<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICRO LINEAR CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(1)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_____________________________________________
(2) Form, Schedule, or Registration Statement No.:______________________
(3) Filing Party:_______________________________________________________
(4) Date Filed:_________________________________________________________
<PAGE> 2
[MICRO LINEAR LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Micro
Linear Corporation, a Delaware corporation (the "Company"), will be held on
Wednesday, June 3, 1998, at 11:00 a.m., local time, at the offices of Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California,
legal counsel to the Company, for the following purposes:
1. To elect five directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To amend the Company's 1994 Director Option Plan to increase the number of
shares reserved for issuance thereunder by 100,000 shares to an aggregate
of 180,000 shares.
3. To ratify the appointment of Price Waterhouse, LLP as independent auditors
for the Company for the 1998 fiscal year.
4. 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 stockholders of record at the close of business on April 6, 1998 are
entitled to notice of and to vote at the meeting. All stockholders are cordially
invited to attend the meeting in person. However, to assure your representation
at the meeting, you are urged to mark, sign and return the enclosed proxy as
promptly as possible in the postage-prepaid envelope enclosed for that purpose.
Any stockholder attending the meeting may vote in person even if such
stockholder has returned a proxy.
FOR THE BOARD OF DIRECTORS
Jeffrey D. Saper
Secretary
San Jose, California
May 5,1998
IMPORTANT: Whether or not you plan to attend the meeting, you are requested to
complete and promptly return the enclosed proxy in the envelope provided.
<PAGE> 3
MICRO LINEAR CORPORATION
2092 CONCOURSE DRIVE
SAN JOSE, CALIFORNIA 95131
----------------------------
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
----------------------------
The enclosed Proxy is solicited on behalf of the Board of Directors of
Micro Linear Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held on Wednesday, June 3, 1998, at 11:00 a.m., local time,
or at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill
Road, Palo Alto, California, legal counsel to the Company.
The proxy solicitation materials were mailed on or about May 5, 1998 to
all stockholders of record on April 6, 1998.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to the Secretary of the Company
at the above address of the Company, written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Proxies properly executed, duly returned to the Company and not revoked,
will be voted in accordance with the specifications made. Where no
specifications are given, such proxies will be voted as the management of the
Company may propose. If any matter not described in this Proxy Statement is
properly presented for action at the meeting, the persons named in the enclosed
form of proxy will have discretionary authority to vote according to their best
judgment.
Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the meeting. The required quorum for the transaction of
business at the Annual Meeting is a majority of the votes eligible to be cast by
holders of shares of Common Stock issued and outstanding on the Record Date.
Shares that are voted "FOR," "AGAINST," "WITHHELD" or "ABSTAIN" are treated as
being present at the meeting for purposes of establishing a quorum and are also
treated as shares entitled to vote at the Annual Meeting (the "Votes Cast") with
respect to such matter. Abstentions will have the same effect as a vote against
a proposal. Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but such
non-votes will not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which a broker has expressly not
voted. Thus, a broker non- vote will not affect the outcome of the voting on a
proposal.
The cost of soliciting proxies will be borne by the Company. The Company
may also reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers, and employees, without additional compensation, personally
or by telephone or telegram.
<PAGE> 4
STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals which they believe should
be voted upon at the Annual Meeting or nominate persons for election to the
Board of Directors. In accordance with the Company's Bylaws, any such proposal
or nomination must be submitted in writing to the Secretary of the Company not
less than 120 days prior to the first anniversary of the preceding year's Annual
Meeting of stockholders. This submission must include certain specified
information concerning the proposal or nominee, as the case may be, and
information as to the proponent's ownership of Common Stock of the Company.
Proposals or nominations not meeting these requirements will not be entertained
at the Annual Meeting. The Secretary should be contacted in writing at the
address on the first page of this Proxy Statement to make any submission or to
obtain additional information as to the proper form and content of submissions.
Pursuant to applicable rules under the Securities Exchange Act of 1934,
some stockholder proposals may be eligible for inclusion in the Company's 1999
Proxy Statement. Any such stockholder proposals must be submitted in writing to
the Secretary of the Company no later than January 5, 1999. Stockholders
interested in submitting such a proposal are advised to contact knowledgeable
counsel with regards to the detailed requirements of such securities rules.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on April 6, 1998 are
entitled to notice of the meeting and to vote at the meeting. At the record
date, 11,623,692 shares of the Company's Common Stock, $0.001 par value per
share, were issued, outstanding and eligible to be voted at the meeting. The
following table sets forth the beneficial ownership of the Company's Common
Stock as of April 6, 1998 by the holders of more than five percent of the
Company's outstanding Common Stock:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL
---- --------- ----------
<S> <C> <C>
FMR Corp.(1)............................................................ 1,192,000 10.3%
82 Devonshire Street
Boston, MA 02109
Arthur B. Stabenow(2)................................................... 804,824 6.8
2092 Concourse Drive
San Jose, California 95131
</TABLE>
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(1) Based solely on information contained in a Schedule 13D filed with the
Securities and Exchange Commission on February 10, 1998.
