decrease the rate
of his or her payroll deductions to zero percent (0%) shall nevertheless remain
a Participant in the current Offering Period unless such Participant withdraws
from the Plan as provided in Section 12.1. The "CHANGE NOTICE DATE" shall be a
date prior to the beginning of the first pay period for which such election is
to be effective as established by the Company from time to time and announced to
the Participants. Unless otherwise established by the Company, the Change Notice
Date shall be the seventh (7th) day prior to the end of the first pay period for
which such election is to be effective.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The Company may,
in its sole discretion, suspend a Participant's payroll deductions under the
Plan as the Company deems advisable to avoid accumulating payroll deductions in
excess of the amount that could reasonably be anticipated to purchase the
maximum number of shares of Stock permitted (a) under the Participant's Purchase
Right or (b) during a calendar year under the limit set forth
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<PAGE> 50
in Section 8.3. Payroll deductions shall be resumed at the rate specified in the
Participant's then effective Subscription Agreement at the beginning,
respectively, of (a) the next Offering Period, provided that the individual is a
Participant in such Offering Period or (b) the next Offering Period the Purchase
Date of which falls in the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such Participant's Plan account and shall be
deposited with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums deducted from
a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant may withdraw
all or any portion of the payroll deductions credited to his or her Plan account
and not previously applied toward the purchase of Stock by delivering to the
Company's designated office a written notice on a form provided by the Company
for such purpose. A Participant who withdraws the entire remaining balance
credited to his or her Plan account shall be deemed to have withdrawn from the
Plan in accordance with Section 12.1. Amounts withdrawn shall be returned to the
Participant as soon as practicable after the notice of withdrawal and may not be
applied to the purchase of shares in any Offering under the Plan. The Company
may from time to time establish or change limitations on the frequency of
withdrawals permitted under this Section, establish a minimum dollar amount that
must be retained in the Participant's Plan account, or terminate the withdrawal
right provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On the Purchase Date of an Offering
Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 PRO RATA ALLOCATION OF SHARES. If the number of shares of Stock
which might be purchased by all Participants in the Plan on a Purchase Date
exceeds the number of shares of Stock available in the Plan as provided in
Section 4.1, the Company shall make a pro rata allocation of the remaining
shares in as uniform a manner as practicable and as the Company
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<PAGE> 51
determines to be equitable. Any fractional share resulting from such pro rata
allocation to any Participant shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant of a
certificate representing the shares acquired by the Participant on such Purchase
Date; provided that the Company may deliver such shares to a broker designated
by the Company that will hold such shares for the benefit of the Participant.
Shares to be delivered to a Participant under the Plan shall be registered in
the name of the Participant, or, if requested by the Participant, in the name of
the Participant and his or her spouse, or, if applicable, in the names of the
heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash balance to be returned to a Participant pursuant to the preceding sentence
is less than the amount that would have been necessary to purchase an additional
whole share of Stock on such Purchase Date, the Company may retain the cash
balance in the Participant's Plan account to be applied toward the purchase of
shares in the subsequent Offering Period.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares he or she acquires under the Plan, the Participant shall make
adequate provision for the federal, state, local and foreign tax withholding
obligations, if any, of the Participating Company Group which arise upon
exercise of the Purchase Right or upon such disposition of shares, respectively.
The Participating Company Group may, but shall not be obligated to, withhold
from the Participant's compensation the amount necessary to meet such
withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which the Purchase Right relates shall expire immediately upon the end of the
Offering Period.
11.7 REPORTS AND STOCKHOLDER INFORMATION TO PARTICIPANTS. Each
Participant who has exercised all or part of his or her Purchase Right shall
receive, as soon as practicable after the Purchase Date, a report of such
Participant's Plan account setting forth the total payroll deductions
accumulated prior to such exercise, the number of shares purchased, the Purchase
Price for such shares, the date of purchase and the cash balance, if any,
remaining immediately after such purchase that is to be refunded or retained in
the Participant's Plan account pursuant to Section 11.4. The report required by
this Section may be delivered in such form and by such means, including by
electronic transmission, as the Company may determine. In addition, each
Participant shall be provided information concerning the Company equivalent to
that information generally made available to the Company's common stockholders.
