<PAGE>
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:
/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 Section240.14a-11(c) or
Section240.14a-12
NETWORK COMPUTING DEVICES, INC.
- --------------------------------------------------------------------------------
(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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
Network Computing Devices, Inc., a California Corporation (the "Company"), will
be held at the Company's offices at 301 Ravendale Drive, Mountain View,
California, on Wednesday, May 28, 1998, at 10:00 a.m. for the following
purposes:
1. To elect directors of the Company to serve for the ensuing year and
until their successors are duly elected and qualified. Management's
nominees for Director are Robert G. Gilbertson, Philip Greer, Douglas H.
Klein, Paul Low, Stephen A. MacDonald, Rudolph G. Morin and Peter Preuss.
2. To approve the reincorporation of the Company in the State of Delaware
and other related changes to the rights of shareholders.
3. To approve an amendment to the Company's 1989 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares.
4. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares.
5. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
of the Company for the current fiscal year.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 21, 1998, are
entitled to notice of and to vote at the meeting. The transfer books will not be
closed.
All shareholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend the meeting, please mark, sign and date the
enclosed proxy and return it as promptly as possible in the envelope enclosed
for that purpose. Any shareholder attending the meeting may vote in person even
if he has returned a proxy.
By Order of the Board of Directors
[SIG]
Robert G. Gilbertson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mountain View, California
April 29, 1998
<PAGE>
PRELIMINARY COPY
NETWORK COMPUTING DEVICES, INC.
350 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of Network Computing Devices,
Inc., a California corporation (the "Company"), for use at the Annual Meeting of
Shareholders to be held Wednesday, May 28, 1998 at 10:00 a.m., local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Company's offices located at 301 Ravendale Drive, Mountain View,
California. Its telephone number at that address is (650) 694-0650.
These proxy solicitation materials were mailed on or about April 29, 1998 to
all shareholders entitled to vote at the Annual Meeting.
RECORD DATE
Shareholders of record at the close of business on April 21, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. At the record date,
, , shares of the Company's Common Stock, no par value, were
issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivery to the Company of a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING
The shares represented by the proxies received will be voted as you direct.
If you give no direction, the shares will be voted as recommended by the Board
of Directors.
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder, or distribute the shareholder's votes on the same principle among
as many candidates as the shareholder may select, up to the number of directors
to be elected. However, no shareholder shall be entitled to cumulate votes
unless the name of the candidate or candidates for whom such votes are proposed
to be cast has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the Annual Meeting
prior to the voting of the intention to cumulate the shareholder's votes. On all
other matters, each share of Common Stock has one vote.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting materials sent to shareholders. The Company has
retained the services of ChaseMellon Shareholders Services, L.L.C. ("Chase") to
aid in the solicitation of proxies, deliver proxy materials to brokers,
nominees, fiduciaries and other custodians for distribution to beneficial owners
of stock and to solicit proxies therefrom. Chase will receive a fee of
<PAGE>
approximately $5,000 and reimbursement of all reasonable out-of-pocket expenses.
In addition, the Company may 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 regular employees, without
additional compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals intended to be considered at the 1999 Annual Meeting
of Shareholders must be received by the Company no later than December 30, 1998.
Such proposals may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated by the Securities and Exchange
Commission ("SEC").
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the seven nominees named below, all of whom are currently directors of the
Company. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. In the event that any such nominee 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 in accordance with cumulative voting
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. In no event will the proxy holders vote proxies for more than
seven nominees. The seven candidates receiving the highest number of affirmative
votes of the shares voting at the Annual Meeting will be elected directors of
the Company. The term of office of each person elected as a director will
continue until the next Annual Meeting of Shareholders or until such time as his
successor has been duly elected and qualified.
2
<PAGE>
The names of the Company's nominees for director and certain information
about them are set forth below.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- --------------------------------------------- --- --------------------------------------------- ---------------
<S> <C> <C> <C>
Robert G. Gilbertson......................... 56 President and Chief Executive Officer of the 1996
Company
Philip Greer................................. 62 Senior Managing Principal, Weiss, Peck & 1992
Greer, L.L.C. (an investment management
company)
Douglas H. Klein............................. 43 President and Chief Operating Officer, 1998
NuvoMedia, Inc. (a technology consulting
firm)
Paul Low..................................... 65 President and Chief Executive Officer, PRL 1995
Associates (a technology consulting firm)
Stephen A. MacDonald......................... 52 President and Chief Executive Officer Active 1995
Software, Inc. (a software company)
Rudolph G. Morin............................. 60 Executive Vice President, Operations and 1998
Finance, Chief Financial Officer of the
Company
Peter Preuss................................. 55 President, The Preuss Foundation, Inc. (a 1995
non-profit corporation)
</TABLE>
Mr. Gilbertson has served as President, Chief Executive Officer and a
director of the Company since May 1996. From 1993 to May 1996, Mr. Gilbertson
served as President and Chief Executive Officer of CMX Systems, Inc., a
manufacturer of precision measurement and positioning products. From 1985 to
1992, Mr. Gilbertson served as President and Chief Executive Officer of Data
Switch Corporation, a manufacturer of high-speed computer and communication
equipment.
Mr. Greer has served as a director of the Company since November 1992. Mr.
Greer has been a principal of Weiss, Peck & Greer, L.L.C., an investment
management company, or its predecessor, since 1970. Mr. Greer is also a director
of Federal Express Corporation and Robert Mondavi Corp, a winemaker.
Mr. Klein has served as director of the Company since March 1998. Mr. Klein
has served as President and Chief Operating Officer of NuvoMedia, Inc., a
technology consulting firm, since January 1998. From February 1988 to December
1997, Mr. Klein served in various capacities with the Company, most recently the
Company's Chief Technical Officer from June 1996 to December 1997.
Dr. Low has served as a director of the Company since December 1995. Dr. Low
has been President and Chief Executive Officer of PRL Associates, a technology
consulting firm, since 1992. Prior to forming PRL Associates, from 1957 to 1992,
Dr. Low served in various capacities at International Business Machines
Corporation ("IBM"), most recently as President of the General Products Division
from 1987 to 1990 and as General Manager, Technology and Products and a member
of IBM's Corporate Management Board from 1990 to 1992. Dr. Low held the title of
Vice President at IBM from 1984 to 1992. Dr. Low is also director of Applied
Materials Corporation, a semiconductor equipment manufacturer, Solectron
Corporation, Veeco Instruments, IPAC and Xionics Corporation, as well as several
privately-held corporations.
3
<PAGE>
Mr. MacDonald has served as a director of the Company since May 1995. Mr.
MacDonald has served as the International Business Development Manager of Active
Software, Inc., a software company, since October 1997. From April 1996 to
September 1997, Mr. MacDonald served as President and Chief Executive Officer of
Active Software. Mr. MacDonald was employed by Adobe Systems Incorporated, a
software company, from 1983 to March 1996, where he served as Vice President,
Sales and Marketing from 1983 to 1989 and as Senior Vice President and General
Manager from 1989 to 1996. Mr. MacDonald is also a director of Verity, Inc., a
software company.
Mr. Morin has served as Executive Vice President, Operations and Finance and
Chief Financial Officer of the Company since May 1996 and as a director since
March 1998. From 1993 to 1996, Mr. Morin served as Senior Vice President of
Finance and Administration for Memorex Telex Corporation, a computer storage
equipment manufacturer. From 1984 to 1992, Mr. Morin served as Executive Vice
President of Data Switch Corporation, a manufacturer of high-speed computer and
communication equipment.
Mr. Preuss has served as director of the Company since April 1995 and as
Chairman of the Board since January 1996. Mr. Preuss has served as President of
The Preuss Foundation, Inc., a non-profit corporation that sponsors cancer
research and related seminars and conferences, since it was founded in 1985.