(2) Includes 144,250 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998. Also
includes 1,300 shares held by Mr. Stabenow's wife.
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<PAGE> 5
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company. If 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 the nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each person
elected as a director will continue until the next Annual Meeting or until a
successor has been elected and qualified.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The five candidates receiving the highest number of "FOR" votes shall be
elected to the Company's Board of Directors. An abstention will have the same
effect as a vote withheld for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE NOMINEES
LISTED BELOW:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
<S> <C> <C>
Arthur B. Stabenow............... 59 Chairman of the Board of Directors, President and Chief
Executive Officer of the Company
Roger A. Smullen................. 61 Chairman of the Board of Directors, Applied Micro
Circuits Corporation
Jeffrey D. West.................. 48 Owner, Miramar Ventures
Joseph D. Rizzi.................. 55 General Partner, Matrix Partners
David L. Gellatly................ 55 Owner, New Technology Marketing
</TABLE>
Except as set forth below, each nominee has been engaged in his principal
occupation described above during the past five years. There is no family
relationship among any directors or executive officers of the Company.
Mr. Stabenow has served as Chief Executive Officer and a director of the
Company since April 1986 and has served as Chairman of the Board since August
1989. He also served as President of the Company from April 1986 to January 1996
and has served in such capacity since May 1996. Mr. Stabenow has over 35 years
of experience in the semiconductor industry. From January 1979 to March 1986,
Mr. Stabenow was employed as a Vice President and General Manager at National
Semiconductor Corporation. Mr. Stabenow received his M.B.A. degree at the
University of New Haven. Mr. Stabenow also serves as a member of the board of
directors of Zoran Corporation, a semiconductor manufacturer, and Applied Micro
Circuits Corporation ("AMCC"), a manufacturer of integrated circuits.
Mr. Smullen has been a director of the Company since April 1986. Since
August 1989, Mr. Smullen has been Chairman of the Board of AMCC. From September
1994 to December 1995, Mr. Smullen was President and Chief Executive Officer of
Advance Systems Products, Inc. ("AdvanSys"), a provider of computer add-in
cards. From March 1988 to June 1990, Mr. Smullen was President and Chief
Executive Officer of Plus Logic Corporation, a semiconductor manufacturer, and
from 1983 to 1987, was Chief Executive Officer of AMCC.
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<PAGE> 6
Mr. West has been a director of the Company since October 1983. Since
1986, Mr. West has operated Miramar Ventures, a private consulting firm. Prior
to 1986, Mr. West was a general partner of Oak Investment Partners, a venture
capital investment firm.
Mr. Rizzi has been a director of the Company since January 1997. Since
March 1986 Mr. Rizzi has served as a general partner of Matrix Partners, a
venture capital firm. Mr. Rizzi also serves as a member of the board of
directors of Veritas Software Corp., a developer of storage management software,
Sandisk Corporation, a manufacturer of data, image and audio storage products,
and Overland Data, Inc., a developer of magnetic tape data storage systems.
Mr. Gellatly has been a director of the Company since December 1997. Since
1982, Mr. Gellatly has been the owner of New Technology Marketing, a marketing
consulting firm.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held six meetings during fiscal
1997.
The Audit Committee, which in fiscal 1997 consisted of Messrs. West and
Smullen, held two meetings during fiscal 1997. The Audit Committee, which
currently consists of Messrs. Smullen and Gellatly, reviews the financial
statements and the internal financial reporting system and controls of the
Company with the Company's management and independent auditors, recommends
resolutions for any dispute between the Company's management and its auditors,
and reviews other matters relating to the relationship of the Company with its
auditors.
The Compensation Committee, which in fiscal 1997 consisted of Messrs.
Smullen and West, held five meetings during fiscal 1997. The Compensation
Committee, which currently consists of Messrs. Rizzi and West, makes
recommendations to the Board of Directors regarding the Company's executive
compensation policies and administers the Company's stock option plans and
employee stock purchase plan.
The Board of Directors has a Stock Option Approval Committee, currently
consisting of Mr. Stabenow, which has the authority to grant options under the
Company's stock option plans to eligible persons who are not subject to
liability under Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Committee may not grant an option to purchase more
than 30,000 shares of Common Stock to any one person.
The Board of Directors currently has no nominating committee or committee
performing a similar function.
With the exception of Mr. Rizzi, who attended 50% of the meetings of the
Board of Directors, each director attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors held during fiscal 1997
and (ii) the total number of meetings held by all committees of the Board of
Directors during fiscal 1997 on which such director served.