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<PAGE> 52
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may withdraw from
the Plan by signing and delivering to the Company's designated office a written
notice of withdrawal on a form provided by the Company for this purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, that if a Participant withdraws from the Plan after a
Purchase Date, the withdrawal shall not affect shares acquired by the
Participant on such Purchase Date. A Participant who voluntarily withdraws from
the Plan is prohibited from resuming participation in the Plan in the same
Offering from which he or she withdrew, but may participate in any subsequent
Offering by again satisfying the requirements of Sections 5 and 7.1. The Company
may impose, from time to time, a requirement that the notice of withdrawal from
the Plan be on file with the Company's designated office for a reasonable period
prior to the effectiveness of the Participant's withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's voluntary
withdrawal from the Plan pursuant to Section 12.1, the Participant's accumulated
payroll deductions which have not been applied toward the purchase of shares
shall be refunded to the Participant as soon as practicable after the
withdrawal, without the payment of any interest, and the Participant's interest
in the Plan shall terminate. Such accumulated payroll deductions to be refunded
in accordance with this Section may not be applied to any other Offering under
the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or upon the failure of a Participant to remain
an Eligible Employee, the Participant's participation in the Plan shall
terminate immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the Participant's
death, to the Participant's legal representative, and all of the Participant's
rights under the Plan shall terminate. Interest shall not be paid on sums
returned pursuant to this Section 13. A Participant whose participation has been
so terminated may again become eligible to participate in the Plan by satisfying
the requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
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(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan.
If the Acquiring Corporation elects not to assume the Company's rights and
obligations under outstanding Purchase Rights, the Purchase Date of the then
current Offering Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner otherwise than by
will or the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to compliance
with all applicable requirements of federal, state and foreign law with respect
to such securities. A Purchase Right may not be exercised if the issuance of
shares upon such exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock
may then be listed. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the
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<PAGE> 54
Purchase Right, or (b) in the opinion of legal counsel to the Company, the
shares issuable upon exercise of the Purchase Right may be issued in accordance
with the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares under the Plan shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of a Purchase Right, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE.
A Participant shall have no rights as a stockholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. LEGENDS.
The Company may at any time place legends or other identifying symbols
referencing any applicable federal, state or foreign securities law restrictions
or any provision convenient in the administration of the Plan on some or all of
the certificates representing shares issued under the Plan. The Participant
shall, at the request of the Company, promptly present to the Company any and
all certificates representing shares acquired pursuant to a Purchase Right in
the possession of the Participant in order to carry out the provisions of this
Section. Unless otherwise specified by the Company, legends placed on such
certificates may include but shall not be limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION
TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN
THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)."
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19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company prompt
notice of any disposition of shares acquired by exercise of a Purchase Right
within two years from the date of granting such Purchase Right or one year from
the date of exercise of such Purchase Right. The Company may require that until
such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant's
name (or, if elected by the Participant, in the name of the Participant and his
or her spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except that (a)
such termination shall not affect Purchase Rights previously granted under the
Plan, except as permitted under the Plan, and (b) no amendment may adversely
affect a Purchase Right previously granted under the Plan (except to the extent
permitted by the Plan or as may be necessary to qualify the Plan as an employee
stock purchase plan pursuant to Section 423 of the
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<PAGE> 56
Code or to obtain qualification or registration of the shares of Stock under
applicable federal, state or foreign securities laws). In addition, an amendment
to the Plan must be approved by the stockholders of the Company within twelve
(12) months of the adoption of such amendment if such amendment would authorize
the sale of more shares than are authorized for issuance under the Plan or would
change the definition of the corporations that may be designated by the Board as
Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Trident Microsystems, Inc. 1998 Employee Stock Purchase Plan
was duly adopted by the Board of Directors of the Company on October 2, 1998.
