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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ 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
ADAPTIVE SOLUTIONS, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
[ ] 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.
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ADAPTIVE SOLUTIONS, INC.
1400 N.W. COMPTON DRIVE, SUITE 340
BEAVERTON, OREGON 97006
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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To the Shareholders of Adaptive Solutions, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Adaptive
Solutions, Inc. (the "Annual Meting"), an Oregon corporation (the "Company"),
will be held on Wednesday, April 22, 1998, at 8:30 a.m. local time, at 1600 N.W.
Compton Drive, Tenant Conference Room, Beaverton, Oregon, 97006, for the
following purposes:
1. ELECTION OF DIRECTORS. To elect six (6) Directors to serve until
the next annual meeting and until their successors have been duty
elected and qualified.
2. RATIFICATION OF APPOINTMENT OF AUDITORS. To ratify the
appointment of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.
3. APPROVAL OF THE COMPANY'S 1998 STOCK INCENTIVE PLAN. To approve
the Company's 1998 Stock Incentive Plan. The number of shares of
Common Stock authorized for issuance thereunder is 750,000
shares.
4. APPROVAL OF A REVERSE SPLIT OF THE COMPANY'S COMMON STOCK. To
approve an amendment to the Company's Articles of Incorporation
to effect a one-for-five reverse stock split of the Company's
Common Stock.
5. OTHER BUSINESS. To transact such other business as may properly
come before the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. Only shareholders of record at the close of business
on March 18, 1998 are entitled to notice of and to vote at the Annual Meeting.
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All shareholders are cordially invited to attend the meeting in person. However,
to assure your representation at the Annual Meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she returned a proxy.
By Order of the Board of Directors,
Daniel J. Meub
President and Chief Executive Officer
Beaverton, Oregon
March 20, 1998
IT IS IMPORTANT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE DATE, SIGN AND COMPLETE THE ENCLOSED
PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
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ADAPTIVE SOLUTIONS, INC.
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 1998
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Adaptive Solutions, Inc., an Oregon corporation
(the "Company" or "Registrant"), for use at the Annual Meeting of Shareholders
of the Company (the "Annual Meeting") to be held on Wednesday, April 22, 1998,
at 8:30 a.m. local time, at 1600 N.W. Compton Drive, Tenant Conference Room,
Beaverton, OR 97006, and at any adjournment or adjournments thereof.
At the Annual Meeting, the shareholders of the Company (the "Shareholders") will
be asked to elect six (6) Directors to the Company's Board of Directors
(Proposal No. 1), to ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998
(Proposal No. 2), to approve the Company's 1998 Stock Incentive Plan (Proposal
No. 3), to approve a one-for-five reverse stock split of the Company's Common
Stock (Proposal No. 4), and to transact such other business as may properly come
before the Annual Meeting. All proxies that are properly completed, signed and
returned to the Company prior to the Annual Meeting will be voted.
Any proxy given by a Shareholder may be revoked at any time before it is
exercised by filing with the Secretary of the Company an instrument revoking it,
by duly executed proxy bearing a later date or by a Shareholder attending the
Annual Meeting and expressing a desire to vote his or her shares in person. This
Proxy Statement and the accompanying form of Proxy are being mailed to the
Shareholders on or about March 20, 1998.
The Board of Directors has fixed the close of business on March 18, 1998 as the
record date for the determination of Shareholders entitled to vote at the Annual
Meeting and any adjournment or adjournments thereof. At the close of business on
the record date there were _,___,___ shares of common stock, no par value, of
the Company (the "Common Stock") outstanding. Holders of shares of Common Stock
on the record date are entitled to one vote for each share held. The presence at
the Annual Meeting, either in person or by proxy, of the holders of a majority
of the outstanding shares entitled to vote shall constitute a quorum for the
transaction of business. If a choice is specified in the proxy as to the manner
in which it is to be voted, the persons acting under the proxy will vote the
shares of Common Stock represented thereby in accordance with such choice. If no
choice is specified, the shares will be voted FOR the Directors nominated, FOR
the ratification of KPMG Peat Marwick LLP as the Company's independent auditors
for the fiscal year ending December 31, 1998, FOR the approval of the Company's
1998 Stock Incentive Plan, FOR the approval of a one-for-five reverse stock
split of the Company's Common Stock, and in the discretion of the proxy holders
as to any other matter to properly come before the meeting.
In the event that sufficient votes in favor of proposals are not received by the
date of the Annual Meeting, persons named as proxies may propose one or more
adjournments of the Annual Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of the holders of a
majority of the outstanding shares present in person or by proxy at the Annual
Meeting.
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The cost of preparing, assembling, printing and mailing the Proxy Statement, the
Notice of Meeting and the enclosed form of proxy, as well as the cost of
soliciting proxies relating to the Annual Meeting will be borne by the Company.
The Company will request banks, brokers, dealers and voting trustees or other
nominees to solicit their customers who are owners of shares listed of record
and names of nominees, and will reimburse them for reasonable out-of-pocket
expenses of such solicitations. The original solicitation of proxies by mail may
be supplemented by telephone, telegram and personal solicitation by officers and
other regular employees of the Company.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The authorized number of Directors of the Company is between three (3) and seven
(7) and is currently set at six (6). At the Annual Meeting, six (6) Directors
will be elected to serve until the next annual meeting or until their successors
are duly elected and qualified. The Company intends to nominate for election as
Directors the persons named below, all of whom are incumbent Directors. All of
these nominees have indicated that they are able and willing to serve as
Directors. In the event that any nominee of the Company is unable or declines to
serve as a Director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as Directors, the proxy holders intend to vote all proxies received by
them in such a manner as will assure the election of as many of the nominees
listed below as possible, and, in such event, the specific nominees to be voted
for will be determined by the proxy holders. Unless otherwise instructed, the
proxy holders intend to vote the shares of Common Stock represented by the
proxies in favor of the election of these nominees.
INFORMATION CONCERNING NOMINEES
All Directors are elected at the Annual Meeting to serve until the following
Annual Meeting and until their successors are duly elected and have been
qualified. There is no family relationship among any officers or Directors. The
following table sets forth the names of and certain information about the Board
of Directors' nominees for election as a Director.
<TABLE>
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NAME AGE POSITION WITH THE COMPANY
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C. Scott Gibson 44 Chairman of the Board of Directors
Frederick M. Haney, Ph.D. 56 Director
Daniel J. Meub 43 President, Chief Executive Officer and
Director
Jean-Claude Peterschmitt 63 Director
T. Peter Thomas 50 Director
David Wood 50 Director
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C. SCOTT GIBSON has served as a Director since August 1992 and was elected
Chairman of the Board in December 1992. Mr. Gibson co-founded Sequent Computer
Systems, Inc., a computer supplier, in 1983 and served as Sequent's President
from 1988 through March 1992. Prior to founding Sequent, Mr. Gibson was General
Manager of the Memory Components Operation at Intel Corporation, a chip
manufacturer. Mr. Gibson received a B.S. in Electrical Engineering and MBA from
the University of Illinois. He currently serves as Chairman of the Board of the
Oregon Graduate Institute of Science and Technology, and as a Director of
Radisys Corporation, Triquint Semiconductor, Inc., Integrated Measurement
Systems, Inc., Inference Corporation and of several privately held technology
companies.