COMPENSATION OF DIRECTORS
Directors receive no cash remuneration for serving on the Board of
Directors. Non-employee directors participate in Company's 1994 Director Option
Plan (the "Director Plan"). Under the Director Plan, prior to certain amendments
of the Director Plan in April 1997, each non-employee director who joined the
Board was automatically granted a nonstatutory option to purchase 8,000 shares
of Common Stock on the date upon which such person first became a director (the
"Initial Grant"). In addition, each non-employee director automatically received
a nonstatutory option to purchase 4,800 shares of Common Stock upon such
director's annual re-election to the Board, provided the director has been a
member of the Board for at least six months upon the date of re-election (the
"Annual Grant"). In April 1997, the Board of Directors amended the Director Plan
to increase the Initial Grant to 10,000 shares and the Annual Grant to 7,000
shares. The exercise price of each option granted under the Director Plan must
be equal to the fair
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<PAGE> 7
market value of the Common Stock on the date of grant. The Initial Grant vests
at the rate of twenty-five percent (25%) of the option shares upon the first and
second anniversaries of the date of grant and 1/48th of the option shares per
month thereafter and the Annual Grant vests monthly over a twelve month period.
Options granted under the Director Plan have a term of ten years unless
terminated sooner, whether upon termination of the optionee's status as a
director or otherwise pursuant to the Director Plan. Mr. Gellalty received an
Initial Grant of 10,000 shares at an exercise price of $7.031 per share on
December 16, 1997, and Messrs. Smullen, West and Rizzi each received an Annual
Grant of 7,000 shares at an exercise price of $18.375 per share on May 28, 1997.
-5-
<PAGE> 8
PROPOSAL TWO
APPROVAL OF AMENDMENT TO 1994 DIRECTOR OPTION PLAN
The Company's 1994 Director Option Plan (the "Director Plan") provides for
the granting of nonstatutory stock options to nonemployee directors of the
Company. A total of 80,000 shares of Common Stock are presently reserved for
issuance pursuant to the Director Plan. As of April 6, 1998, an aggregate of
14,000 shares were available for future grant under the Director Plan. In April
1998, the Board amended the Director Plan, subject to stockholder approval, to
increase shares reserved for issuance from 80,000 to 180,000. The stockholders
are being asked to approve this share increase at the Annual Meeting. The
principal features of the Director Plan are described below.
GENERAL
The Director Plan authorizes the Board to grant nonstatutory stock options
to nonemployee directors of the Company.
PURPOSE
The purpose of the Director Plan is to attract and retain the best
available personnel to serve as outside directors of the Company.
ADMINISTRATION
The Director Plan is administered by the Board. However, all options
granted under the Director Plan are automatic and non-discretionary. Upon
re-election to the Board at the Annual Meeting of stockholders each year during
the term of the Director Plan, each outside director will automatically receive
an option to purchase 7,000 shares (the "Annual Grant"). Additionally, each new
outside director will automatically be granted an option to purchase 10,000
shares upon the date on which such person becomes a director (the "Initial
Grant").
The Board has the authority to: (i) determine the fair market value of the
Common Stock in accordance with the terms of the Director Plan; (ii) interpret
the Director Plan; (iii) prescribe, amend and rescind rules and regulations
relating to the Director Plan; (iv) authorize any person to execute, on behalf
of the Company, any instrument required to effectuate the grant of an option
previously granted under the Director Plan; and (v) make all other
determinations deemed necessary or advisable for the administration of the
Director Plan. All decisions, determinations and interpretations of the Board
shall be final.
ELIGIBILITY
The Director Plan provides that options may be granted only to the
Company's outside directors.
TERMS AND CONDITIONS
Each option granted under the Director Plan is evidenced by a written
stock option agreement between the optionee and the Company and is subject to
the following terms and conditions:
(a) Exercise Price. The price to be paid for shares of Common
Stock upon the exercise of an option granted under the Director Plan shall be
100% of the fair market value of the Common Stock on the date the option is
granted. If the Common Stock is listed on any established stock exchange or a
national market system, the fair market value shall be the closing sale price
for such stock (or the closing bid if no sales were reported) on the date the
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<PAGE> 9
option is granted. If the Common Stock is traded on the over-the-counter market,
the fair market value shall be the mean of the high bid and low asked prices on
the date the option is granted.
(b) Form of Consideration. The consideration to be paid for the
shares of Common Stock issued upon exercise of an option shall be determined by
the Board. Such form of consideration may vary for each option, and may consist
entirely of cash, check, 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
or any combination thereof.
(c) Exercise of the Option. Annual Grants under the Director Plan
will become exercisable in installments cumulatively as to 1/12th of the shares
of Common Stock subject to the Annual Grants at the end of each month following
the date of grant. Initial Grants under the Director Plan will become
exercisable in installments cumulatively as to 25% of the shares of Common Stock
subject to the Initial Grants one year after the date of grant, an additional
25% two years after the date of grant, and an additional 1/48th of the shares at
the end of each month thereafter. In no event may an option granted under the
Director Plan be exercised more than ten years after the date of grant. An
option granted under the Director Plan is not exercisable for a fraction of a
share. An option is exercised by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased and by
tendering full payment of the purchase price.