------------------------------------
Secretary
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APPENDIX B
TRIDENT MICROSYSTEMS, INC.
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
(PROPOSAL NO. 4)
<PAGE> 58
TRIDENT MICROSYSTEMS, INC.
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
(As Amended Through October 2, 1998)
1. Purpose. The Trident Microsystems, Inc. 1994 Outside Directors Stock
Option Plan (the "PLAN") is established effective as of January 13, 1994, (the
"EFFECTIVE DATE") to create additional incentive for the non-employee directors
of Trident Microsystems, Inc., a Delaware corporation, and any successor
corporation thereto (collectively referred to as the "COMPANY") to promote the
financial success and progress of the Company and any present or future parent
and/or subsidiary corporations of the Company. For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "CODE").
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "BOARD") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. The Board shall have no authority, discretion, or
power to select the non-employee directors of the Company who will receive
options under the Plan, to set the exercise price of the options granted under
the Plan, to determine the number of shares of common stock to be granted under
option or the time at which such options are to be granted, to establish the
duration of option grants, or alter any other terms or conditions specified in
the Plan, except in the sense of administering the Plan subject to the
provisions of the Plan. All questions of interpretation of the Plan or of any
options granted under the Plan (an "OPTION") shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan and/or any Option. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
3. Eligibility and Type of Option. Options may be granted only to
directors of the Company who are not at the time of such grant employees of the
Company or of any parent or subsidiary corporation of the Company ("OUTSIDE
DIRECTORS"). Options granted to Outside Directors shall be nonqualified stock
options; that is, options which are not treated as having been granted under
section 422(b) of the Code. A person granted an Option is hereinafter referred
to as an "OPTIONEE."
4. Shares Subject to Option. Options shall be for the purchase of shares
of the authorized but unissued common stock or treasury shares of common stock
of the Company (the
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"STOCK"), subject to adjustment as provided in paragraph 8 below. The maximum
number of shares of Stock which may be issued under the Plan shall be Two
Hundred Thousand (200,000) shares. In the event that any outstanding Option for
any reason expires or is terminated and/or shares of Stock subject to repurchase
are repurchased by the Company, the shares allocable to the unexercised portion
of such Option, or such repurchased shares, may again be subject to an Option
grant.
5. Time for Granting Options. All Options shall be granted, if at all,
within ten (10) years from the Effective Date.
6. Terms, Conditions and Form of Options. Options granted pursuant to
the Plan shall be evidenced by written agreements specifying the number of
shares of Stock covered thereby, in substantially the form attached hereto as
Exhibit A (the "OPTION AGREEMENT"), which written agreement may incorporate all
or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:
(a) Automatic Grant of Options. Subject to execution by an
Outside Director of an appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as set forth below.
(i) Prior to 1998 Annual Stockholders Meeting. Prior to
the annual meeting of the stockholders of the Company scheduled to be held on
December 17, 1998, or if the amendment to the Plan set forth in subparagraph
(ii) below is not approved by the stockholders at such annual meeting, Options
shall be granted as follows:
(A) On the Effective Date, each Outside Director
holding office on the Effective Date who does not then hold an option to acquire
shares of Stock shall be granted an Option to purchase Five Thousand (5,000)
shares of Stock.
(B) Each Outside Director holding office on the
Effective Date who has previously been granted one or more options to acquire
shares of Stock shall be granted, on the day immediately following the first
annual meeting of the stockholders of the Company subsequent to the Effective
Date at which such Outside Director is reelected to the Board, an Option to
purchase Five Thousand (5,000) shares of Stock.