From 1970 to 1986 Mr. Preuss was President and Chairman of the Board of
Integrated Software Systems Corporation, which he founded. Mr. Preuss is
currently a director of DepoTech Corporation, a developer and manufacturer of
pharmaceutical products, and a Regent of the University of California.
There are no family relationships among directors or executive officers of
the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held six meetings during the year
ended December 31, 1997. The Board of Directors has an Audit Committee, an
Executive Committee, and a Compensation and Stock Committee. The Board of
Directors has no standing nominating committee or committee performing similar
functions. During the year ended December 31, 1997, no director attended fewer
than 75% of the aggregate of (i) all meetings of the Board of Directors (held
during the period in which such director served) and (ii) all meetings of
committees of the Board on which such director served.
The Audit Committee of the Board of Directors currently consists of Messrs.
Greer and Low. The Audit Committee recommends the engagement of independent
auditors, consults with the independent auditors regarding the scope of annual
audits and reviews the Company's system of internal accounting controls. The
Audit Committee held two meetings during the fiscal year ended December 31,
1997.
In late December 1995, the Executive Committee of the Board of Directors was
formed to focus primarily on technology issues related to the Company. The
Executive Committee currently consists of Messrs. Preuss and Low. The Executive
Committee held one meeting during the fiscal year ended December 31, 1997.
The Compensation and Stock Committee of the Board of Directors (the
"Compensation Committee") currently consists of Messrs. Preuss and MacDonald.
The Compensation Committee makes recommendations to the Board regarding
executive compensation and related matters and is responsible for the
administration of option grants under the Company's 1989 Stock Option Plan. The
Compensation Committee held five meetings during the fiscal year ended December
31, 1997.
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<PAGE>
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP BY MANAGEMENT
The following table sets forth certain information known to the Company
relating to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each executive officer named in the
tables under "Executive Compensation," (iii) each director, and (iv) all
executive officers and directors as a group, as of April 3, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OWNED(1) PERCENT
- ------------------------------------------------------------------ ----------------- -----------
<S> <C> <C>
Dimensional Fund Advisors, Inc.(2) ............................... 910,900 5.32%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Robert G. Gilbertson(3)........................................... 535,865 3.13%
Rudolph G. Morin(4)............................................... 268,920 1.57%
Peter Preuss(5)................................................... 146,250 *
Douglas H. Klein(6)............................................... 113,738 *
Paul Low(7)....................................................... 88,750 *
Lorraine J. Hariton(8)............................................ 55,952 *
Cecil M. Dye(9)................................................... 51,098 *
Philip Greer(10).................................................. 42,668 *
Stephen A. MacDonald(9)........................................... 26,250 *
All executive officers and directors
as a group (9 persons)(12)...................................... 1,329,491 7.76%
</TABLE>
- ------------------------
* Less than 1%
(1) Except as indicated and pursuant to applicable community property laws, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Includes 308,100 shares with respect to which voting power is shared
between Dimensional Fund Advisors Inc. (the "DFA Fund") and DFA Investment
Dimensions Group Inc. (the "DFA Trust"). In their capacities as officers of
DFA Fund and DFA Trust, these persons vote 133,800 shares which are owned
by DFA Fund and 174,300 shares which are owned by DFA Trust. Except as
otherwise noted, Dimensional has sole voting and dispositive power with
respect to the shares of Common Stock shown as being actually owned by it.
(3) Includes 525,000 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(4) Includes 262,500 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(5) Includes 50,000 shares held by Stephen A. Hurwitz as Trustee for Mr.
Preuss' son, with respect to which Mr. Preuss disclaims beneficial
ownership. Also includes 96,250 shares of Common Stock that may be acquired
upon exercise of stock options that are currently exercisable or will
become exercisable within 60 days of April 3, 1998.
(6) Includes 106,520 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(7) Includes 88,750 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
5
<PAGE>
(8) Includes 44,256 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(9) Includes 43,749 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(10) Includes 6,770 shares held by Mr. Greer's daughter and 1600 shares held by
Norman Gold as Trustee for Mr. Greer's daughters, with respect to which Mr.
Greer disclaims beneficial ownership. Also includes 30,000 shares of Common
Stock that may be acquired upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days of April 3,
1998.
(11) Includes 26,250 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of April 3, 1998.
(12) Includes 1,223,275 shares of Common Stock that may be acquired upon
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of April 3, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
SEC initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% beneficial owners are required by SEC regulation to furnish the
Company with copies of all reports they file under Section 16(a). To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
year ended December 31, 1997.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (determined as of December 31, 1997)
(collectively, the "Named Officers") for the fiscal years ended December 31,
1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
---------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (SHARES) COMPENSATION(2)
- ------------------------------------------------ --------- ---------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Robert G. Gilbertson(3) ........................ 1997 $ 300,000 $ 37,500 -- $ 4,950
President and Chief Executive Officer 1996 196,038 93,269 700,000 2,681
Cecil M. Dye(4) ................................ 1997 $ 185,000 $ 28,739 -- $ 2,881
Senior Vice President, Worldwide Sales 1996 68,071 7,708 100,000 960
Lorraine J. Hariton ............................ 1997 $ 178,711 $ 212,408 31,875 $ 9,192(5)
Senior Vice President, Marketing and Business 1996 144,923 100,274 50,000 469
Development 1995 140,000 72,944 20,000 353
Douglas H. Klein ............................... 1997 $ 235,817 $ 25,000 -- $ 765
Senior Vice President and Chief Technology 1996 209,554 $ 50,000 100,000 735
Officer 1995 181,207 -- -- 353
Rudolph G. Morin(6) ............................ 1997 $ 257,500 $ 31,250 -- $ 6,372
Executive Vice President, Operations & Finance 1996 149,680 74,840 350,000 2,532
and Chief Financial Officer
</TABLE>
- ------------------------
(1) Includes amounts (if any) deferred under the Company's 401(k) Plan.
(2) Except as otherwise noted, consists of the dollar value of premiums paid on
life insurance for the benefit of the Named Officer.
(3) Mr. Gilbertson joined the Company as an officer in May 1996.
(4) Mr. Dye joined the Company in August 1996 and became an officer in September
1996.
(5) Consists of $8,550 paid for relocation expenses and $642 in premiums paid on
life insurance for Ms. Hariton's benefit.
(6) Mr. Morin joined the Company as an officer in May 1996.
7
<PAGE>
STOCK OPTION GRANTS
The following table contains information concerning grants of stock options
under the Company's 1989 Stock Option Plan (the "1989 Option Plan") to the Named
Officers during the year ended December 31, 1997:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OPTION TERM(1)
GRANTED TO EMPLOYEES PRICE EXPIRATION ----------------------
NAME (SHARES)(2) IN FISCAL YEAR(3) ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------ ----------- ------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Gilbertson................ -- -- -- -- -- --
Cecil M. Dye........................ -- -- -- -- -- --
Lorraine J. Hariton................. 31,875 2.7% $ 9.5625 4/22/07 $ 191,690 $ 485,780
Douglas H. Klein.................... -- -- -- -- -- --
Rudolph G. Morin.................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Gains are reported net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Company's Common Stock, as well
as the optionee's continued employment through the vesting period.
(2) Except as set forth below, each option vests and becomes exercisable to the
extent of 25% of the underlying shares one year following the date of grant,
with the remainder vesting on a monthly basis ratably over the 36-month
period thereafter.
(3) The Company granted options to purchase an aggregate of 1,177,175 shares of
Common Stock to employees during the year.
8
<PAGE>
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table provides information with respect to the Named Officers
concerning the exercise of options during 1997 and unexercised options held as
of December 31, 1997:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997(1) DECEMBER 31, 1997
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Gilbertson........... -- -- 452,083 247,917 $ 2,655,988 $ 1,456,512
Cecil M. Dye................... -- -- 33,333 66,667 $ 141,665 $ 283,335
Lorraine J. Hariton............ 20,000 $ 179,689 25,729 73,855 $ 145,963 $ 239,875
Douglas H. Klein............... -- -- 90,373 75,627 $ 510,333 $ 440,168
Rudolph G. Morin............... -- -- 226,041 123,959 $ 1,327,991 $ 728,259
</TABLE>
- ------------------------
(1) Based on the closing price of $9.375, as reported on The Nasdaq National
Market on December 31, 1997 (the last trading day prior to the fiscal
year-end).