FREDERICK M. HANEY, PH.D. has served as a Director of the Company since April
1991. Since August 1991, he has served as President of Venture Management
Company, a technology-based business development firm. From 1984 through 1991
he was Executive Vice President of 3i Ventures Corporation, where he was
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responsible for founding and managing 3i Ventures California, a high technology
venture capital firm. Dr. Haney received a B.A. in Mathematics from Ohio
Wesleyan University, an M.S. in Mathematics from Colorado State University and a
Ph.D. in Computer Sciences from Carnegie-Mellon University. Dr. Haney is also a
Director of Rainbow Technologies, Inc., Cam Data Systems, Inc., Helisys, Inc.
and various private companies.
DANIEL J. MEUB has been President and Chief Executive Officer and a Director of
the Company since December 1996. From 1995 to 1996 Mr. Meub was Executive Vice
President of Marketing and Product Development with Now Software, a supplier of
Macintosh and PC based time management and utility software. From 1993 to 1994
Mr. Meub was employed by Central Point Software, a supplier of PC and Macintosh
software utilities, first as Vice President of Corporate Marketing and then as
Vice President/General Manager of the Desktop Product Group. From 1991 to 1993
Mr. Meub was Vice President of Marketing and Product Development for Calera
Recognition Systems, a supplier of optical character recognition software and
hardware. Prior to 1991 Mr. Meub held positions with Software Publishing
Corporation and the Clorox Company. Mr. Meub holds a B.A. from Stanford
University and an M.B.A. from Northwestern University.
JEAN-CLAUDE PETERSCHMITT has served as a Director of the Company since May 1995.
From 1967 to 1987, Mr. Peterschmitt served in various capacities with Digital
Equipment Corporation, a corporate information systems supplier, most recently
as General Manager, Vice President, Europe and Chairman of the European Board of
Directors. Prior to that time, Mr. Peterschmitt was a member of Arthur D.
Little's European Operations Research Group. He currently serves on the board of
Radisys Corporation, Euroventures B.V., an association of European venture
funds, Cabinet Benoit, a French consulting firm, as well as on a number of
advisory boards such as the European Advisory Board of Sybase, Inc., a database
and client-server software producer, Health on the Net Foundation and ACE
Technology Fund. Mr. Peterschmitt received an engineering degree from
Eidgenossische Technische Hochschule (Zurich) and an M.S. degree from the MIT
Sloan School of Business.
T. PETER THOMAS has served as a Director of the Company since September 1988.
Mr. Thomas is a general partner of Institutional Venture Management III, IV and
V, the general partners of Institutional Venture Partners III, IV, and V,
respectively, all of which are venture capital funds. Institutional Venture
Partners IV is a shareholder of the Company. Mr. Thomas has been a general
partner with Institutional Venture Partners since November 1985. He received a
B.S. in Electrical Engineering from Utah State University and an M.S. in
Computer Science from the University of Santa Clara. Mr. Thomas is also a
Director of Atmel Corporation, TelCom Semiconductor Inc., and various private
companies.
DAVID WOOD has served as a Director since October 1997. Mr. Wood is the
President and founder of Wood Associates. Mr. Wood is a current board member
for Telcontar, past chairman of the board for Aptus BV, and a current member of
the Judge Imaging Systems Advisory Board. Prior to forming Wood Associates, he
was vice president of new business development for Law Cypress Distributing
Company and director of marketing for Cornerstone Imaging. In his career in the
imaging market, he has worked with a wide range of industry participants,
including Caere/Calera, Fujitsu, Ricoh, Bell & Howell, Eastman Kodak, Fujitsu,
Wang Labs, Wheb Systems, Plexus, Optika Imaging and Anacomp.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held a total of eight (8) meetings during
1997. The Board of Directors has an Audit Committee and a Compensation
Committee. It does not have a nominating committee or a committee performing the
functions of a nominating committee. No Director attended fewer than 75% of the
aggregate of all meetings of the Board of Directors, or its committees on which
he served, during the time each Director was a member of the Board of Directors.
The Audit Committee, which consisted of Messrs. Haney, Meub, and Thomas, met two
(2) times during 1997. The Audit Committee approves the engagement of the
Company's independent auditors and services to
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be performed by such independent auditors and reviews the Company's accounting
principles and its system of internal accounting controls.
The Compensation Committee, which consisted of Messrs. Gibson and Thomas, met
two (2) times during 1997. The Compensation Committee reviews and approves the
Company's executive compensation policy, makes recommendations concerning the
Company's employee benefit policies and approves option grants to employees,
including officers and eligible directors.
COMPENSATION OF DIRECTORS
Nonemployee Directors were paid an annual fee of $10,000 plus reasonable
expenses pertaining to their service as Directors in 1997. Mr. Gibson received
$4,375 per month from the Company as compensation for his services as Chairman
of the Board of Directors and for consulting services in 1997. In 1997, Messrs.
Haney, Peterschmitt, Thomas and Wood were each granted options to purchase
15,000 shares of the Company's Common Stock at $0.688 per share and Mr. Wood was
also granted options to purchase 5,000 shares of the Company's Common Stock at
$1.25 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF
THE SIX NOMINEES FOR DIRECTOR. If a quorum is present, each of the six (6)
nominees for Director who receives the greatest number of votes will be elected.
The shareholders are not entitled to cumulative voting rights in electing
Directors. Abstentions and broker non-votes are counted for purposes of
determining whether a quorum exists at the Annual Meeting, but are not counted
and have no effect on the determination of elections for Director.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
KPMG Peat Marwick LLP has been the independent auditors for the Company since
1990 and, upon recommendation of the Audit Committee, their appointment as
independent auditors for the year ending December 31, 1998 has been approved by
the Board of Directors, subject to ratification by the Shareholders of the
Company.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting and will be given an opportunity to make a statement, if they so
desire, and to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998. If a quorum is present, the
ratification of the independent auditors will be approved if the votes cast by
the shareholders entitled to vote favoring the ratification exceeds the votes
cast opposing the ratification. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum exists at the Annual Meeting, but are
not counted and have no effect on the determination of the outcome of this
proposal.
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APPROVAL OF THE 1998 STOCK INCENTIVE PLAN
(PROPOSAL NO. 3)
The proposed 1998 Stock Incentive Plan (the "1998 Plan") is designed to provide
incentives to the Company's key employees and others who provide services to the
Company. The Board of Directors believes that the availability of stock
incentives is an important factor in the Company's ability to attract and retain
the best available personnel for positions of substantial responsibility, to
provide an incentive for them to exert their best efforts on behalf of the
Company and to align their interests with those of the Company's shareholders.
The Board of Directors further believes the availability of these incentives
will be particularly important as the Company seeks to increase its staff to
implement its current business plan. A total of 750,000 shares of Common Stock
have been reserved for issuance under the 1998 Plan. As of March 4, 1998, only
315,456 shares of Common Stock remained available for grant under the Company's
1988 Stock Incentive Plan, and by its terms, the Company's 1988 Stock Incentive
Plan terminates on October 1, 1998. Accordingly, the Board of Directors has
approved and recommends shareholder adoption of the 1998 Plan.
As of March 4, 1998 there were six directors, four executive officers and 25
employees of the Company eligible to participate in the 1998 Plan. Because the
officers, directors and employees of the Company who may participate in the 1998
Plan and the amount of their options will determined on a discretionary basis by
the Compensation Committee or the full Board of Directors, it is not possible to
state the names or positions of, or the number of options that may be granted
thereunder. However, under the 1998 Plan, no employee may receive options for
more than 100,000 shares of Common Stock in any one fiscal year, except that
options for up to an additional 100,000 shares of Common Stock may be granted in
connection with a person's initial employment with the Company.
SUMMARY OF THE 1998 PLAN
The following is a summary of the basic terms and provisions of the 1998 Plan.
Shareholders are encouraged to review the complete copy of the 1998 Plan
attached to this Proxy Statement as Appendix A.