(C) Each person who is newly elected or
appointed as an Outside Director after the Effective Date shall be granted an
Option on the day immediately following such initial election or appointment. If
elected at an annual meeting of the stockholders of the Company, such Option
shall be for Five Thousand (5,000) shares of Stock. If appointed to fill a
vacancy on the Board, such Option shall be for a number of shares of Stock
(rounded to the nearest whole share) determined by multiplying Five Thousand
(5,000) by a ratio, the numerator of which is the number days from the date of
appointment through the date of the first annual meeting of the stockholders of
the Company following such appointment, inclusive, and the denominator of which
is Three Hundred Sixty-Five (365). However, if as of the date of such
appointment the date of the next annual meeting of the stockholders has not yet
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been established, the numerator of the ratio set forth in the preceding sentence
shall be the number days from the date of appointment through the following
November 15, inclusive.
(D) Each Outside Director previously granted an
Option pursuant to the Plan shall be granted, on the day immediately following
each annual meeting of the stockholders of the Company following which such
person remains an Outside Director, an Option to purchase Five Thousand (5,000)
shares of Stock.
(ii) Following 1998 Annual Stockholders Meeting. Subject
to the approval by the stockholders of the Company, at the annual meeting of the
stockholders scheduled to be held on December 17, 1998 or any adjournment
thereof (the "1998 ANNUAL MEETING"), of the amendment to the Plan set forth in
this subparagraph (ii), Options shall be granted as follows:
(A) On the date of the 1998 Annual Meeting, each
Outside Director holding office immediately following such meeting shall be
granted an Option to purchase Twenty Thousand (20,000) shares of Stock.
(B) Each person who is newly elected or
appointed as an Outside Director after the date of the 1998 Annual Meeting shall
be granted on the day of such initial election or appointment an Option to
purchase Twenty Thousand (20,000) shares of Stock.
(C) Each Outside Director previously granted an
Option under the Plan on or after the date of the 1998 Annual Meeting pursuant
to this subparagraph (ii) shall be granted, on the day of the first annual
meeting of the stockholders of the Company immediately following the final
vesting date of such Option (as provided in paragraph 6(c)(ii) below) following
which such person remains an Outside Director, an Option to purchase Twenty
Thousand (20,000) shares of Stock.
(iii) Notwithstanding the foregoing, any Outside
Director may elect not to receive an Option granted pursuant to this paragraph
6(a) by delivering written notice of such election to the Board (1) in the case
of an initial Option grant, no later than the Effective Date or the date upon
which such Outside Director is appointed or elected to the Board, or (2) in the
case of a subsequent Option grant, no later than six (6) months prior to the
date upon which such Option would otherwise be granted.
(iv) Notwithstanding any other provision of the Plan to
the contrary, no Option shall be granted to any individual on a day when he or
she is no longer serving as an Outside Director of the Company.
(b) Option Exercise Price. The exercise price per share of Stock
subject to an Option shall be the fair market value of a share of the common
stock of the Company on the date of the granting of the Option. Where there is a
public market for the common stock of the Company, the fair market value per
share of Stock shall be the mean of the bid and asked prices of the common stock
of the Company on the date of the granting of the Option, as reported in the
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Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System) or, in the event the common stock of the Company is listed on the NASDAQ
National Market System or a national or regional securities exchange, the fair
market value per share of Stock shall be the closing price on such National
Market System or exchange on the date of the granting of the Option, as reported
in the Wall Street Journal. If the date of the granting of an Option does not
fall on a day on which the common stock of the Company is trading on NASDAQ, the
NASDAQ National Market System or other national or regional securities exchange,
the date on which the Option exercise price per share shall be established shall
be the last day on which the common stock of the Company was so traded prior to
the date of the granting of the Option. If there is no public market for the
common stock of the Company, the fair market value per share of Stock on any
relevant date shall be as determined by the Board.
(c) Exercise Period and Exercisability of Options. An Option
granted pursuant to the Plan shall have a term of ten (10) years from the date
of grant, unless earlier terminated pursuant to the terms of the Plan or the
Option Agreement. Options granted pursuant to the Plan shall vest and become
exercisable as follows:
(i) Options Granted Prior to 1998 Annual Meeting. Each
Option granted prior to the date of the 1998 Annual Meeting (or otherwise
granted pursuant to paragraph 6(a)(i) above if the amendment to the Plan set
forth in paragraph 6(a)(ii) is not approved by the stockholders) shall become
fully vested and exercisable in full or in part commencing on the day (the
"INITIAL EXERCISE DATE") which immediately precedes the day of the first annual
meeting of the stockholders of the Company next following the date on which the
Option was granted, provided the Optionee has continuously served as a director
of the Company from the date on which the Option was granted until the Initial
Exercise Date.