(d) Termination of Status as a Director. If the optionee's status
as a director terminates for any reason (other than death or permanent
disability), then all options held by such optionee under the Director Plan
expire upon the earlier of (i) three months after such termination or (ii) the
expiration date of the option. The optionee may exercise all or part of his or
her option at any time before such expiration to the extent that such option was
exercisable as of the date of termination of the optionee's status as a
director.
(e) Permanent Disability. If the optionee's status as a director
terminates as a result of total and permanent disability (as defined in the
Code), then all options held by such optionee under the Director Plan shall
expire upon the earlier of (i) twelve months after the date of such termination
or (ii) the expiration date of the option. The optionee may exercise all or part
of his or her option at any time before such expiration to the extent that such
option was exercisable at the time of termination of the optionee's status as a
director.
(f) Death. If an optionee dies while serving as a director of the
Company, the director's options under the Director Plan shall expire upon the
earlier of (i) twelve months after his or her death or (ii) the expiration date
of the option. The executor or legal representative of the optionee may exercise
all or part of the optionee's option at any time before such expiration to the
extent that such option was exercisable at the time of the optionee's death.
(g) Nontransferability of Options. An option is nontransferable by
the optionee, other than by will or the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee. In the event of
the optionee's death, options held by the optionee may be exercised by a person
who acquires the right to exercise the option by bequest or inheritance.
(h) Other Provisions. The stock option agreement may contain such
terms, provisions and conditions not inconsistent with the Director Plan as may
be determined by the Board.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS
In the event that the stock of the Company is changed by reason of any
stock split, reverse stock split, stock dividend, recapitalization or other
change in the capital structure of the Company or converted into or exchanged
for other securities as a result of any merger, consolidation or reorganization,
appropriate proportional adjustments shall be made in the number and class of
shares of stock subject to the Director Plan, the number and class of shares of
stock
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<PAGE> 10
subject to any option outstanding under the Director Plan, and the exercise
price of any such outstanding option; provided, however, that the Company shall
not be required to issue fractional shares as a result of such adjustment. Any
such adjustment shall be made upon approval of the Board whose determination
shall be conclusive. Notwithstanding the above, in connection with any merger,
consolidation, acquisition of assets or like occurrence involving the Company,
each option may be assumed or an equivalent option substituted by a successor
corporation. If the successor corporation does not assume the options or
substitute substantially equivalent options, then the options shall become null
and void upon consummation of the merger or transaction provided that the
optionee shall be given notice of the transaction and have thirty days from the
date such notice is sent to exercise all unexpired options and, if as a result
of the transaction the Company is not the surviving entity, the optionee may
exercise all options not otherwise exercisable.
AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN
The Board may amend, alter, suspend or discontinue the Director Plan;
provided, however, that such action shall not impair the rights of any optionee
under the Director Plan without the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
All options granted under the Director Plan are nonstatutory options. An
optionee who is granted a nonstatutory stock option will not recognize any
taxable income at the time he or she is granted a nonstatutory option. However,
upon its exercise, the optionee will recognize taxable income generally measured
by the excess of the then fair market value of the shares purchased over the
purchase price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company. The Company will be entitled to a deduction
in the same amount as ordinary income recognized by the employee. Upon sale of
such shares by the optionee, any difference between the sales price and the
optionee's purchase price, to the extent not recognized as taxable income as
provided above, will be treated as long-term or short-term capital gain or loss,
depending on the holding period.
DIRECTOR PLAN BENEFITS
Only non-employee directors of the Company are eligible to receive grants
under the Director Plan. During fiscal 1998, each non-employee director will
automatically receive an option to purchase 7,000 shares of Common Stock on the
date of the Annual Meeting of Stockholders at the fair market value of the
Common Stock on such date.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the Director Plan requires the
affirmative vote of a majority of the Votes Cast on the proposal at the Annual
Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE DIRECTOR
PLAN AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
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<PAGE> 11
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse, LLP, independent
auditors, to audit the financial statements of the Company for the 1998 fiscal
year. This nomination is being presented to the stockholders for ratification at
the meeting. Price Waterhouse has served as the Company's independent auditors
since March 1997. A representative of Price Waterhouse is expected to be present
at the meeting, will have the opportunity to make a statement, and is expected
to be available to respond to appropriate questions.
Ernst & Young LLP had served as the Company's independent auditors from
the Company's inception until the Board of Directors' decision to engage Price
Waterhouse in March 1997. The report of Ernst & Young LLP on the Company's
financial statements for fiscal years 1995 and 1996 contained no adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During such fiscal years and during the
subsequent interim period ending March 28, 1997, there were no disagreements
with Ernst & Young on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, nor did Ernst &
Young advise the Company of any concern or circumstance relating to any such
matter. In addition, the Company has had no dispute with Ernst & Young relating
to its fees for services. The change in accountants was approved by the Board of
Directors. During fiscal years 1995 and 1996 and through March 28, 1997, the
Company did not consult with Price Waterhouse, LLP on any accounting or
financial reporting matters.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at
the Annual Meeting is required to ratify the Board's selection. If the
stockholders reject the nomination, the Board will reconsider its selection.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 1998 FISCAL YEAR.