The 1998 Plan, which was approved by the Company's Board of Directors in October
1998, provides for grants of both "incentive stock options" within the meaning
of Section 422 of the Code and "non-qualified stock options" which are not
qualified for treatment under Section 422 of the Code, and for direct stock
grants and sales to employees or consultants of the Company.
The administration of the 1998 Plan has been delegated to the Compensation
Committee of the Board of Directors (the "Committee"). In addition to
determining who will be granted options, the Committee has the authority and
discretion to determine when options will be granted and the number of options
to be granted and whether the options will be incentive stock options or
non-qualified stock options. Only "employees" of the Company as that term is
defined in the Code will be entitled to receive Incentive Stock Options. See
"Federal Income Tax Consequences" below. The Committee also may determine the
time or times when each option becomes exercisable, the duration of the exercise
period for options and the form or forms of the instruments evidencing options
granted under the 1998 Plan. The Committee also may construe the 1998 Plan and
the provisions in the instruments evidencing options granted under the 1998 Plan
to participants and is empowered to make all other determinations deemed
necessary or advisable for the administration of the 1998 Plan.
The term of each option granted under the 1998 Plan will be ten years from the
date of grant, or such shorter period as may be established at the time of the
grant. An option granted under the 1998 Plan may be exercised at such times and
under such conditions as determined by the Compensation Committee. If a person
who has been granted an option ceases to be an employee or consultant of the
Company, such person may exercise that option only during the three month period
after the date of termination, and only to the
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extent that the option was exercisable on the date of termination. If a person
who has been granted an option ceases to be an employee or consultant as a
result of such person's total and permanent disability, such person may exercise
that option at any time within twelve months after the date of termination, but
only to the extent that the option was exercisable on the date of termination.
The 1998 Plan has been amended to provide that, except as otherwise provided by
the Compensation Committee at the time an option is granted, no option granted
under the 1998 Plan is transferable other than at death, and each option is
exercisable during the life of the optionee only by the optionee. In the event
of the death of a person who has received an option, the option generally may be
exercised by a person who acquired the option by bequest or inheritance during
the twelve month period after the date of death to the extent that such option
was exercisable at the date of death.
The exercise price of incentive stock options granted under the 1998 Plan may
not be less than the fair market value of a share of Common Stock on the date of
grant of the option. For non-qualified stock options, the 1998 Plan has been
amended to provide that the exercise price may be less than, equal to, or
greater than the fair market value of the Common Stock on the date of grant,
provided that the Compensation Committee must specifically determine that any
option grant at an exercise price less than fair market value is in the best
interests of the Company. The consideration to be paid upon exercise of an
option, including the method of payment, will be determined by the Compensation
Committee and may consist entirely of cash, check, shares of Common Stock, such
other consideration and method of payment permitted by applicable law or any
combination of such methods of payment as permitted by the Compensation
Committee. The Compensation Committee has the authority to reset the price of
any stock option after the original grant and before exercise. In the event of
stock dividends, splits, and similar capital changes, the 1998 Plan provides for
appropriate adjustments in the number of shares available for option and the
number and option prices of shares subject to outstanding options.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or a merger of the Company with and into another corporation,
outstanding options shall be assumed or equivalent options shall be substituted
by such successor corporation, unless the Committee provides all option holders
with the right to immediately exercise all of their options, whether vested or
unvested. In the event of a proposed dissolution or liquidation of the Company,
outstanding options will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In such a situation,
the Board is authorized to give option holders the right to immediately exercise
all of their options, whether vested or unvested.
The 1998 Plan will continue in effect until October 2008, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may
amend, terminate or suspend the 1998 Plan at any time. Amendments to the 1998
Plan must be approved by shareholders if required by applicable tax, securities
or other law or regulation.
The issuance of shares of Common Stock upon the exercise of options is subject
to registration with the Securities and Exchange Commission of the shares
reserved by the Company under the 1998 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to determine
the particular tax consequences applicable to them, including the application
and effect of foreign, state and local income and other tax laws.
INCENTIVE STOCK OPTIONS. Certain options authorized to be granted under the
1998 Plan are intended to qualify as incentive stock options for federal income
tax purposes. Under federal income tax law currently in effect, the optionee
will recognize no income upon grant or upon a proper exercise of an incentive
stock option. If an employee exercises an incentive stock option and does not
dispose of any of the option shares within two years following the date of grant
and within one year following the date of exercise, then any gain realized upon
subsequent disposition of the shares will be treated as income from the sale or
exchange of a
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capital asset. If an employee disposes of shares acquired upon exercise of an
incentive stock option before the expiration of either the one-year holding
period or the two-year waiting period, any amount realized will be taxable as
ordinary compensation income in the year of such disqualifying disposition to
the extent that the lesser of the fair market value of the shares on the
exercise date or the proceeds of the sale of the shares exceeds the exercise
price.
NON-QUALIFIED STOCK OPTIONS. Certain options authorized to be granted under
the 1998 Plan will be treated as non-qualified stock options for federal
income tax purposes. Under federal income tax law presently in effect, no
income is realized by the grantee of a non-qualified stock option pursuant to
the 1998 Plan until the option is exercised. At the time of exercise of a
non-qualified stock option, the optionee will realize ordinary compensation
income, and the Company will be entitled to a deduction, in the amount by
which the market value of the shares subject to the option at the time of
exercise exceeds the exercise price. Upon the sale of shares acquired upon
exercise of a non-qualified stock option, the excess of the amount realized
from the sale over the market value of the shares on the date of exercise
will be taxable.
CONSEQUENCES TO THE COMPANY. The Company recognizes no deduction at the time of
grant or exercise of an incentive stock option. The Company will recognize a
deduction at the time of exercise of a non-qualified stock option on the
difference between the option price and the fair market value of the shares on
the date of grant. The Company also will recognize a deduction to the extent
the optionee recognizes income upon a disqualifying disposition of shares
underlying an incentive stock option.
Under Section 162(m) of the Code, publicly-held companies may be limited as
to income tax deductions to the extent total remuneration (including
compensation received through the exercise of stock options) for certain
executive officers exceeds $1 million in any one year. However, Section
162(m) provides an exception for "performance-based" remuneration, including
stock options. Section 162(m) requires that certain actions must be taken by
a compensation committee of two or more outside directors and that the
material terms of such remuneration must be approved by a majority vote of
the shareholders in order for stock options to qualify as "performance-based"
remuneration. The regulations adopted pursuant to Section 162(m) which
establish the requirements for options to be treated as "performance-based"
remuneration require stock option plans to set forth the maximum number of
options that may be awarded to any employee in any one year. Accordingly, the
1998 Plan establishes a limitation on the number of options that may be
awarded to any employee under the 1998 Plan in any calendar year of 100,000,
except that options for up to an additional 100,000 shares may be granted in
connection with a person's initial employment with the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
COMPANY'S 1998 STOCK INCENTIVE PLAN. If a quorum is present, the Company's
Bylaws provide that this proposal will be approved if a majority of the votes
cast on the proposal are voted in favor of approval. Abstentions and broker
non-votes are counted for purposes of determining whether a quorum exists at the
Annual Meeting but are not counted and have no effect on the determination of
the outcome of this proposal.