(2) Sale price at time of exercise less exercise price.
9
<PAGE>
COMPENSATION OF DIRECTORS
The Company pays non-employee directors an annual retainer of $15,000 per
calendar year, payable semiannually, plus a fee of $1,500 for each meeting of
the Board of Directors they attend and $500 for each meeting of a committee they
attend, plus reimbursement for transportation and other expenses incurred in
attending such meetings. Notwithstanding the foregoing, the Company pays
Directors Preuss and Low a fee of $1,500 for each meeting of the Executive
Committee they attend. Under the 1994 Outside Directors' Stock Option Plan (the
"Directors' Plan"), each non-employee director of the Company is granted an
initial option for 30,000 shares of the Company's Common Stock, followed by
annual grants of options for 7,500 shares each, subject to the director's
continuous service on the Board of Directors. In 1997, the Company paid PRL
Associates, a technology consulting firm headed by Dr. Low, consulting fees of
$16,999. No other compensation is furnished to directors of the Company in their
capacity as such.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Company and Robert G. Gilbertson, its President and Chief Executive
Officer, entered into an Employment Agreement on May 17, 1996. The agreement had
an initial two-year term, commencing May 20, 1996, and will be automatically
renewed annually for successive one-year terms unless either party provides
notice of termination at least 60 days prior to the end of the term. The
agreement fixes Mr. Gilbertson's annual salary at $300,000, subject to annual
increases, if any, and provides for an incentive bonus award based on the
achievement of certain financial objectives. The incentive bonus award will be
equal to 50% of base salary when 100% of the financial objectives are met. In
the event overall performance exceeds these financial objectives, the bonus
award is increased by an amount representing a percentage of annual salary that
is 1.5 times the percentage by which these objectives are exceeded, up to a
maximum bonus award equal to 300% of base salary. The agreement also provides
for reimbursement of reasonable out-of-pocket and ordinary expenses for
commuting or relocating to the Mountain View area and necessary business
expenses incurred in performing services as President and Chief Executive
Officer. As part of the agreement, Mr. Gilbertson has been granted options to
purchase 700,000 shares of the Company's Common Stock. The agreement provides
that these options will become fully exercisable in the event of a change of
control of the Company. The agreement provides that all stock options currently
held by Mr. Gilbertson under the Company's 1989 Stock Option Plan and other
outside plans will vest in full and become fully exercisable in the event of any
change in control of the Company after six months from employment date. In the
event Mr. Gilbertson is terminated other than for cause, or if he voluntarily
terminates his employment because of a material change in his job duties or
title or specified acts of misconduct by the Company, he is entitled under the
agreement to receive a severance payment equal to his then-current base salary
for a period equal to the term of employment remaining under the agreement (but
not less than 12 months) and to receive up to $40,000 in outplacement
assistance.
The Company and Rudolph G. Morin, its Executive Vice President, Operations &
Finance and Chief Financial Officer, entered into an Employment Agreement on May
24, 1996. The agreement had an initial two-year term, commencing May 28, 1996,
and will be automatically renewed annually for successive one-year terms unless
either party provides notice of termination at least 60 days prior to the end of
the term. The agreement fixes Mr. Morin's annual salary at $250,000, subject to
annual increases, if any, and provides for an incentive bonus award based on the
achievement of certain financial objectives. The incentive bonus award will be
equal to 50% of base salary when 100% of the financial objectives are met. In
the event overall performance exceeds these financial objectives, the bonus
award is increased by an amount representing a percentage of annual salary that
is 1.5 times the percentage by which these objectives are exceeded, up to a
maximum bonus award equal to 300% of base salary. The agreement also provides
for reimbursement of reasonable out-of-pocket and ordinary expenses for
commuting or relocating to the Mountain View area and necessary business
expenses incurred in performing services as Executive Vice President, Operations
& Finance and Chief Financial Officer. As part of the agreement,
10
<PAGE>
Mr. Morin has been granted options to purchase 350,000 shares of the Company's
common stock under the 1989 Stock Option Plan. The agreement provides that these
options will vest in full and become fully exercisable in the event of any
change in control of the Company. In the event Mr. Morin is terminated other
than for cause, or if he voluntarily terminates his employment because of a
material change in his job duties or title or specified acts of misconduct by
the Company, he is entitled under the agreement to receive a severance payment
equal to his then-current base salary for a period equal to the term of
employment remaining under the agreement (but not less than 12 months) and to
receive up to $40,000 in outplacement assistance.
REPORT OF THE COMPENSATION AND STOCK COMMITTEE
OF THE BOARD OF DIRECTORS
Annual compensation of the Company's executive officers is determined by the
Compensation and Stock Committee (the "Compensation Committee"), which
recommends the amount of salary and bonus to be paid to each executive officer,
subject to approval and ratification by the Board of Directors. The Compensation
Committee is also responsible for administering the 1989 Option Plan, including
the awarding of options under such plan.
COMPENSATION PHILOSOPHY
The Company's compensation programs for executive officers are designed to
align compensation with business objectives and performance and to enable the
Company to attract, retain and reward executive officers who are likely to
contribute to the long-term success of the Company. The Company also believes
that a strong link should exist between executive compensation and the value
received by shareholders.
COMPONENTS OF COMPENSATION
SALARY
In setting base salary levels, the Company initially reviews the salary
structure and pay practice data of other companies in similar industries. In
doing so, the Company compares itself to a group of computer, networking and
systems companies of similar size and capitalization using information compiled
by an independent compensation consulting firm. There are currently
approximately 300 companies in this comparison group.
Salaries are generally reviewed annually by the Compensation Committee and
are subject to increases based on (i) the Compensation Committee's determination
that the individual's level of contribution to the Company has increased since
his or her salary had last been reviewed and (ii) increases in median
competitive pay levels.
The Salaries paid to Robert G. Gilbertson and Rudolph G. Morin, the
Company's Chief Executive Officer and Chief Financial Officer, respectively, are
determined in accordance with Employment Agreements that the Company has entered
into with these persons the ("Employment Agreements"). Under the Employment
Agreements, Messrs. Gilbertson and Morin are entitled to annual salaries of at
least $300,000 and $250,000, respectively, subject to annual increases, if any.
The terms of each of the Employment Agreements were negotiated between the
Company and Messrs. Gilbertson and Morin at arm's length in connection with the
Company's effort to recruit these persons to join the Company. See "Executive
Compensation--Employment, Severance and Change of Control Arrangements."
BONUS PLAN
Effective January 1, 1997, the Company adopted its All-Employee Incentive
Plan (the "Incentive Plan"). Employees of the Company, including officers, are
eligible to participate in the Incentive Plan. The
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Incentive Plan has been designed to align the interests of employees with those
of shareholders, and to reward employees for contributing to the ongoing
financial success of the Company. The Incentive Plan pays employees, at varying
percentages of base salary, a bonus which is funded by a percentage of the
Company's pretax, prebonus operating income.
The bonuses earned by Messrs. Gilbertson and Morin are determined in
accordance with the Employment Agreements, each of which provides for an
incentive bonus award based on the achievement of financial objectives set by
the Compensation Committee for the fiscal year. The bonuses award is equal to
50% of base salary when 100% of the financial objectives are met. In the event
overall performance exceeds these financial objectives, the bonus award is
increased by an amount representing a percentage of base salary that is 1.5
times the percentage by which these objectives are exceeded, up to a maximum
bonus award equal to 300% of base salary. See "Executive
Compensation--Employment, Severance and Change of Control Arrangements."