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<PAGE> 12
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 6, 1998 (i) by each director of the Company, (ii) by
the Company's Chief Executive Officer, the four other most highly compensated
executive officers employed by the Company at the end of fiscal year 1997 and
one individual who would have been one of the Company's four most highly paid
executive officers but for the fact that he was not serving as an executive
officer at the end of fiscal year 1997 (such officers are collectively referred
to as the "Named Executive Officers") and (iii) by all current directors and
executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL
---- --------- ----------
<S> <C> <C>
Arthur B. Stabenow(1)................................................... 804,824 6.8%
Paul E. Standish(2)..................................................... 196,505 1.7
J. Philip Russell(3).................................................... 46,674 *
Chris Ladas(4).......................................................... 54,725 *
Ray Reed(5)............................................................. 47,933 *
Jeffrey D. West(6)...................................................... 95,448 *
Roger A. Smullen(7)..................................................... 69,800 *
Joseph D. Rizzi(8)...................................................... 17,600 *
David L. Gellalty....................................................... --- *
Robert Whelton.......................................................... 143 *
All officers and directors as a group (11 persons) (9).................. 1,414,463 11.7
</TABLE>
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* Less than 1%.
(1) Includes 144,250 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998. Also
includes 1,300 shares held by Mr. Stabenow's wife.
(2) Includes 188,667 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(3) Includes 20,667 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(4) Includes 40,000 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(5) Includes 40,000 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(6) Includes 21,400 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(7) Includes 31,400 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
(8) Includes 9,000 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
-10-
<PAGE> 13
(9) Includes 556,157 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of April 6, 1998.
-11-
<PAGE> 14
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation paid to
the Named Executive Officers during the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
----------------------------------- ------------
STOCK OPTION
FISCAL GRANTS(2) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION(3)
--------------------------- ------ ------ ----- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Arthur B. Stabenow................ 1997 $330,006 $215,000 60,000 $ 39,573
Chief Executive Officer 1996 330,006 137,445 60,000 72,823
1995 310,442 104,000 60,000 11,132
Chris Ladas....................... 1997 213,065 38,425 30,000 31,846(5)
Vice President, Operations 1996 192,315(4) 20,680 20,000 10,141
Paul E. Standish.................. 1997 185,007 42,643 30,000 6,334
Vice President, Marketing and 1996 185,007 30,290 20,000 6,151
Applications 1995 163,536 25,875 20,000 5,012
J. Philip Russell................. 1997 174,999 42,100 30,000 6,843
Vice President, Finance and 1996 174,999 25,300 20,000 6,311
Administration 1995 152,744 21,000 20,000 6,013
Robert Whelton (6)................ 1997 204,681 40,125 45,000 1,329
1996 45,695 15,000 100,000 5,410
Ray Reed.......................... 1997 175,700 37,470 30,000 5,682
Vice President, Business 1996 153,857(7) 22,650 80,000 5,647
Development
</TABLE>
- ----------------------
(1) Excludes certain perquisites and other amounts which in the aggregate do
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for each such executive officer.
(2) In January 1998, the Company's Board of Directors approved an option
exchange program whereby all employees, other than Mr. Stabenow, that held
options with exercise prices in excess of $7.50 per share were offered the
opportunity to exchange such options for new options at $7.375 per share,
which was the fair market value of the Common Stock on the date of the
exchange program. In order to participate in the option exchange program,
employees were required to restart the vesting period for their options
such that the vesting commencement date would be January 27, 1998.
(3) Represents premiums paid by the Company for long term disability insurance
and life insurance for each of the Named Executive Officers and tax return
preparation fees for certain Named Executive Officers. Also includes, with
respect to Mr. Stabenow, reimbursement of approximately $25,000 and
$53,000 for certain personal travel expenses in fiscal 1997 and 1996,
respectively.
(4) Mr. Ladas joined the Company in January 1996.
-12-
<PAGE> 15
(5) In fiscal 1997, Mr. Ladas earned approximately $22,000 of a payment being
made in connection with his relocation in fiscal 1996.
(6) Mr. Whelton joined the Company in September 1996 and left the Company in
December 1997.
(7) Mr. Reed joined the Company in January 1996.