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APPROVAL OF A ONE FOR FIVE REVERSE STOCK SPLIT
OF THE COMPANY'S COMMON STOCK
(PROPOSAL NO. 4)
GENERAL
The Board of Directors of the Company has proposed to amend the Fifth Restated
Articles of Incorporation (the "Articles") to effect a one-for-five reverse
stock split (the "Reverse Split") of the presently outstanding shares of the
Company's Common Stock. The complete text of the amendment to the Articles for
the Reverse Split is set forth in Appendix B to this proxy statement; however
such text is subject to change as may be required by the Oregon Secretary of
State. If the Reverse Split is approved by the requisite vote of the Company's
shareholders, upon filing of the Amendment to the Articles of Incorporation with
the Oregon Secretary of State, the Reverse Split will be effective and each
certificate representing shares of Common Stock outstanding immediately prior to
the Reverse Split (the "Old Shares") will be deemed automatically and without
any action on the part of the shareholders to represent one-fifth the number of
shares of Common Stock after the Reverse Split (the "New Shares"); provided,
however, that no fractional New Shares will be issued as a result of the Reverse
Split. In lieu thereof, each shareholder whose Old Shares are not evenly
divisible by five will receive one additional New Share for the fractional New
Share that such shareholder would otherwise be entitled to receive as a result
of the Reverse Split. After the Reverse Split becomes effective, shareholders
will be asked to surrender certificates representing Old Shares in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the New Shares will be
issued and forwarded to the shareholders, however, each certificate representing
Old Shares will continue to be valid and represent New Shares equal to one-fifth
the number of Old Shares (plus one additional New Share where such Old Shares
are not evenly divisible by five).
The number of shares of capital stock authorized by the Articles will not change
as a result of the proposed Reverse Split. The Common Stock issued pursuant to
the Reverse Split will be fully paid and nonassessable. The voting and other
rights that presently characterize the Common Stock will not be altered by the
Reverse Split.
PURPOSES OF THE PROPOSED REVERSE SPLIT
The Board of Directors expects the Reverse Split to help the Company meet the
minimum maintenance standards established by Nasdaq and applicable to all stocks
listed on the Nasdaq Small Cap Market. Effective February 23, 1998, new
quantitative maintenance requirements became effective for companies whose
securities are listed on the Nasdaq Small Cap Market. The new standards include
a requirement that a listed company maintain a minimum bid price of $1.00. As of
_______, 1998, the Company's minimum bid price was $____. The Company's minimum
bid price fell below $1.00 at various times during 1997. If the Company is
unable to maintain its bid price above $1.00, the Company may be delisted from
the Nasdaq Small Cap Market and would be required to seek listing and quotation
on another market. The Company believes that such markets may be significantly
less liquid.
Additionally, the Reverse Split should enhance the acceptability of the Common
Stock by the financial community and investing public. The reduction in the
number of issued and outstanding shares of Common Stock caused by the Reverse
Split is expected to increase the market price of the Common Stock.
The Board of Directors also believes that the proposed Reverse Split will result
in a broader market for the Common Stock than that which currently exists. A
variety of brokerage house policies and practices tend to discourage brokers
from dealing with lower priced stocks. In addition, the structure of trading
commissions represents a higher percentage of the sales price for lower priced
stocks than for higher priced issues creating an adverse impact on lower priced
stocks. The proposed Reverse Split should result in a price level for the Common
Stock that will reduce, to some extent, the effect of the policies and practices
of brokerage firms
8
<PAGE>
and diminish the adverse impact of trading commissions on the market for the
Common Stock. The expected increased price level may also encourage interest and
trading in the Common Stock.
However, there can be no assurance that any or all of the aforementioned effects
will occur; including, without limitation, that the market price per New Share
of Common Stock after the Reverse Split will be five times the market price per
Old Share of Common Stock before the Reverse Split, or that such price will
either exceed or remain in excess of the current market price. Further, there is
no assurance that the market for the Common Stock will be improved. Shareholders
should note that the Board of Directors cannot predict what effect the Reverse
Split will have on the market price of the Common Stock.
EFFECT OF THE REVERSE SPLIT
The Reverse Split will be effected by means of filing the Amendment to the
Articles with the Oregon Secretary of State. Assuming approval of the Reverse
Split by the requisite vote of the shareholders at the meeting, the Amendment to
the Articles will thereafter be filed with the Oregon Secretary of State as
promptly as practicable and the Reverse Split will become effective as of 5:00
p.m., Pacific daylight time, on the date of such filing (the "Reverse Split
Effective Date"). Without any further action on the part of the Company or the
shareholders, after the Reverse Split, the certificates representing Old Shares
will be deemed to represent one-fifth the number of New Shares (plus one
additional New Share where such Old Shares are not evenly divisible by five).
Shareholders have no right under Oregon law to dissent from the Reverse Split of
Common Stock.
The Company has authorized capital stock of 30,000,000 shares of Common Stock.
The authorized capital stock will not be changed by reason of the Reverse Split.
As of March 2, 1998, the number of issued and outstanding Old Shares was
7,292,306. The following table illustrates the principal effects of the proposed
Reverse Split and decreases in Outstanding Common Stock assuming no additional
shares of Common Stock are issued prior to the Reverse Split Effective Date as a
result of the exercise of any options or warrants:
<TABLE>
<CAPTION>
Shares of Prior to Proposed After Proposed
Common Stock Reverse Split Reverse Split
------------ ------------- --------------
<S> <C> <C>
Authorized 30,000,000 30,000,000
Outstanding 7,292,306 1,458,462 (1)
</TABLE>
(1) Does not include New Shares of Common Stock to be issued in lieu of
fractional shares.
CHANGES AFFECTING CAPITAL STOCK
The Common Stock is currently registered under Section 12(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and, as a result, the Company is
subject to the periodic reporting and other requirements of the Exchange Act.
The Reverse Split will not effect the registration of the Common Stock under the
Exchange Act. After the Reverse Split Effective Date, trades of the New Shares
will be reported on Nasdaq under the Company's symbol "ADSO".
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Reverse Split Effective Date, the Company will
send a letter of transmittal to each holder of record of Old Shares of Common
Stock outstanding on the Reverse Split Effective Date. The letter of transmittal
will contain instructions for the surrender of certificate(s) representing such
Old Shares to American Stock Transfer and Trust Company, the Company's exchange
agent (the "Exchange Agent"). Upon proper completion and execution of the
letter of transmittal and return thereof to the Exchange Agent, together with
the certificate(s) representing Old Shares, a shareholder will be entitled to
receive a certificate
9
<PAGE>
representing the number of New Shares of Common Stock into which his Old Shares
have been reclassified and changed as a result of the Reverse Split.
Shareholders should not submit any certificates until requested to do so. No new
Certificate will be issued to a shareholder until he has surrendered his
outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the Exchange Agent.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The Company has not sought and will not seek an opinion of counsel or a ruling
from the Internal Revenue Service regarding the federal income tax consequences
of the Reverse Split. The Company, however, believes that because the Reverse
Split is not part of a plan to periodically increase a shareholder's
proportionate interest in the assets or earnings of the Company, the Reverse
Split will have the following federal income tax effects.
A shareholder will not recognize gain or loss on the exchange. In the aggregate,
the shareholder's basis in the New Shares will equal his basis in the Old
Shares.
A shareholder's holding period for the New Shares will be the same as the
holding period of the Old Shares exchanged therefor.
The Reverse Split will constitute a reorganization within the meaning of Section
368(a)(1)(E) of the Code and the Company will not recognize any gain or loss as
a result of the Reverse Split.
MISCELLANEOUS
The Board of Directors may abandon the proposed Reverse Split at any time before
or after the Annual Meeting and prior to the Reverse Split Effective Date if for
any reason the Board of Directors deems it advisable to abandon the proposal.