(ii) Options Granted After 1998 Annual Meeting. Each
Option granted on or after the date of the 1998 Annual Meeting pursuant to
paragraph 6(a)(ii) shall vest and become exercisable as follows:
(A) If the Option is granted on the day of an
annual meeting of the stockholders of the Company, the Option shall vest and
become exercisable in three substantially equal installments on the days
immediately preceding each of the first three annual meetings of the
stockholders following the date of grant of the Option, provided the Optionee
has continuously served as a director of the Company from the date on which the
Option was granted until the relevant date.
(B) If the Option is granted other than on the
day of an annual meeting of the stockholders of the Company, the Option shall
vest an become exercisable in three substantially equal installments on each of
the first three anniversaries of the date of grant of the Option, provided the
Optionee has continuously served as a director of the Company from the date on
which the Option was granted until the relevant date.
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<PAGE> 62
(d) Payment of Option Exercise Price. Payment of the exercise
price for the number of shares of Stock being purchased pursuant to any Option
shall be made (i) in cash, by check, or in cash equivalent, (ii) by the
assignment of the proceeds of a sale of some or all of the shares being acquired
upon the exercise of an Option (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System), or (iii) by
any combination thereof. The Company reserves, at any and all times, the right,
in the Company's sole and absolute discretion, to establish, decline to approve
and/or terminate any program and/or procedure for the exercise of Options by
means of an assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise.
(e) Transfer of Control. A "TRANSFER OF CONTROL" shall be deemed
to have occurred in the event any of the following occurs with respect to the
Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange;
(ii) a merger or consolidation in which the Company is
not the surviving corporation;
(iii) a merger or consolidation in which the Company is
the surviving corporation where the stockholders of the Company before such
merger or consolidation do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company after
such merger or consolidation;
(iv) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one (1) or more subsidiary corporations (as defined in paragraph 1
above) of the Company; or
(v) a liquidation or dissolution of the Company.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "ACQUIRING CORPORATION"), shall either assume the Company's rights
and obligations under outstanding Options or substitute options for the
Acquiring Corporation's stock for such outstanding Options. In the event the
Acquiring Corporation elects not to assume or substitute for such outstanding
Options in connection with the Transfer of Control, the Board shall provide that
any unexercisable and/or unvested portion of the outstanding Options shall be
immediately exercisable and vested as of the date fifteen (15) days prior to the
date of the Transfer of Control. The exercise and/or vesting of any Option that
was permissible solely by reason of this paragraph 6(e) shall be conditioned
upon the consummation of the Transfer of Control. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor
5
<PAGE> 63
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
(f) Stockholder Approval. Any Option granted pursuant to the
Plan shall be subject to obtaining stockholder approval of the Plan at the first
annual meeting of the stockholders of the Company after the Effective Date.
Notwithstanding the foregoing, stockholder approval shall not be necessary in
order to grant any Option granted on the Effective Date; provided, however, that
the exercise of any such Option shall be subject to obtaining stockholder
approval of the Plan.
7. Authority to Vary Terms. The Board shall have the authority from time
to time to vary the terms of the Option Agreement either in connection with the
grant of an individual Option or in connection with the authorization of a new
standard form or forms; provided, however, that the terms and conditions of such
revised or amended standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by the Optionee on exercise of an Option in the event such
Optionee's service as a director of the Company is terminated for any reason.
8. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan,
the number of shares of Stock to be granted automatically pursuant to an Option
as set forth in paragraph 6(a), and to any outstanding Options and in the Option
exercise price of any outstanding Options in the event of a stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or like change in the capital structure of the Company.