STOCK OPTION PLAN
As is typical with emerging growth high-technology companies, a significant
component of the compensation provided to the Company's executive officers is in
the form of equity participation through stock options granted under the 1989
Option Plan. As a result, the Company's executive officers are directly rewarded
for the Company's success and provided an economic incentive to contribute to
the Company's future success and maximize shareholder value. Options granted
under the 1989 Option Plan generally vest over a four-year period, to encourage
employees to remain with the Company on a long-term basis.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation payable to Mr. Gilbertson is determined in accordance with
Mr. Gilbertson's Employment Agreement, as described above, which provides for an
annual incentive bonus award based on the achievement of financial objectives
set by the Compensation Committee for that fiscal year. The bonus award is equal
to 50% of base salary when 100% of the financial objectives are met. In the
event overall performance exceeds these financial objectives, the bonus award is
increased by an amount representing a percentage of base salary that is 1.5
times the percentage by which these objectives are exceeded, up to a maximum
bonus award equal to 300% of base salary. In 1997, the Compensation Committee
set financial objectives based upon the Company's net operating income for 1997.
Because the Company's 1997 net operating income fell short of this target, Mr.
Gilbertson was not awarded a bonus for 1997.
COMPENSATION AND STOCK COMMITTEE
Peter Preuss
Stephen A. MacDonald
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PERFORMANCE GRAPH
Set forth below is a graph indicating cumulative total return at December
31, 1993, 1994, 1995, 1996 and 1997 on $100 invested, alternatively, in the
Company's Common Stock, the CRSP Total Return Index for the Nasdaq Stock Market
and the Nasdaq Computer Manufacturing Stocks Index at the close of business on
December 31, 1992.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
NETWORK COMPUTING DEVICES, INC.
PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES
Produced on 03/23/98 including data to 12/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NETWORK COMPUTING NASDAQ NATIONAL MARKET NASDAQ COMPUTER MANUFACTURERS
DEVICES, INC (US COMPANIES) STOCKS SIC 3570-3579 US & FOREIGN
<S> <C> <C> <C>
12/31/92 $100.000 $100.000 $100.000
1/29/93 $103.333 $102.846 $105.136
2/26/93 $103.333 $99.010 $96.019
3/31/96 $83.333 $101.875 $64.623
4/30/93 $66.667 $97.528 $89.774
5/28/93 $71.667 $103.350 $97.885
6/30/93 $66.667 $103.826 $90.923
7/30/93 $46.667 $103.949 $82.362
8/31/93 $55.000 $109.321 $83.740
9/30/93 $46.667 $112.577 $81.348
10/29/93 $55.000 $115.107 $87.298
11/30/93 $46.667 $111.676 $89.386
12/31/93 $45.000 $114.790 $94.772
1/31/94 $43.333 $118.274 $99.440
2/28/94 $51.667 $117.170 $101.849
3/31/94 $40.000 $109.964 $91.882
4/29/94 $40.000 $108.537 $85.872
5/31/94 $35.833 $108.801 $79.973
6/30/94 $23.333 $104.822 $74.494
7/29/94 $24.167 $106.972 $79.466
8/31/94 $26.667 $113.792 $87.272
9/30/94 $25.000 $113.501 $90.574
10/31/94 $24.167 $115.732 $98.836
11/30/94 $28.333 $111.892 $97.797
12/30/94 $28.333 $112.206 $104.081
1/31/95 $30.000 $112.835 $101.776
2/28/95 $35.000 $118.802 $104.592
3/31/95 $45.000 $122.325 $109.716
4/28/95 $45.000 $126.177 $115.308
5/31/95 $48.333 $129.432 $118.556
6/30/95 $57.500 $139.921 $133.421
7/31/95 $64.167 $150.207 $143.987
8/31/95 $48.333 $153.252 $153.241
9/29/95 $45.833 $156.776 $160.523
10/31/95 $41.667 $155.878 $167.856
11/30/95 $56.250 $159.538 $174.015
12/29/95 $47.500 $158.688 $163.932
1/31/96 $48.333 $159.470 $164.576
2/29/96 $40.833 $165.539 $181.061
3/29/96 $26.667 $166.088 $168.980
4/30/96 $25.833 $179.868 $193.675
5/31/96 $27.917 $188.126 $206.849
6/28/96 $34.167 $179.646 $189.972
7/31/96 $23.333 $163.650 $170.736
8/30/96 $35.000 $172.818 $182.528
9/30/96 $41.250 $186.037 $209.743
10/31/96 $51.667 $183.982 $210.602
11/29/96 $57.500 $195.356 $229.265
12/31/96 $67.500 $195.180 $220.121
1/31/97 $102.500 $209.051 $239.567
2/28/97 $84.167 $197.495 $206.205
3/31/97 $70.833 $184.602 $184.996
4/30/97 $65.000 $190.373 $192.606
5/30/97 $84.167 $211.956 $237.071
6/30/97 $77.500 $218.441 $239.083
7/31/97 $60.000 $241.500 $291.029
8/29/97 $79.167 $241.132 $290.085
9/30/97 $74.167 $255.398 $300.370
10/31/97 $57.500 $242.178 $277.854
11/28/97 $55.833 $243.390 $280.719
12/31/97 $62.500 $239.567 $266.464
</TABLE>
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CERTAIN TRANSACTIONS
As discussed above, the Company has entered into Employment Agreements with
Robert G. Gilbertson and Rudolph G. Morin. See "Executive
Compensation--Employment, Severance and Change of Control Agreements."
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the full extent permitted by California law. The Company has
entered into indemnification agreements with certain of its officers and
directors containing provisions that may require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified and to obtain directors' and officers'
insurance if available on reasonable terms. The Company maintains insurance
covering officers and directors.
PROPOSAL NO. 2
REINCORPORATION IN THE STATE OF DELAWARE AND
RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, reincorporation
in Delaware will allow the Company the increased flexibility and predictability
afforded by Delaware law. In addition, although the Company has not experienced
difficulty in attracting and retaining Board members to date, the Board believes
that reincorporation will enhance the Company's ability to attract and retain
qualified Board members as well as encourage directors to continue to make
independent decisions in good faith on behalf of the Company. As a result of the
significant potential liability and relatively small compensation associated
with service as a director, the Company believes that it may become increasingly
difficult for the Company to find and retain talented and experienced directors
and officers. As a result, the Company believes that the more favorable
corporate environment afforded by Delaware will enable it to compete more
effectively with other public companies, most of which are incorporated in
Delaware, to retain its current directors and officers and to attract and retain
new directors and officers.
IMPLEMENTATION OF REINCORPORATION
The proposed reincorporation will be accomplished through the merger of the
Company into Network Computing Devices, Inc. Delaware, a newly-formed Delaware
corporation which, just before the merger, will be a wholly-owned subsidiary of
the Company (the "Delaware Company"), pursuant to the Agreement and Plan of
Merger (the "Merger Agreement") attached as APPENDIX A to this Proxy Statement.
Upon the effective date of the merger (the "Reincorporation Effective Date"),
the Delaware Company's name will be changed to Network Computing Devices, Inc.
The reincorporation will not result in any change in the Company's business,
assets or liabilities, will not cause its corporate headquarters to be moved and
will not result in any relocation of management or other employees. The
incumbent officers and directors of the Company will also be the officers and
directors of the Delaware Company on the Reincorporation Effective Date.
The Company's capital stock consists of 30,000,000 authorized shares of
Common Stock, no par value, of which shares were issued and outstanding
as of April 21, 1998, the record date, and 3,000,000 authorized shares of
undesignated Preferred Stock, no par value, none of which were outstanding as of
April , 1998. Upon the Reincorporation Effective Date, the Delaware Company
will have the same number of outstanding shares of Common Stock that the Company
had outstanding immediately prior to the reincorporation.