The Board of Directors may consider abandoning the proposed Reverse Split if it
determines, in its sole discretion, that the Reverse Split would adversely
effect the ability of the Company to raise capital or the liquidity of the
Common Stock, among other things. In addition, the Board of Directors may make
any and all changes to the Amendment to the Articles that it deems necessary to
file the Amendment to the Articles with the Oregon Secretary of State and give
the effect of the Reverse Split.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSED ONE-FOR-FIVE REVERSE STOCK SPLIT. If a quorum is present, the proposal
for the Reverse Split will be approved if the votes cast by the shareholders
entitled to vote favoring the proposal exceeds the votes cast opposing the
proposal. Abstentions and broker non-votes are counted for purposes of
determining whether a quorum exists at the Annual Meeting, but are not counted
and have no effect on the determination of the outcome of this proposal. All
proxies will be voted to approve the Reverse Split unless a contrary vote is
indicated on the enclosed proxy card.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 2, 1998 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock, (ii) each of the Company's Directors, the Chief
Executive Officer and the four other most highly compensated executive officers
and (iii) all Directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
(1)
-------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
------ -------
<S> <C> <C>
Institutional Venture Partners IV (2) 883,463 11.2 %
3000 Sand Hill Road, Bldg. 2, Suite 290
Menlo Park, CA 94025
T. Peter Thomas (3) 928,985 11.7
3000 Sand Hill Road, Bldg. 2, Suite 290
Menlo Park, CA 94025
Eastman Kodak Company (5) 604,992 7.9
343 State Street
Rochester, NY 14540
Daniel J. Meub 150,000 1.9
Dan Hammerstrom, Ph.D. 182,901 2.4
C. Scott Gibson (4) 101,600 1.3
Wendell Henry 93,751 1.2
Gregory Holman 103,633 1.3
Charles F. Hall, Ph.D. 73,333 *
Frederick M. Haney, Ph.D. 20,500 *
Jean-Claude Peterschmitt 20,000 *
David Wood 2,361 *
All Executive Officers and Directors, as a group
(nine (9) persons) 1,677,114 20.4 %
</TABLE>
- ----------------------
* Less than one percent (1%)
11
<PAGE>
(1) Except as indicated in other notes to this table, each Shareholder listed
has sole voting and dispositive power with respect to the shares
beneficially owned, subject to applicable community property laws. As
required by applicable regulations adopted by the Securities and Exchange
Commission, the calculations assume that the shares of Common Stock subject
to options or warrants or convertible securities that are exercisable or
convertible within sixty days of March 2, 1998 are outstanding with
respect to the Shareholder who owns such options or warrants or convertible
securities, but not with respect to any other Shareholder. The number of
stock options that are exercisable within 60 days of March 2, 1998 is as
follows: Mr. Thomas - 15,000, Mr. Meub - 150,000, Dr. Hammerstrom -
162,234, Mr. Gibson - 46,650, Mr. Henry - 78,251, Mr. Holman - 103,633, Dr.
Hall - 33,333, Dr. Haney - 20,550, Mr. Peterschmitt - 20,000, Mr. Wood -
2,361, and all executive officers and directors as a group - 632,012.
(2) The information as to beneficial ownership is based on information provided
to the Company by Institutional Venture Partners IV to its beneficial
ownership of Common Stock. Institutional Venture Partners IV is the record
holder of 598,050 shares of Common Stock and the holder of 285,413 shares
of Common Stock subject to warrants exercisable through November 2, 1998.
Mr. Thomas is a Director of the Company and General Partner of
Institutional Venture Management IV, which is the General Partner of
Institutional Venture Partners IV. Mr. Thomas disclaims beneficial
ownership of these shares except to the extent of his individual
partnership interest.
(3) Of the shares indicated as owned by Mr. Thomas, 838,208 are owned by
Institutional Venture Partners IV. Mr. Thomas is the General Partner of
Institutional Venture Management IV, which is the General Partner of
Institutional Venture Partners IV, and all of such shares are included
because of his affiliation with those entities. As such, Mr. Thomas may
be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Institutional Venture Partners
IV. Mr. Thomas disclaims beneficial ownership of these shares except to
the extent of his individual partnership interest.
(4) Of the shares indicated as owned by Mr. Gibson, 54,950 are held by the
Charles Scott Gibson Living Trust, over which Mr. Gibson has sole voting
power.
(5) The information as to beneficial ownership is based on a Schedule 13D filed
with the Securities and Exchange Commission by Eastman Kodak Company on
November 12, 1997, reflecting its beneficial ownership of Common Stock as
of October 30, 1997. The Schedule 13D states that Eastman Kodak Company has
sole voting and dispositive power with respect to 274,443 shares of Common
Stock and shared voting and dispositive power with respect to 330,549
shares of Common Stock.
12
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
Information with respect to the Company's current executive officers is set
forth below. Officers of the Company are elected by the Board of Directors and
hold office until their successors are elected and qualified.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- -------- --------------------------------------
<S> <C> <C>
Daniel J. Meub 44 President, Chief Executive Officer and
Director
Wendell Henry 54 Vice President, Engineering
Gregory Holman 40 Vice President, Sales
Charles F. Hall, Ph.D. 58 Vice President, Product Development
</TABLE>
Information concerning Mr. Meub is set forth under "Election of Directors."
WENDELL HENRY has served as Vice President of Engineering since October 1989.
Mr. Henry was Director of Engineering of the Context Division of Mentor Graphics
Corp, a supplier of computer aided design equipment and software, from March
1989 to October 1989. Mr. Henry was Vice President of Software Engineering for
Saba Technologies, a startup company developing OCR products for the PC
marketplace, from 1984 until 1989. Prior to joining Saba, Mr. Henry was Manager
of System Software Development for Apple Computer from 1980 until 1984. Mr.
Henry holds a B.S.A.A.E. from Northrop Institute of Technology and an M.S. in
Computer Science from San Jose State University.
GREGORY HOLMAN has served as Vice President of Sales since April 1997. Mr.
Holman joined the Company in May 1993 with a background in parallel processing
and database applications from sales and marketing positions with Prime
Computer, Encore Computer, Borland, and Sequent Computer Systems. Mr. Holman has
held various positions at the Company, including business unit director for
forms processing and director of international sales and advanced product
programs. He has been responsible for planning and initial establishment of the
forms processing business to apply the company's advanced parallel processing
technology to computer assisted data entry; development of significant business
with Mitsubishi, Siemens, Mitek Systems, Northrop-Grumman, R2, and others; and
the commercialization program for technology derived from the Adaptive
Solutions' relationship with Motorola.
CHARLES F. HALL, PH.D. has served as Vice President of Product Development since
June 1997, when he joined the Company. Dr. Hall came to the Company from Hughes
Space and Communications Company where he was the chief engineer responsible for
their Product Data Management System. Previously he was with Lockheed Martin
Corporation in a variety of roles; founding manager of the company's artificial
intelligence center, Director of Data Access Products at Lockheed Idaho
Technologies Company, and Vice President of Information Technology at Lockheed
Information Management Services Company. In these positions he acquired
extensive experience in the development of image-based and forms-based
information systems and business unit management. Prior to Lockheed, he was a
senior scientist with Harris Corporation and an R&D project officer with the
U.S. Air Force. Dr. Hall has published numerous articles on image processing,
image compression, and pattern recognition. He has developed large corporate
databases, brought new forms processing products to market and has had extensive
management and P&L responsibility. He holds a Ph.D. in Electrical Engineering
(Computer Applications) from the University of Southern California, an M.S.E.E.
from the Air Force Institute of Technology, and a B.S.E.E. from the University
of Missouri-Columbia.