OPTION INFORMATION
The following tables set forth information regarding stock options granted
to the Named Executive Officers during fiscal 1997, as well as options held by
such officers as of December 28, 1997, the last day of the Company's 1997 fiscal
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUES AT
INDIVIDUAL GRANTS(1)(2) ASSUMED ANNUAL RATES OF
---------------------------------------------- STOCK PRICE APPRECIATION
% OF TOTAL EXERCISE (THROUGH EXPIRATION DATE)(3)
OPTION OPTIONS PRICE EXPIRATION ------------------------------
NAME GRANTS GRANTED ($/SH) DATE 5% 10%
---- ------ --------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arthur B. Stabenow........ 60,000 9.2% $11.625 1/27/07 $424,504 $1,111,635
Chris Ladas............... 30,000 4.6 11.625 1/27/07 219,327 555,818
Paul E. Standish.......... 30,000 4.6 11.625 1/27/07 219,327 555,818
J. Philip Russell......... 30,000 4.6 11.625 1/27/07 219,327 555,818
Robert Whelton............ 45,000 6.9 11.625 1/27/07 328,990 833,726
Ray Reed.................. 30,000 4.6 11.625 1/27/07 219,327 555,818
</TABLE>
- ----------------------
(1) All options were granted under the Company's 1991 Stock Option Plan (the
"Option Plan") and are subject to the terms of such plan. Options vest
cumulatively to the extent of 25% of the shares subject to the option on
the first anniversary of the date of grant, an additional 25% of the
shares subject to the option on the second anniversary of the date of
grant, and an additional 1/48th of the shares subject to the option at the
end of each one-month period thereafter.
(2) In January 1998, the Company's Board of Directors approved an option
exchange program whereby all employees , other than Mr. Stabenow, that
held options with exercise prices in excess of $7.50 per share were
offered the opportunity to exchange such options for new options at $7.375
per share, which was the fair market value of the Common Stock on the date
of the exchange program. In order to participate in the option exchange
program, employees were required to restart the vesting period for their
options such that the vesting commencement date would be January 27, 1998.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or
projection of future prices for the Company's Common Stock.
-13-
<PAGE> 16
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED OPTIONS UNEXERCISED OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
SHARES VALUE -------------------- ----------------------
NAME EXERCISED REALIZED VESTED UNVESTED VESTED UNVESTED
---- --------- -------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arthur B. Stabenow......... 12,000 $ 69,768 123,000 125,000 $353,479 $36,585
Chris Ladas................ --- --- 20,000 90,000 4,065 12,195
Paul E. Standish........... --- --- 174,000 76,000 957,397 12,195
J. Philip Russell.......... 9,500 150,813 32,500 68,000 58,699 134,858
Robert Whelton............. --- --- 25,000 --- 4,700 ---
Ray Reed................... --- --- 20,000 90,000 4,065 12,195
</TABLE>
- ----------------------
(1) Represents the difference between the exercise price of the options and
the closing price of the Company's Common Stock on December 24, 1997 of
$7.188 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997 the Compensation Committee of the Board of Directors
consisted of Messrs. Smullen and West, neither of whom is an officer or employee
of the Company. No member of the Compensation Committee or executive officer of
the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity. On December
16, 1997, Mr. Smullen was hired as a consultant to perform the duties of an
Acting Executive Vice President. In connection with Mr. Smullen's consulting
service to the Company, the Company granted Mr. Smullen a nonstatutory stock
option under the Option Plan to purchase 10,000 shares of the Company's Common
Stock at an exercise price of $7.031 per share, which option is fully vested and
exercisable. In 1997 and 1998, Mr. Smullen received $5,880 and $23,820,
respectively, from the Company as cash compensation for consulting services.
This consulting arrangement was mutually terminated in March 1998. Mr. Rizzi
replaced Mr. Smullen on the Compensation Committee on December 16, 1997.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
During fiscal 1997 the members of the Compensation Committee of the Board
of Directors were Messrs. Smullen and West, each of whom is a non-employee
director. In December 1997, Mr. Rizzi replaced Mr. Smullen on the Compensation
Committee of the Board of Directors. The Compensation Committee sets, reviews
and administers the executive compensation program of the Company. The role of
the Compensation Committee is to establish and recommend salaries and other
compensation paid to executive officers of the Company and to administer the
Company's stock option plans and employee stock purchase plan. The Company's
Board of Directors reviews and approves all stock option grants to employees
(other than grants made by the Stock Option Approval Committee) and all
executive officer base salaries and cash bonus payments.
Compensation Philosophy. The Company's compensation philosophy is that
cash compensation must (a) be competitive with other semiconductor companies of
comparable size in order to help motivate and retain existing staff and (b)
provide a strong incentive to achieve specific Company goals. The Company
believes that the use of stock options as a long-term incentive links the
interests of the employees to that of the stockholders and motivates key
employees to stay with the Company to a degree that is critical to the Company's
long-term success.
Components of Executive Compensation. The principal cash components of
executive compensation are base salary and cash bonuses. The equity component
consists of stock options.