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The Delaware Company's capital stock will consist of 30,000,000 authorized
shares of Common Stock, $.001 par value, and 3,000,000 shares of Preferred
Stock, $.001 par value, consistent with maintaining adequate capitalization for
the current needs of the Company. The Delaware Company's authorized but unissued
shares of Preferred Stock will be available for future issuance.
Under the Delaware Company's Certificate of Incorporation (the "Delaware
Certificate"), as under the Company's Articles of Incorporation (the "California
Articles"), the Board of Directors has the authority to determine or alter the
rights, preferences, privileges and restrictions to be granted to or imposed
upon any wholly unissued series of Preferred Stock and to fix the number of
shares constituting any such series and to determine the designation thereof.
On the Reincorporation Effective Date, each outstanding share of Common
Stock of the Company will automatically convert into one share of Common Stock
of the Delaware Company, and shareholders of the Company will automatically
become shareholders of the Delaware Company. On the Reincorporation Effective
Date, the number of outstanding shares of Common Stock of the Delaware Company
will be equal to the number of shares of Common Stock of the Company outstanding
immediately prior to the Reincorporation Effective Date. In addition, each
outstanding option or right to acquire shares of Common Stock of the Company
will be converted into an option or right to acquire an equal number of shares
of Common Stock of the Delaware Company, under the same terms and conditions as
the original options or rights. All of the Company's employee benefit plans,
including the 1989 Stock Option Plan, the 1994 Outside Directors' Stock Option
Plan and the 1992 Employee Stock Purchase Plan, will be adopted and continued by
the Delaware Company following the reincorporation. APPROVAL OF THE PROPOSED
REINCORPORATION WILL CONSTITUTE APPROVAL OF THE ADOPTION AND ASSUMPTION OF THOSE
PLANS BY THE DELAWARE COMPANY.
NO ACTION NEED BE TAKEN BY SHAREHOLDERS TO EXCHANGE THEIR STOCK CERTIFICATES
NOW; THIS WILL BE ACCOMPLISHED AT THE TIME OF THE NEXT TRANSFER BY THE
SHAREHOLDER. Certificates for shares in the Company will automatically represent
an equal number of shares in the Delaware Company upon completion of the merger.
The Company intends to apply for the listing and registration of the Common
Stock of the Delaware Company on the Nasdaq National Market upon the
Reincorporation Effective Date.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required for approval of this proposal. If
approved by the shareholders, it is anticipated that the reincorporation will be
completed as soon thereafter as practicable. The reincorporation may be
abandoned or the Merger Agreement may be amended, either before or after
shareholder approval has been obtained, if, in the opinion of the Board of
Directors, circumstances arise that make such action advisable; provided that
any amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding voting shares.
SIGNIFICANT CHANGES CAUSED BY THE REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the California Articles and the Company's current
Bylaws (the "California Bylaws"), which have been adopted pursuant to California
law. The California Articles and Bylaws are available for inspection during
business hours at the principal executive offices of the Company. In addition,
copies may be obtained by writing to the Company at 350 North Bernardo Avenue,
Mountain View, California 94043, Attention: Secretary.
If the reincorporation proposal is adopted, the Company will merge into, and
its business will be continued by, the Delaware Company. Following the merger,
most issues of corporate governance and control would be controlled by Delaware
law, rather than California law. The California Articles and Bylaws, will, in
effect, be replaced by the Delaware Certificate and the Delaware Company's
Bylaws (the
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"Delaware Bylaws"), copies of which are attached as APPENDIX A-1 and APPENDIX
A-2 to the Merger Agreement.
REASONS FOR THE REINCORPORATION
In recent years, a number of public companies have obtained the approval of
their shareholders to reincorporate in Delaware and this trend continues
currently. For the reasons detailed below, the Company believes it is beneficial
to the Company and its shareholders that the Company likewise avail itself of
Delaware law.
GREATER PREDICTABILITY AND RESPONSIVENESS TO CORPORATE NEEDS. Delaware has
adopted comprehensive corporate laws which are revised regularly to meet
changing business circumstances. The Delaware Legislature is particularly
sensitive to issues regarding corporate law and is especially responsive to
developments in modern corporate law. The Delaware courts have developed
considerable expertise in dealing with corporate issues as well as a substantial
body of case law construing Delaware's corporate law. As a result of these
factors, it is anticipated that Delaware law will provide greater predictability
in the Company's legal affairs than is presently available under California law.
MORE CERTAINTY REGARDING INDEMNIFICATION AND LIMITATION OF LIABILITY FOR
DIRECTORS. In 1986, Delaware amended its corporate law to allow corporations to
limit the personal monetary liability of its directors for their conduct as
directors under certain circumstances. Delaware law does not permit a Delaware
corporation to limit or eliminate the liability of its directors for intentional
misconduct, bad faith conduct or any transaction from which the director derives
an improper personal benefit or for violations of federal laws such as the
federal securities laws. In 1987, California amended its corporate law in a
manner similar to Delaware to permit a California corporation to limit the
personal monetary liability of its directors for their conduct as directors
under certain circumstances. Nonetheless, the Board of Directors believes that
the protection from liability for directors is more certain under the Delaware
law than under the California law and therefore that the Company's objectives in
adopting this type of provision can be better achieved by reincorporation in
Delaware. The directors have elected to adopt such a provision in the Delaware
Certificate and Bylaws. The Board believes that Delaware reincorporation will
enhance the Company's ability to recruit and retain directors in the future;
however, shareholders should be aware that such a provision inures to the
benefit of the directors, and the interest of the Board in recommending the
reincorporation may therefore be in conflict with the interests of the
shareholders.
The interests of the Board of Directors, management and affiliated
shareholders in voting on the reincorporation proposal may not be the same as
those of unaffiliated shareholders. Delaware law does not afford minority
shareholders some of the rights and protections available under California law.
For instance, reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies because of the absence of cumulative voting.
16
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DELAWARE CORPORATION LAW COMPARED TO CALIFORNIA CORPORATION LAW. The
following chart summarizes the key differences in the corporation laws of
Delaware and California. It does not purport to be an exhaustive discussion and
is qualified in its entirety by reference to the California Corporations Code,
the Delaware General Corporation Law, the California Articles and Bylaws and the
Delaware Certificate and Bylaws. Both California and Delaware law provide that
some of the statutory provisions as they affect various rights of holders of
shares may be modified by provisions in the charter or Bylaws of the
corporation. Shareholders are requested to read the following chart in
conjunction with the discussion following the chart and the Merger Agreement,
the Delaware Certificate and the Delaware Bylaws attached to this Proxy
Statement.
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Limitation of Liability of
Directors and Officers...... Delaware law permits the limitation of California law contains additional
liability of directors and officers to exceptions to the liability limitations
a company except in connection with (i) of directors and officers. Please see
breaches of the duty of loyalty; (ii) discussion below.
acts or omissions not in good faith or
involving intentional misconduct or
knowing violations of law; (iii) the
payment of unlawful dividends or
unlawful stock purchases or
redemptions; or (iv) transactions in
which a director received an improper
personal benefit.
Indemnification of Directors
and Officers................ Delaware law could result in California law permits indemnification
indemnification of directors and under certain circumstances, subject to
officers in circumstances where certain limitations.
California law would not permit
indemnification and provides more
certainty as a result of extensive case
law on indemnification.
Cumulative Voting for
Directors................... Cumulative voting is not available California law permits Nasdaq National
unless it is provided for in the Market corporations with over 800
Certificate of Incorporation; the shareholders to eliminate cumulative
Delaware Certificate does not provide voting. The California Articles do not
for cumulative voting. eliminate cumulative voting.
Number of Directors........... Determined solely by resolution of the Determined by Board within the range
Board pursuant to the Delaware set in the California Bylaws. Changes
Certificate. in the authorized range must be
approved by the shareholders.