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company determined as of the end of the last fiscal year, if such officer's
total annual salary and bonus exceeded $100,000, for the fiscal years ended
December 31, 1997, 1996 and 1995 (hereafter referred to as the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION STOCK
------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED(1) COMPENSATION(2)
- --------------------------- ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Daniel J. Meub 1997 $178,113 -- 100,000 $4,919
President and Chief Executive 1996 10,961 -- 200,000 --
Officer since December 1996 1995 -- -- -- --
Gregory Holman (3) 1997 156,327 -- 120,000 4,919
Vice President, Sales since 1996 176,537 -- 48,150 5,555
April 1997 1995 229,660 -- -- 4,618
Wendell Henry 1997 115,703 -- 30,000 3,745
Vice President, Engineering 1996 111,286 -- 28,150 4,401
1995 109,961 -- -- 3,647
</TABLE>
(1) Options to purchase 18,150, and 43,150 shares of the Company's Common
Stock granted to Messrs. Henry and Holman, respectively, in 1994 and
1995, were repriced in 1996. Pursuant to the rules of the Securities
and Exchange Commission, such repriced options are included as options
granted in 1996 in this table. See "Ten-Year Option Repricing",
below.
(2) Amounts represent premium payments made by the Company with
respect to (i) insurance policies for the lives of Messrs. Meub,
Holman and Henry, of $324 each, for which the Company is not the
beneficiary, and (ii) various health insurance policies for each
of Messrs. Meub, Holman and Henry and for their respective
dependents of $4,595, $4,595 and $3,421, respectively.
(3) Amounts for Mr. Holman include commissions of $46,237, $71,537
and $124,660 in 1997, 1996 and 1995, respectively.
14
<PAGE>
STOCK OPTIONS
The following table sets forth, for each of the named executive officers,
information concerning options granted during the fiscal year ended December 31,
1997 under the Company's stock option plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE
GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION OPTION TERM (2)
NAME GRANTED (1) IN 1997 ($/SH) DATE 5% 10%
---- ----------- ------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Daniel J. Meub 100,000 14.0 % $0.688 5/21/07 $43,268 $109,649
Gregory Holman 60,000 8.4 1.156 1/29/07 43,620 110,542
60,000 8.4 1.00 4/23/07 37,734 95,625
Wendell Henry 30,000 4.2 1.00 4/23/07 18,867 47,812
</TABLE>
(1) Stock options are granted at an exercise price equal to the fair
market value of the Company's Common Stock on date of grant, and vest
ratably over a 36 month period.
(2) The potential realizable value is calculated based on the term of
the option at time of grant (10 years) and is calculated by assuming
that the stock price on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for
the appreciated price. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock and
overall stock market conditions
15
<PAGE>
FISCAL YEAR END OPTION VALUES
The following table sets forth, for each of the named executive officers, the
aggregate dollar value realized upon exercise of stock options in 1997 and the
number and value of unexercised options as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
ON VALUE ----------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel J. Meub -- -- 104,867 195,133 -- --
Gregory Holman -- -- 74,744 102,223 $ 165 --
Wendell Henry -- -- -- 100,000 $ 1,822 --
</TABLE>
(1) The value of unexercised in-the-money options is calculated based on
the closing price of the Company's Common Stock on December 31, 1997,
$0.469 per share. Amounts reflected are based on the assumed value
minus the exercise price and do not necessarily indicate that the
optionee sold such stock.
16
<PAGE>
TEN-YEAR OPTION REPRICINGS
The following table sets forth, information concerning the repricing of certain
option grants for executive officers over the last ten years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT TIME REMAINING AT
OPTIONS TIME OF OF REPRICING NEW DATE OF
REPRICED OR REPRICING OR OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT (YEARS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dan Hammerstrom 7/16/1996 3,150 $1.375 $3.375 $1.375 8.20
15,000 1.375 6.50 1.375 9.21
Gregory Holman 7/16/1996 3,150 1.375 3.375 1.375 8.20
26,000 1.375 3.375 1.375 8.20
4,000 1.375 5.9375 1.375 6.50
10,000 1.375 6.50 1.375 9.21
Wendell Henry 7/16/1996 3,150 1.375 3.375 1.375 8.20
15,000 1.375 6.50 1.375 9.21
Michael Amundson (1) 7/16/1996 3,150 $1.375 $3.375 $1.375 8.20
15,000 1.375 6.50 1.375 9.21
John J. Migliore (2) 7/16/1996 80,000 1.375 4.00 1.375 9.70
70,000 1.375 4.125 1.375 9.85
60,000 1.375 4.00 1.375 9.70
</TABLE>
(1) Mr. Amundson resigned from the Company in January 1997. The repriced stock
options noted above have expired.
(2) Mr. Migliore resigned from the Company in September 1996. The repriced
stock options noted above have expired.
EMPLOYMENT AGREEMENTS
The Company enters into confidentiality agreements with its full-time employees
(including its executive officers) that prohibit disclosure of confidential
information to anyone outside of the Company both during and subsequent to
employment and require disclosure to the Company of ideas, discoveries or
inventions relating to or resulting from the employee's work for the Company and
assignment to the Company of all proprietary rights to such ideas, discoveries
or inventions.
17
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's policy is to pay competitive compensation to its executive
officers in order to attract and retain highly qualified executives, to motivate
officers to provide excellent leadership and achieve Company goals; to link the
interests of executives and shareholders by tying a large portion of total
compensation to Company profitability and stock value; and to reward outstanding
performance.
Under rules established by the Securities and Exchange Commission, the Company
is required to provide certain data and information with regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
the four other most highly compensated Executive Officers. in fulfillment of
this requirement, the Compensation Committee, has prepared the following report
for inclusion in this Proxy Statement.
COMPENSATION PHILOSOPHY
The Compensation Committee establishes the general compensation policies for the
Company's executive officers. The Compensation Committee is responsible for
reviewing and approving the Company's compensation practices, executive pay
levels and variable compensation programs. The Compensation Committee also
grants stock options. The Omnibus Budget Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, which limits to $1 million the deductibility of
compensation (including stock-based compensation) individually paid to a
publicly-held Company's chief executive officer and the four other most highly
compensated executive officers. Compensation Committee intends to take all steps
necessary to cause its compensation practices to comply with this limit on
deductibility of executive compensation.
The Compensation Committee has adopted an executive pay for performance
philosophy covering the CEO and other executive officers emphasizing variable
compensation in order to align executive compensation with business objectives
and performance, and to attract, retain and reward executives who contribute to
the long-term success of the Company. The Company's philosophy is based on a
comprehensive review of competition, retention factors, and short-term and
long-term prospects. The Company's compensation program for the CEO and
executive officers is also applicable to the compensation policies for all other
employees of the Company.
Executive compensation includes three components: competitive base salary, an
incentive plan tying cash compensation to the Company goals and objectives, and
stock options, which provide long-term incentives to maximize the value of
shareholder investments.
SALARIES. The Company provides competitive salaries. The Company regularly
surveys high-growth, development-stage high technology companies to ensure that
its salary structure is competitive. The Company also utilizes the wage and
salary surveys of the American Electronics Association targeting the fiftieth
percentile for this purpose. The Compensation Committee annually assesses the
performance and sets the salary of the Company's President and Chief Executive
Officer, Daniel J. Meub. Mr. Meub annually assesses the performance of all other
executive officers and recommends salary increases which are reviewed and
approved by the Board of Directors.