9. Transferability of Option.
(a) Except as provided in paragraph 9(b) below, an Option may be
exercised during the lifetime of the Optionee only by the Optionee or the
Optionee's guardian or legal representative and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
(b) Notwithstanding the foregoing, with the consent of the
Board, in its sole discretion, an Optionee may transfer all or a portion of the
Option to: (i) an Immediate Family Member (as defined below), (ii) a trust for
the exclusive benefit of the Optionee and/or one or more Immediate Family
Members, (iii) a partnership in which the Optionee and/or one or more Immediate
Family Members are the only partners, or (iv) such other person or entity as the
Board may permit (individually, a "PERMITTED TRANSFEREE"). For purposes of this
paragraph 9(b), "Immediate Family Members" shall mean the Optionee's spouse,
former spouse, children or grandchildren, whether natural or adopted. As a
condition to such transfer, each Permitted Transferee to whom the Option or any
interest therein is transferred shall agree in writing (in a form satisfactory
to the Company) to be bound by all of the terms and conditions of the Option
Agreement evidencing such Option and any additional restrictions or conditions
as the Company
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<PAGE> 64
may require. Following the transfer of an Option, the term "Optionee" shall
refer to the Permitted Transferee, except that, with respect to any requirements
of continued service or provision for the Company's tax withholding obligations,
such term shall refer to the original Optionee. The Company shall have no
obligation to notify a Permitted Transferee of any termination of the
transferred Option, including an early termination resulting from the
termination of service of the original Optionee. A Permitted Transferee shall be
prohibited from making a subsequent transfer of a transferred Option except to
the original Optionee or to another Permitted Transferee or as provided in
paragraph 9(a).
10. Termination or Amendment of Plan. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the stockholders of the Company,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 8 above) and (b) no
expansion in the class of persons eligible to receive Options. In any event, no
amendment may adversely affect any then outstanding Option, or any unexercised
portion thereof, without the consent of the Optionee.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing sets forth the Trident Microsystems, Inc. 1994 Outside
Directors Stock Option Plan as amended by the Board of Directors of the Company
through October 2, 1998.
_________________________
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<PAGE> 65
TRIDENT MICROSYSTEMS, INC.
Proxy for the Annual Meeting of Stockholders
To be held on December 17, 1998
The undersigned hereby appoints Frank C. Lin with full power of
substitution to represent the undersigned and to vote all of the shares of stock
in Trident Microsystems, Inc., a Delaware corporation (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at the Company, 189 North Bernardo Avenue, Mountain View,
California, on December 17, 1998 at 9:00 a.m. local time, and at any adjournment
or postponement thereof (1) as hereinafter specified upon the proposals listed
on the reverse side and as more particularly described in the Proxy Statement of
the Company dated October 28, 1998 (the "Proxy Statement"), receipt of which is
hereby acknowledged, and (2) in his discretion upon such other matters as may
properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2-A, 2-B, 3,
4 AND 5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
<PAGE> 66
Please mark
[X] votes as in
this example
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED AT THE MEETING.
A vote FOR the following proposals is recommended by the Board of Directors:
1. To elect the following two (2) persons as Class III directors to hold
office for three-year terms and until their successors are elected and
qualified:
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below.) listed below.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below.)
Frank C. Lin
Glen M. Antle
2. To approve certain additional anti-takeover measures under the Company's
Certificate of Incorporation and By-Laws as follows:
2-A. To provide that members of he board of directors are removable only
for cause.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2-B. To approve certain limitations on the ability to call special
meetings.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Company's 1998 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve an amendment to the Company's 1994 Outside Directors Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending June 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT [ ] THE MEETING [ ]
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or Vice President and
the Secretary or Assistant Secretary, and the corporate seal should be affixed
thereto. Executors or administrators or other fiduciaries who execute the above
Proxy for a deceased stockholder should give their full title. Please date the
Proxy.
Date:
------------------------- --------------------------------------------
Signature
Date:
------------------------- --------------------------------------------
Signature