</TABLE>
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<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Filling Board Vacancies....... Delaware law provides for the Delaware California law permits (a) any holder
Court of Chancery to order an election of 5% or more of the corporation's
to fill vacancies or newly created Voting Stock or (b) the superior court
directorships upon the application of of the appropriate county to call a
the holders of 10% of the outstanding special meeting of shareholders to
shares having a right to vote for such elect the entire board if, after
directors, if at the time of filling filling any vacancy, the directors then
such vacancies or directorships, the in office who have been elected by the
directors then in office constitute shareholder constitute less than a
less than a majority of the entire majority of the directors then in
board as constituted immediately prior office.
to any increase.
The Delaware Certificate and Bylaws The California Articles are silent on
provide vacancies may be filled only by filling vacancies. The California
a majority vote of the directors then Bylaws provide vacancies may be filled
in office, though less than a quorum, by a majority vote of the directors
or by a sole remaining director. then in office, though less than a
quorum, or by a sole remaining director
except that a vacancy created by the
removal of a director, by the vote or
written consent of the shareholders or
by court order may be filled only by
the vote of a majority of outstanding
voting shares.
Blank Check Preferred......... The Delaware Certificate provides for The California Articles provide for the
the issuance of preferred stock with issuance of preferred stock with terms
terms set by the Board of Directors. set by the Board of Directors.
Advance Notice Requirement.... There are no specific statutory There are no specific statutory
regulations. The Delaware Bylaws regulations.
require timely notice which is not less
than 120 days in advance of the date
the proxy statement was released to
shareholders in connection with the
previous year's annual meeting.
Tender Offer Statute.......... Restricts mergers in two step Restricts mergers in two step takeovers
takeovers, without Board approval of unless common stock issued, unanimous
first step. affirmative vote of shareholders or
Department of Corporations approval.
</TABLE>
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<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ --------------------------------------- ---------------------------------------
<S> <C> <C>
Loans to Officers and
Directors................... Board may authorize if the loans may Loans may be made only with shareholder
reasonably be expected to benefit the approval unless Bylaws permitting loans
Company. by Board approval only are approved by
the shareholders.
Class Vote for
Reorganization.............. Generally not required unless a A reorganization transaction must
reorganization adversely affects a generally be approved by a majority
specific class of shares. vote of each class of shares
outstanding.
Right of Shareholders to
Inspect Shareholder List.... Permitted for any purpose reasonably Permitted for any purpose reasonably
related to a shareholder's interest as related to a shareholder's interest as
a shareholder. a shareholder. Also, an absolute right
to 5% shareholders and certain 1%
shareholders.
Appraisal Rights.............. Generally available if shareholders Available in certain circumstances if
receive cash in exchange for their the holders of 5% of the class assert
shares and in certain other such rights.
circumstances.
Dividends..................... Paid from surplus (including paid-in Generally limited to the greater of (i)
and earned surplus or net profits). retained earnings or (ii) an amount
which would leave the Company with
assets of 125% of liabilities and
current assets of 100% of current
liabilities.
Other......................... Responsive legislature and larger body
of corporate case law in Delaware
provides more predictable corporate
legal environment in Delaware.
</TABLE>
LIMITATIONS ON DIRECTOR LIABILITY. Both California and Delaware permit a
corporation to limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of certain duties as a
director. The California and Delaware laws adopt a self-governance approach by
enabling a corporation to take advantage of these provisions only if an
amendment to the charter limiting such liability is approved by a majority of
the outstanding shares or such language is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (i) intentional misconduct or knowing and culpable violation of
law; (ii) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (iii) receipt of an improper personal
benefit; (iv) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing director's duties
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should be aware of risks of serious injury to the corporation or its
shareholders; (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (vi) interested transactions between the
corporation and a director in which a director has a material financial
interest; or (vii) liability for improper distributions, loans or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for: (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary, damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors and
officers to the Company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The California Articles and the
Delaware Certificate and Bylaws relating to indemnification similarly require
that the California Company and the Delaware Company, respectively, indemnify
its directors and its executive officers to the fullest extent permitted by the
respective state law, provided that the Company may modify the extent of such
indemnification by individual contracts with its directors and executive
officers, and provided, further, that the Company will not be required to
indemnify any director or executive officer in connection with a proceeding
initiated by such person, with certain exceptions. Such charter documents and
Bylaws permit both the California Company and the Delaware Company to provide
indemnification to its other officers, employees and agents as set forth in the
respective state law. Such indemnification is intended to provide the full
flexibility available under such laws. The Delaware Bylaws contain a provision
with respect to advances in that the Company is required to advance expenses
related to any proceeding contingent on such persons' commitment to repay any
advances unless it is determined ultimately that such persons are entitled to be
indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
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Indemnification is permitted by both California and Delaware law, provided
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action. California law requires indemnification when the individual
has successfully defended the action on the merits, as opposed to Delaware law
which requires indemnification relating to a successful defense on the merits or
otherwise.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the disinterested shareholders that
the person seeking indemnification acted in good faith and in a manner
reasonably believed to be in or (in contrast to California law) not opposed to
the best interests of the corporation. No indemnification may be made without
court approval, however, in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (i) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines that such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (ii) no indemnification
may be made under California law, without court approval, in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware law allows
indemnification of expenses actually and reasonably incurred, subject to the
same limitations set forth in (ii) above. Delaware law is silent on the right of
indemnification regarding settlements of derivative actions.
California corporations may include in their Articles of Incorporation a
provision that extends the scope of indemnification through agreements, Bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision. Similarly, under Delaware law,
rights to indemnification and expenses need not be limited to those expressly
provided by statute. Under Delaware law and the Delaware Certificate and Bylaws,
the Delaware Company is permitted to indemnify its directors, officers,
employees and other agents, within the limits established by law and public
policy, pursuant to an express contract, bylaw provision, shareholder vote or
otherwise, any or all of which could provide indemnification rights broader than
those currently available under the California Bylaws or the California
indemnification statutes. The Delaware Bylaws provide that: (i) the Delaware
Company is required to indemnify its officers and directors to the fullest
extent permitted by law, including those circumstances in which indemnification
would otherwise be discretionary; (ii) the Delaware Company is required to
advance expenses to its officers and directors as incurred, including expenses
related to obtaining a determination that such officers and directors are
entitled to indemnification, provided that they undertake to repay the amount
advanced if it is ultimately determined that they are not entitled to
indemnification; (iii) an officer or director may bring suit against the
Delaware Company if a claim for indemnification is not timely paid; (iv) the
Delaware Company is authorized to enter into indemnification agreements with its
officers and directors; and (v) the Delaware Company may not retroactively amend
the indemnification provision in its Bylaws in a way that is adverse to its
officers or directors or former officers or directors. The Company has entered
into indemnification agreements with its officers and directors providing for
indemnification beyond that expressly mandated by the California Corporations
Code. The Delaware Company plans to enter into similar agreements with its
officers and directors upon completion of the proposed reincorporation in the
form attached as APPENDIX B to this Proxy Statement (the "Delaware Indemnity
Agreement"). The Delaware Indemnity Agreement contains certain additional
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limitations on indemnification for expenses in suits against the Company not
contained in the indemnification agreements currently in effect.
PRINCIPAL TERMS OF THE DELAWARE INDEMNITY AGREEMENTS. The principal terms
of the Delaware Indemnity Agreements are as follows:
1. Indemnification rights may be provided under the Delaware Indemnity
Agreement to a person in his capacity as a present or former director,
officer, employee or other agent of the Company (an "Indemnitee") in
connection with a threatened, pending or completed proceeding, whether
civil, criminal, administrative or investigative. Indemnification rights are
also provided to an Indemnitee's heirs, executors and administrators to the
same extent they would be provided to the Indemnitee prior to his or her
death.
2. The Company must maintain in effect directors' and officers'
liability insurance naming the Indemnitee as an insured in reasonable
amounts from established and reputable insurers, unless such insurance is
not available on reasonable terms.