STOCK OPTIONS. The Compensation Committee believes that employee equity
ownership provides significant motivation to executive officers to maximize
value for the Company's shareholders and, therefore, periodically grants stock
options under the Company's stock option plans. Stock options are granted at the
current market price and will only have value if the Company's stock price
increases over the exercise price. The Compensation Committee determines the
size and frequency of option grants for executive officers, after consideration
of recommendations from the Chief Executive Officer. Recommendations for option
grants are based upon the relative position and responsibilities of each
executive officer, expected contributions of each officer to the Company and
previous option grants to such executive officers.
18
<PAGE>
INCENTIVE PLAN. The Company's management incentive plan links the compensation
of its executives to its annual financial performance and goals and objectives.
Six employees currently participate in the Incentive plan. No awards were made
under the Company's Incentive Plan for 1997.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of the Company's Chief Executive Officer for fiscal 1997 was
based in part upon the same criteria described above. In addition, the Board of
Directors broadly considered his personal skills, including leadership and the
establishment and implementation of strategic direction for the Company. The
Compensation Committee approved Mr. Meub's 1997 annual base salary of
approximately $180,000.
The Compensation Committee considers equity based compensation, in the form of
stock options, to be an important component of the CEO's compensation. In 1997,
the Compensation Committee granted Mr. Meub options to purchase 100,000 shares
of the Company's Common Stock based on the standards described above. These
grants are intended to motivate leadership for long-term Company growth and
profitability.
COMPENSATION COMMITTEE
C. Scott Gibson
T. Peter Thomas
19
<PAGE>
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission requires a comparison on an indexed basis
of cumulative total shareholder return for the Company, a relevant broad equity
market index and a published industry or line-of-business index. Cumulative
total shareholder return represents share value appreciation assuming dividend
reinvestment. The Common Stock of the Company is traded on the Nasdaq Stock
Market. Set forth below is a graph comparing cumulative total shareholder return
(commencing with the November 3, 1993 initial public offering) of the Company's
Common Stock, the Nasdaq Stock Market (US) Index and the H&Q Technology Index.
[GRAPH]
The following are stock and index prices scaled to 100, which were used to
create the stock performance graph above.
<TABLE>
<CAPTION>
ADAPTIVE H&Q NASDAQ
SOLUTIONS, TECHNOLOGY U.S.
DATES INC. INDEX INDEX
<S> <C> <C> <C>
November 4, 1993 $100.00 $100.00 $100.00
December 31, 1994 64.15 130.16 100.44
December 31, 1995 81.13 194.62 142.05
December 31, 1996 18.40 241.88 174.72
December 31, 1997 7.08 283.58 214.40
</TABLE>
20
<PAGE>
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals complying with the applicable proxy solicitation
regulations of the Securities and Exchange Commission, intended to be presented
at the Annual Meeting, must be received by the Company by December 24, 1998 to
be eligible for inclusion in the Company's proxy materials for such Annual
Meeting. Such proposals should be directed to the attention of Daniel J. Meub,
President and Chief Executive Officer, Adaptive Solutions, Inc., 1400 N.W.
Compton Drive, Suite 340, Beaverton, Oregon 97006.
OTHER MATTERS
The Board of Directors is not aware of any other business to be presented at the
Annual Meeting. If any other matters should properly come before the meeting, it
is intended that the persons named in the accompanying form of Proxy will vote
such proxy in accordance with their best judgment on such matters.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's directors and executive officers and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership of shares with the Securities and Exchange Commission. Such persons
also are required to furnish the Company with copies of all Section 16(a)
reports they file.
In 1997, Messrs. Wood, Holman, and Hall did not file Form 3 filings in April,
May and September of 1997 reporting initial option grant filings; Mr. Henry did
not file a Form 4 filing in March 1997 reporting the sale of common stock; and
Messrs. Hammerstrom, Haney, Peterschmitt, Wood, Thomas, Meub, Holman, Hall, and
Henry did not file Form 5 filings for 1997.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1997 accompanies this Proxy Statement, and includes the Company's
Annual Report on Form 10-K as filed with the SEC for the year ended December 31,
1997.
By Order of the Board of Directors,
Daniel J. Meub
President and Chief Executive Officer
Beaverton, Oregon
March 20, 1998
21
<PAGE>
APPENDIX A
ADAPTIVE SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or "nonqualified
stock options," at the discretion of the Board and as reflected in the terms of
the written option agreement. In addition, shares of the Company's Common Stock
may be Sold hereunder independent of any Option grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4.(a) of
the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean a committee appointed by the Board in
accordance with Section 4.a of the Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
(f) "Company" shall mean Adaptive Solutions, Inc., an Oregon
corporation.
(g) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services and any Director of the Company whether compensated for
such services or not.
(h) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave, or
any other leave of absence approved by the Company ; provided, however, that for
purposes of Incentive Stock Options, any such leave is for a period of not more
than ninety days or reemployment upon the expiration of such leave is guaranteed
by contract or statute, provided, further, that on the ninety-first day of such
leave (where re-employment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a Nonqualified
Stock Option; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(i) "Director" shall mean a member of the Board.
(j) "Disability" shall mean total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" shall mean any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary. Neither the
payment of a director's fee by the Company nor service as a Director shall be
sufficient to constitute "employment" by the Company.
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(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National Market
or the Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system for the last market trading
day prior to the time of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonqualified Stock Option" shall mean an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(p) "Notice of Grant" shall mean a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(q) "Officer" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the Plan.
(s) "Option Agreement" shall mean a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1998 Stock Incentive Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "Sale" or "Sold" shall include, with respect to the sale of
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares for consideration in the form of past or
future services.
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(z) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(aa) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section of the
Plan, the maximum aggregate number of Shares which may be optioned and/or Sold
under the Plan is 750,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers Subject to
Section 16(b). With respect to Option grants made to Employees who are
also Officers or Directors subject to Section 16(b) of the Exchange Act,
the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted to comply with the rules, if any, governing a plan intended to
qualify as a discretionary plan under Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members, remove members
(with or without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the rules, if any,
governing a plan intended to qualify as a discretionary plan under Rule
16b-3. With respect to persons subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan or
action by the Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Administrator.
(iii) Administration With Respect to Other Persons. With respect to
Option grants made to Employees or Consultants who are neither Directors
nor Officers of the Company, the Plan shall be administered by the Board or
a Committee designated by the Board, which Committee shall be constituted
to satisfy the legal requirements relating to the administration of stock
option plans under applicable corporate and securities laws and the Code.
Once appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws and the Code.
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(b)Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to grant Incentive Stock Options in accordance with Section 422
of the Code, or Nonqualified Stock Options;
(ii) to authorize Sales of Shares of Common Stock hereunder;
(iii) to determine, upon review of relevant information, the Fair
Market Value of the Common Stock;
(iv) to determine the exercise/purchase price per Share of Options to
be granted or Shares to be Sold, which exercise/purchase price shall be
determined in accordance with Section 8.a of the Plan;
(v) to determine the Employees or Consultants to whom, and the time
or times at which, Options shall be granted and the number of Shares to be
represented by each Option;
(vi) to determine the Employees or Consultants to whom, and the time
or times at which, Shares shall be Sold and the number of Shares to be
Sold;
(vii) to interpret the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating
to the Plan;
(ix) to determine the terms and provisions of each Option granted
(which need not be identical) and, with the consent of the holder thereof,
modify or amend each Option;
(x) to determine the terms and provisions of each Sale of Shares
(which need not be identical) and, with the consent of the purchaser
thereof, modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option;
(xii) to accelerate or defer (with the consent of the Optionee or
purchaser of Shares) the vesting restrictions applicable to Shares Sold
under the Plan or pursuant to Options granted under the Plan;
(xiii) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option or Sale of
Shares previously granted or authorized by the Board;
(xiv) to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to Shares
issued under the Plan;
(xv) to effect, at any time and from time to time, with the consent
of the affected Optionees, the cancellation of any or all outstanding
Options under the Plan and to grant in substitution therefor new Options
under the Plan covering the same or different numbers of Shares, but having
an Option price per Share consistent with the provisions of Section 8 of
this Plan as of the date of the new Option grant;
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(xvi) to establish, on a case-by-case basis, different terms and
conditions pertaining to exercise or vesting rights upon termination of
employment, whether at the time of an Option grant or Sale of Shares, or
thereafter;
(xvii) to approve forms of agreement for use under the Plan;
(xviii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(xix) to determine whether and under what circumstances an Option may
be settled in cash under subsection 9(f) instead of Common Stock; and
(xx) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan or Shares Sold under
the Plan.