-14-
<PAGE> 17
Base salary is set for executives commensurate with each officer's level
of responsibility and within the parameters of companies of comparable size
within the Company's industry. The Compensation Committee conducts an annual
survey of companies in the Company's industry to determine whether the Company's
executive base compensation is within the competitive range. In 1997, the
Compensation Committee determined that executive officer salaries should be
reviewed on a calendar-year basis. During 1997, executive officer base monthly
salaries were not increased from the base monthly salaries for the second half
of fiscal 1996. The base monthly salary for the Chief Executive Officer was not
raised in fiscal 1997, compared to the second half of fiscal 1996. The Chief
Executive Officer's aggregate base compensation in fiscal 1997 was $330,006.
It is the policy of the Company that variable, at-risk bonus compensation
should comprise a meaningful portion of the annual executive compensation and
should be determined by the performance of each executive officer, based on
stated individual goals and the overall earnings performance of the Company. For
each executive officer, a target bonus award is established each fiscal quarter.
The actual bonus award for executive officers, other than Mr. Stabenow, is
determined by the Chief Executive Officer, with review by the Compensation
Committee, and paid quarterly. For Mr. Stabenow, the actual bonus payment is
determined by the Compensation Committee, and paid on a semi-annual basis.
During fiscal 1997, the target quarterly bonus for executive officers ranged
from $15,000 to $18,750, and the semi-annual target bonuses for Mr. Stabenow
were $150,000 for both the first and second halves of fiscal 1997. For 1997, the
amount of annual bonus award paid to the Chief Executive Officer was $215,000.
Stock options are generally granted when an executive joins the Company
and on an annual basis thereafter. The options granted to each executive vest
over a four or five year period. In addition to the stock option program,
executives are eligible to participate in the Company's 1994 Employee Stock
Purchase Plan (the "Purchase Plan") pursuant to which stock may be purchased at
85% of the lower of the fair market value at the beginning and end of each
offering period (with the amount of deduction equal to up to a maximum of 10% of
salary).
Other elements of executive compensation include a supplemental life
insurance program, supplemental long-term disability insurance, Company-wide
medical benefits and the ability to defer compensation pursuant to a 401(k)
plan. The Company matches annual contributions under the 401(k) plan up to a
maximum of $2,080.
The Company's Chief Executive Officer does not receive any other special
or additional compensation other than as described herein or in the Summary
Compensation Table.
The Compensation Committee has considered the impact of Section 162(m) of
the Code, and the regulations promulgated thereunder (the "Section"). The
Section disallows a tax deduction for any publicly-held corporation for
individual compensation exceeding $1 million in any taxable year for any of the
Named Executive Officers, unless such compensation is performance-based. Since
the cash compensation of each of the Named Executive Officers is below the $1
million threshold and the Compensation Committee believes that any options
granted under the Option Plan will meet the requirements of being
performance-based, the Compensation Committee believes that the Section to date
has not reduced and in the future will not reduce the tax deduction available to
the Company. The Company's policy is to qualify, to the extent reasonable, its
executive officers' compensation for deductibility under applicable tax laws.
However, the Compensation Committee believes that its primary responsibility is
to provide a compensation program that will attract, retain and reward the
executive talent necessary to the Company's success. Consequently, the
Compensation Committee recognizes that the loss of a tax deduction could be
necessary in some circumstances.
Compensation Committee of the Board of Directors
Roger Smullen
Joseph D. Rizzi*
Jeffrey D. West*
-15-
<PAGE> 18
* Mr. Rizzi replaced Mr. Smullen on the Compensation Committee on December
16, 1997.
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph sets forth the Company's total cumulative stockholder
return as compared to the Standard & Poor's 500 Index and the Standard & Poor's
Semiconductor Index for the period October 13, 1994 (the date of the Company's
initial public offering) through December 31, 1997. Total stockholder return
assumes $100 invested at the beginning of the period in the Common Stock of the
Company, the stocks represented in the Standard & Poor's 500 Index and the
stocks represented in the Standard & Poor's Semiconductor Index, respectively.
Total return also assumes reinvestment of dividends; the Company has paid no
dividends on its Common Stock. Historical stock price performance should not be
relied upon as indicative of future stock price performance.
<TABLE>
<CAPTION>
10/14/94 12/30/94 3/31/95 6/30/95 9/29/95
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
S&P 500 100 98 107 116 125
S&P Semiconductor Index 100 110 127 177 192
Micro Linear Corporation 100 91 127 174 168
12/29/95 3/29/96 6/28/96 9/27/96 12/27/96
-------- ------- ------- ------- --------
S&P 500 131 137 142 145 160
S&P Semiconductor Index 149 93 92 100 129
Micro Linear Corporation 110 98 81 86 87
3/27/97 6/26/97 9/25/97 12/24/97
------- ------- ------- --------
S&P 500 165 188 200 199
S&P Semiconductor Index 296 306 391 285
Micro Linear Corporation 131 110 107 77
</TABLE>
-16-
<PAGE> 19
CERTAIN TRANSACTIONS
On December 16, 1997, Roger Smullen, a director of the Company, was hired
as a consultant to perform the duties of an Acting Executive Vice President. In
connection with Mr. Smullen's consulting service to the Company, the Company
granted Mr. Smullen a nonstatutory stock option under the Company's Option Plan
to purchase 10,000 shares of the Company's Common Stock at an exercise price of
$7.031 per share, which option is fully vested and exercisable. In 1997 and
1998, Mr. Smullen received $5,880 and $23,820, respectively, from the Company as
cash compensation for consulting services. This consulting arrangement was
mutually terminated in March 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of filings under Section 16(a) of the
Exchange Act, received by it, or written representations from certain reporting
persons, the Company believes that during fiscal 1997 all Section 16 filing
requirements were met.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board of Directors of the Company may recommend.