3. The Company must indemnify against all expenses reasonably incurred
by an Indemnitee to the extent he or she has been successful in the defense
of any proceeding (including an action by or in the right of the Company
such as a derivative action).
4. The Company is required to indemnify against any expenses and
liabilities (including judgments, fines, ERISA excise taxes and penalties,
and amounts paid in settlement) actually and reasonably incurred by an
Indemnitee in connection with any proceeding (other than an action by or in
the right of the Company), provided the Indemnitee's actions met the
required standard of conduct.
5. In connection with proceedings brought by or in the right of the
Company against the Indemnitee (including derivative actions), the Company
is required to indemnify against expenses actually and reasonably incurred
by the Indemnitee, provided that his or her actions met the required
standard of conduct. However, no indemnification is required in such
proceeding to the extent the Indemnitee is finally adjudged liable to the
Company unless the court determines that, in view of all the circumstances,
the Indemnitee is fairly and reasonably entitled to indemnification.
6. The Company is required to advance expenses incurred by the
Indemnitee in connection with the investigation, defense, settlement or
appeal of any proceeding, provided that the Indemnitee undertakes to repay
any amounts for which he or she is ultimately determined not to be entitled
to indemnification. This provision of the Delaware Indemnity Agreement
expands upon Section 145 of the Delaware General Corporation Law, which is
silent on advances of expenses incurred in connection with investigation,
settlement and appeal.
7. The Indemnitee may enforce in court any right to indemnification or
advances granted by the Indemnity Agreement if (i) his or her claim is
denied in whole or in part, or (ii) no disposition of his or her claim is
made within 90 days of his or her request therefor. If successful in an
enforcement action, the Indemnitee is entitled to be paid the expenses of
prosecuting his or her claim.
A VOTE IN FAVOR OF THE PROPOSED REINCORPORATION WILL ALSO RATIFY AND APPROVE
THE INDEMNIFICATION AGREEMENTS IN SUBSTANTIALLY THE FORM ATTACHED AS APPENDIX B
TO THIS PROXY STATEMENT. Although the law in this regard is not certain,
shareholders who vote in favor of the reincorporation proposal may be precluded
from challenging the validity of the indemnity agreements in a subsequent court
proceeding.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the California Company made prior to the proposed reincorporation.
Nevertheless, the Board has recognized in considering this reincorporation
proposal that the individual directors have a personal interest in obtaining the
application of Delaware law to the indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is
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actually indemnified in circumstances where indemnification would not be
available under California law, would result in expense to the Company which the
Company would not incur if the Company were not reincorporated. The Board
believes, however, that the overall effect of reincorporation, including the
adoption of the Delaware Indemnity Agreements, is to provide a corporate legal
environment that enhances the Company's ability to attract and retain high
quality outside directors and thus benefits the interests of the Company and its
shareholders.
The Company knows of no pending or threatened litigation to which any of its
directors is a party in which the rights of the Company or its shareholders
would be affected if the Company currently were subject to the provisions of
Delaware law rather than California law.
California and Delaware corporate law, the California Articles and the
Delaware Certificate and Bylaws, as well as any indemnity agreements, may permit
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Board of Directors has been advised that, in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act and the Exchange Act may be contrary to public policy and
therefore may be unenforceable, absent a decision to the contrary by a court of
appropriate jurisdiction.
CUMULATIVE VOTING FOR DIRECTORS. Cumulative voting permits the holder of
each share of stock entitled to vote in the election of directors to cast that
number of votes which equal the number of directors to be elected. The holder
may allocate all votes represented by a share to a single candidate or may
allocate those votes among as many candidates as he chooses. Thus, a shareholder
with a significant minority of the outstanding shares may be able to elect one
or more directors if voting is cumulative. In contrast, the holder or holders of
a majority of the shares entitled to vote in an election of directors are able
to elect all the directors in the absence of cumulative voting.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its Articles of Incorporation or Bylaws, to eliminate cumulative voting when the
Company's shares are listed on a national stock exchange or traded on the Nasdaq
National Market and are held by at least 800 shareholders. Neither the Company's
Articles of Incorporation nor its Bylaws currently eliminate cumulative voting.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's Certificate of Incorporation. The Delaware Certificate does
not provide for cumulative voting.
NUMBER OF DIRECTORS. California law allows the number of persons
constituting the board of directors of a corporation to be fixed by the Bylaws
or the Articles of Incorporation, or, alternatively, permits the Bylaws to
provide that the number of directors may vary within a specified range.
California law further provides that, in the case of a variable board, the
maximum number of directors may not exceed two times the minimum number minus
one. The California Bylaws provide for a board of directors of five to nine
members, with the number of members currently set at seven. California law also
requires that any change in the range of a variable board of directors specified
in the Bylaws be approved by a majority of the outstanding shares entitled to
vote (or such greater proportion of the outstanding shares as may be required by
the Articles of Incorporation), provided that a change reducing the minimum
number of directors to less than five cannot be adopted if votes cast against
the proposal are equal to more than 16 2/3% of the outstanding shares entitled
to vote. The California Bylaws require the vote of a majority in interest of the
voting power of all of the then outstanding shares to change the range of the
Company's variable Board of Directors.
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Delaware law permits a board of directors to change the authorized number of
directors by amendment to the Bylaws unless the number of directors is fixed in
the certificate of incorporation or the manner of fixing the number of directors
is set forth in the Certificate of Incorporation, in which case the number of
directors may be changed only by amendment of the certificate of incorporation
or consistent with the manner specified in the certificate of incorporation, as
the case may be. The Delaware Certificate provides that the exact number of
directors shall be fixed from time to time exclusively by the Board of Directors
by resolution.
FILLING BOARD VACANCIES. Under California law, if, after the filling of any
vacancy by the directors of a corporation, the directors then in office who have
been elected by the corporation's shareholders constitute less than a majority
of the directors then in office, then (i) any holder of more than 5% of the
corporation's voting stock may call a special meeting of shareholders, or (ii)
the superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation. Delaware
law provides that if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire board of directors as constituted immediately prior to any increase,
the Delaware Court of Chancery may, upon application of any shareholder or
shareholder's holding at least 10% of the total number of shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships or
to replace the directors chosen by the directors then in office. The Delaware
Certificate and Bylaws provide that vacancies shall be filled only by the
affirmative vote of a majority of directors then in office, even if such
directors comprise less than a quorum of the Board of Directors, or by the sole
remaining director, unless the Board of Directors determines by resolution that
any such vacancies be filled by the shareholders, or as otherwise provided by
law. The California Articles are silent on filling vacancies. The California
Bylaws provide vacancies may be filled by a majority vote of the directors then
in office, though less than a quorum, or by a sole remaining director except
that a vacancy created by the removal of a director, by the vote or written
consent of the shareholders or by court order may be filled only by the vote of
a majority of outstanding voting shares.
"BLANK CHECK" PREFERRED STOCK. After the reincorporation, the Delaware
Company would retain the rights currently available to the Company under
California law to issue shares of its authorized but unissued capital stock.
Following the Reincorporation Effective Date, shares of authorized and unissued
Common Stock and Preferred Stock of the Delaware Company could (within the
limits imposed by applicable law) be issued in one or more transactions, or
Preferred Stock could be issued with terms, provisions and rights which would
make a hostile takeover of the Delaware Company more difficult. Any such
issuance of additional stock could have the effect of diluting the earnings per
share and book value per share of existing shares of Common Stock and Preferred
Stock, and such additional shares could be used to dilute the stock ownership of
persons seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board. Accordingly, if the Delaware Board so
authorizes, the holders of Delaware Preferred Stock may be entitled to vote
separately as a class in connection with approval of certain extraordinary
corporate transactions in circumstances where Delaware law does not ordinarily
require such a class vote, or might be given a disproportionately large number
of votes. Such Delaware Preferred Stock could also be convertible into a large
number of shares of Common Stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a controlling
interest in the Delaware Company more difficult or more costly, including the
right to elect additional directors to the Delaware Board. Potentially, the
Delaware Preferred Stock could be used to create voting impediments or to
frustrate persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware Preferred Stock could be privately placed
with purchasers who might side with the management of the Delaware Company in
opposing a hostile tender offer or other attempt to obtain control.