5. Eligibility.
(a) Persons Eligible. Options may be granted and/or Shares Sold only to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he or she is otherwise eligible, be granted an additional Option
or Options or Sold additional Shares.
(b) ISO Limitation. To the extent that the aggregate Fair Market Value of
Shares subject to an Optionee's Incentive Stock Options granted by the Company,
any Parent or Subsidiary, which (ii) become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(c) Section 5.(b) Limitations. Section 5.b of the Plan shall apply only
to an Incentive Stock Option evidenced by an Option Agreement which sets forth
the intention of the Company and the Optionee that such Option shall qualify as
an Incentive Stock Option. Section 5.b of the Plan shall not apply to any
Option evidenced by a Option Agreement which sets forth the intention of the
Company and the Optionee that such Option shall be a Nonqualified Stock Option.
(d) No Right to Continued Employment. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.
(e) Other Limitations. The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional 100,000 Shares which
shall not count against the limit set forth in subsection (i) above.
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(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option shall be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if
the exercise price of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur of
its adoption by the Board or its approval by the shareholders of the Company as
described in Section 17 of the Plan. It shall continue in effect for a term of
ten (10) years, unless sooner terminated under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Notice of
Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Notice of Grant.
8. Exercise/Purchase Price and Consideration.
(a) Exercise/Purchase Price. The per-Share exercise/purchase price for
the Shares to be issued pursuant to exercise of an Option or a Sale shall be
such price as is determined by the Administrator, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of the grant.
(B) granted to any other Employee, the per Share exercise price shall
be no less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale, the per
Share exercise/purchase price shall be determined by the Administrator.
(iii) Any determination to establish an Option exercise price or
effect a Sale of Common Stock at less than Fair Market Value on the date of
the Option grant or authorization of Sale shall be accompanied by an
express finding by the Administrator specifying that the sale is in the
best interest of the Company, and specifying both the Fair Market Value and
the Option exercise price or Sale price of the Common Stock.
(b) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Administrator. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist of:
(i) cash;
(ii) check;
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(iii) promissory note;
(iv) transfer to the Company of Shares which
(A) in the case of Shares acquired upon exercise of an Option, have
been owned by the Optionee for more than six months on the date of
surrender, and
(B) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares to be acquired;
(v) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price;
(vi) such other consideration and method of payment for the issuance
of Shares to the extent permitted by legal requirements relating to the
administration of stock option plans and issuances of capital stock under
applicable corporate and securities laws and the Code; or
(vii) any combination of the foregoing methods of payment.
If the Fair Market Value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check. Notwithstanding the
foregoing provisions of this Section 8.(b), the consideration for Shares to be
issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iv) and (v) above.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 8.(b) of the Plan. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements. An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock
represented by such stock certificate, notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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(b) Termination of Employment or Consulting Relationship. In the event
that an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed three (3) months from the date of termination) when the
Option is granted. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option with the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Nontransferability of Options. Except as otherwise specifically provided
in the Option Agreement, an Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will, or by
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by the Optionee or, if incapacitated, by his or her legal
guardian or legal representative.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization: Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or Sales made or which have been returned to the Plan upon cancellation
or expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
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resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each outstanding Option will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Board and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a Parent
or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Administrator makes an Option
fully exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice or such shorter period as the Administrator may specify in the
notice, and the Option will terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable.
(b) Shareholder Approval. The Company shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
shareholder approval,
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if required, shall be obtained in such a manner and to such a degree as is
required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted, and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option or a Sale unless the exercise of such Option or
consummation of the Sale and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, applicable state securities
laws, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange (including NASDAQ) upon which the Shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
15. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Liability of Company.
(a) Inability to Obtain Authority. Inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 13 of the Plan.
17. Shareholder Approval. Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law.
10
<PAGE>
APPENDIX B
AMENDMENT TO FIFTH RESTATED ARTICLES OF INCORPORATION
OF ADAPTIVE SOLUTIONS, INC.
Article II of the Fifth Restated Articles of Incorporation is amended to add a
new paragraph C.4. thereto as follows:
4. On the effective date of this Amendment to the Fifth Restated Articles of
Incorporation, each issued and outstanding share of Common Stock shall be
combined and reconstituted as 0.20 shares. Any fractional shares resulting from
this reverse stock split (after aggregating all shares held by each holder)
shall be rounded up to the next whole share.
1
<PAGE>
ADAPTIVE SOLUTIONS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 22, 1998
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated March 20, 1998 and
hereby names, constitutes and appoints Mr. Daniel J. Meub with full power of
substitution, my true and lawful attorney and Proxy for me and in my place
and stead to attend the Annual Meeting of the Shareholders of Adaptive
Solutions, Inc. (the "Company") to be held at 8:30 a.m. on Wednesday, April
22, 1998 and at any adjournments thereof, and to vote all the shares of
Common Stock held of record in the name of the undersigned on March 18, 1998,
with all the powers that the undersigned would possess if he were personally
present.
<PAGE>
/X/ Please mark your
votes as in this
example using dark
ink only.
FOR ALL NOMINEES WITHHOLD AUTHORITY
LISTED BELOW (except as (to vote for all
marked to the contrary below) nominees listed below)
1. PROPOSAL 1
Election of / / / /
directors
(Instructions: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
C. SCOTT GIBSON FREDERICK M. HANEY, PH.D. DANIEL J. MEUB
JEAN-CLAUDE PETERSCHMITT T. PETER THOMAS DAVID WOOD
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
NAMED ABOVE.
FOR AGAINST ABSTAIN
2. PROPOSAL 2-To ratify the appointment of KPMG
Peat Marwick LLP as the Company's independent / / / / / /
auditors for the fiscal year ending December 31,
1998
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 2
3. PROPOSAL 3-To approve the Company's 1998 Stock Incentive
Plan. / / / / / /
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 3.
4. PROPOSAL 4-To approve a one-for-five reverse
split of the Company's Common Stock. / / / / / /
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 4.
5. Upon such other matters as may properly come
before, or incident to the conduct of the annual / / / / / /
meeting, the Proxy holders shall vote in such
manner as they determine to be in the best
interests of the Company. The Company is not
presently aware of any such matters to be
presented for action at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. IF NO
SPECIFIC DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE
VOTED FOR THE SIX NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2, 3 AND 4.
I do / / do not / / plan to attend the meeting. (Please check)
Dated __________________
Shareholder (print name)____________ Shareholder (sign name) _______________
The shareholder signed above reserves the right to revoke this Proxy at any
time prior to its exercise by written notice delivered to the Company's
Secretary at the Company's corporate offices, 1400 NW Compton Drive, Suite
340, Beaverton, Oregon, 97006, prior to the annual meeting. The power of the
Proxy holders shall also be suspended if the shareholder signed above appears
at the annual meeting and elects in writing to vote in person.