THE BOARD OF DIRECTORS
San Jose, California
May 5, 1998
-17-
<PAGE> 20
MICRO LINEAR CORPORATION
PROXY SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur B. Stabenow and J. Philip Russell,
jointly and severally, proxies with full power of substitution, to vote all
shares of Common Stock of Micro Linear Corporation, a Delaware corporation,
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page
Mill Road, Palo Alto, California, legal counsel to the Company, on June 3, 1998
at 11:00 a.m., local time, or any adjournment thereof. The proxies are being
directed to vote as specified on the reverse side hereof, or, if no
specification is made, FOR the election of directors, FOR the proposal to amend
the Company's 1994 Director Option Plan, FOR the appointment of Price
Waterhouse, LLP as independent auditors and in accordance with their discretion
on such other matters that may properly come before the meeting.
The directors recommend a FOR vote on each item.
(Continued and to be signed on reverse side.)
Please mark your votes as this: [X]
1. Election of Directors:
FOR all nominees listed WITHHOLD AUTHORITY
(except as withheld) to vote for nominees listed
[ ] [ ]
(Instructions: To withhold authority to vote for any individual nominee, strike
that nominees's name below.)
Nominees: Arthur B. Stabenow Roger A. Smullen
Joseph D. Rizzi Jeffrey D. West
David L. Gellatly
2. Proposal to amend the Company's 1994 Director Option Plan to increase the
number of shares reserved for issuance thereunder by 100,000 shares to an
aggregate of 180,000 shares:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of Price Waterhouse, LLP as independent
auditors for the 1998 fiscal year:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE> 21
I plan to attend the Meeting:
Dated:__________________________________
________________________________________
(Signature)
________________________________________
(Signature)
(Signature(s) must be exactly as name(s)
appear on this proxy. (If signing as
attorney, executor, administrator,
trustee, or guardian, please give full
title as such, and, if signing for a
corporation, please give your title.
When shares are in the names of more
than one person, each should sign this
Proxy.)
<PAGE> 22
APPENDIX A
MICRO LINEAR CORPORATION
1994 DIRECTOR OPTION PLAN
(AS AMENDED ON APRIL 28, 1998)
1. Purposes of the Plan. The purposes of this 1994 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Micro Linear Corporation, a California
corporation.
(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, 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 of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the date of
grant, as reported in The Wall Street Journal or such other source as the Board
deems reliable;
<PAGE> 23
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market thereof) or 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 day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means an Outside Director who receives an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1994 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 180,000 Shares (the "Pool") 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 grant under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
-3-
<PAGE> 24
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes a Director, whether through election by the shareholders of
the Company or appointment by the Board to fill a vacancy.
(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 7,000 Shares (a "Subsequent Option") on the date such Outside
Director is reelected to the Board by the shareholders at the Company's annual
meeting of shareholders or otherwise, if on such date, he shall have served on
the Board for at least six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.
(C) the exercise price per Share shall be equal to the
fair market value per Share on the date of grant of the First Option.
(D) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
the first and second anniversaries of its date of grant and as to an additional
1/48th of the Shares subject to the First Option at the end of each month
thereafter.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 8 hereof.
-4-
<PAGE> 25
(C) the exercise price per Share shall be equal to the
fair market value per Share on the date of grant of the Subsequent Option.
(D) the Subsequent Option shall become exercisable as
to 1/12th of the Shares subject to the Subsequent Option at the end of each
month following its date of grant.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. An Outside Director who has been granted an Option may, if he
is otherwise eligible, be granted an additional Option or Options in accordance
with such provisions.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
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 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner term inated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) delivery of a properly executed exercise
notice together with such other documentation as the Company and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
(iv) any combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
-5-
<PAGE> 26
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 consist of any consideration and method of payment
allowable under Section 7 of the Plan. 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, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall 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 10 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.
(b) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.
(c) Termination of Continuous Status as a Director. In the event
an Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within three (3) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
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(e) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The 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 or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger,
Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares 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 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." 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
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, each
outstanding Option shall become fully vested and exercisable, including as to
Shares as to which it would not otherwise be exercisable. If an Option becomes
fully vested and exercisable in the event of a
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merger or sale of assets, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and the Option shall 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 or right 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).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section 4,
the Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) 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.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option 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, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
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.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise 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.
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
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the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
14. 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.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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