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Future issuances of Delaware Preferred Stock as an anti-takeover device
might preclude shareholders from taking advantage of a situation which might
otherwise be favorable to their interests. In addition (subject to the
considerations referred to above as to applicable law), the Delaware Board could
authorize issuance of shares of Common Stock of the Delaware Company ("Delaware
Common Stock") or Delaware Preferred Stock to a holder who might thereby obtain
sufficient voting power to ensure that any proposal to alter, amend or repeal
provisions of the Delaware Certificate unfavorable to a suitor would not receive
the necessary vote of a majority of the voting stock required for certain of the
proposed amendments (as described herein).
The Board of Directors does not currently intend to seek shareholder
approval prior to any issuance of the Delaware Preferred Stock or Delaware
Common Stock, except as required by law or regulation. Frequently, opportunities
arise that require prompt action, and it is the belief of the Board of Directors
that the delay necessary for shareholder approval of a specific issuance would
be a detriment to the Delaware Company and its shareholders. The Board of
Directors does not intend to issue any Preferred Stock except on terms which the
Board of Directors deems to be in the best interests of the Delaware Company and
its then existing shareholders.
The Board currently has the right to issue Preferred Stock having rights and
privileges similar to those of the Delaware Preferred Stock without shareholder
approval under the California Articles. Accordingly, the reincorporation will
not materially affect the Company's ability to defend against a hostile takeover
by issuing Preferred Stock.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. There is no specific statutory requirement under either California
or Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date of the proxy statement
released in connection with the previous year's annual meeting.
The California Bylaws have no provisions regarding advance notice of
director nominations and shareholder proposals. The Delaware Bylaws provide that
in order for director nominations or shareholder proposals to be properly
brought before the meeting, the shareholder must have delivered timely notice to
the Secretary of the corporation. To be timely under the Delaware Bylaws, a
shareholder proposal to be presented at an annual meeting shall be received at
the Delaware Company's principal executive offices not less than 120 days in
advance of the date that the Company's (or Company's predecessor's) proxy
statement was released to shareholders in connection with the previous year's
annual meeting of shareholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been advanced by more than
30 calendar days from the date contemplated at the time of the previous year's
proxy statement, notice by the shareholders to be timely must be received not
later than the close of business on the tenth day following the day on which the
date of the annual meeting is publicly announced.
TENDER OFFER STATUTES. Delaware law includes a provision that regulates
tender offers and is intended to limit coercive takeovers of companies
incorporated in that state. The provision, Section 203, provides that a
corporation may not engage in any business combination with any "interested
shareholder" for a period of three years following the date that such
shareholder became an interested shareholder unless: (i) prior to the date the
shareholder became an interested shareholder the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder; or (ii) upon consummation of the transaction
which resulted in the shareholder becoming an interested shareholder, the
interested shareholder owned at least 85%, of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding, for
purposes of determining the number of shares outstanding, those shares owned by
person who are directors and also officers and employee stock plans in which
employee participants do not have the right to determine confidentially
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whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) the business combination is approved by the Board of Directors
and the holders of 66 2/3% of the outstanding voting stock which is not owned by
the interested shareholder. An "interested shareholder" means any person (other
than certain classes of persons excluded by the statute) that owns 15% or more
of the outstanding voting stock of the corporation. Any corporation may decide
to opt out of the statute in its original Certificate of Incorporation or at any
time by action of its shareholders. The Delaware Company has not opted out of
the statute.
California law requires that, in a merger of the corporation with the holder
(or an affiliate of the holder) of more than 50% but less than 90% of its common
stock the corporation's shareholders receive shares of nonredeemable common
stock in exchange for any common stock of the corporation canceled in the
merger, UNLESS all of the holders of its common stock consent to the merger or
the merger has been approved by the California Commissioner of Corporations at a
"fairness hearing." This provision of California law may have the effect of
making a cash "freezeout" merger by a majority shareholder more difficult to
accomplish. A cash freezeout merger is a transaction whereby a minority
shareholder is forced to relinquish his share ownership in a corporation in
exchange for cash, subject in certain instances to dissenters' rights. Delaware
law has no comparable provision.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES. California law provides that
any loan or guaranty (other than loans to permit the purchase of shares under
certain stock plans) for the benefit of any officer or director, or any employee
benefit plan authorizing such loan or guaranty (except certain employee stock
purchase plans), must be approved by the shareholders of a California
corporation. However, a bylaw approved by the shareholders may provide that the
Board alone may approve such loan, guaranty or plan by a vote sufficient without
counting the vote of any interested director or directors if the Board
determines that such loan, guaranty or plan may reasonably be expected to
benefit the corporation. The California Bylaws provide for such loans. Under
Delaware law, a corporation may make loans to, or guarantee the obligations of,
officers or other employees when, in the judgment of the board of directors, the
loan or guaranty may reasonably be expected to benefit the corporation. Both
California law and Delaware law permit such loans or guaranties to be unsecured
and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS. With certain exceptions, California
law requires that mergers, reorganizations, certain sales of assets and similar
transactions be approved by a majority vote of each class of shares outstanding.
Delaware law generally does not require class voting for such transactions,
except in certain situations involving an amendment to the Certificate of
Incorporation which adversely affects a specific class of shares.
INSPECTION OF SHAREHOLDER LISTS. California law provides for an absolute
right of inspection of the shareholder list for shareholders holding 5% or more
of a corporation's outstanding voting shares or shareholders holding 1% or more
of such shares who have filed a Schedule 14A with the SEC. Delaware law provides
no such absolute right of shareholder inspection. However, both California and
Delaware law permit any shareholder of record to inspect the shareholder list
for any purpose reasonably related to that person's interest as a shareholder.
APPRAISAL RIGHTS. Under both California and Delaware law, a shareholder of
a corporation participating in certain mergers and reorganizations may be
entitled to receive cash in the amount of the "fair value" (Delaware) or "fair
market value" (California) of its shares, as determined by a court, in lieu of
the consideration it would otherwise receive in the transaction. The limitations
on such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving
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or acquiring corporation, shareholders are denied dissenters' rights under
California law. For this reason, appraisal rights will not be available to
shareholders in connection with the Reincorporation Proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
In addition, Delaware law does not provide shareholders with voting or
appraisal rights when a corporation acquires another business through the
issuance of its stock, whether in exchange for assets or stock or in a merger
with a subsidiary. California law treats these kinds of acquisitions in the same
manner as a merger of the corporation directly with the business to be acquired
and provides appraisal rights in the circumstances described in the preceding
paragraph.
DIVIDENDS. Under California law, any dividends or other distributions to
shareholders, such as redemptions, are limited to the greater of (i) retained
earnings or (ii) an amount which would leave the corporation with assets
(excluding certain intangible assets) equal to at least 125% of its liabilities
(excluding certain deferred items) and current assets equal to at least 100%
(or, in certain circumstances, 125%) of its current liabilities. Delaware law
allows the payment of dividends and redemption of stock out of surplus
(including paid-in and earned surplus) or out of net profits for the current and
immediately preceding fiscal years.
The Company has never paid a cash dividend, and the Delaware Company does
not anticipate paying any cash dividends in the foreseeable future.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION. California law
provides that if (i) the average of certain property, payroll and sales factors
results in a finding that more than 50% of the Delaware Company's business is
conducted in California, and in a particular fiscal year more than 50% of the
Delaware Company's outstanding voting securities are held of record by persons
having addresses in California, and (ii) the Company's shares are not traded on
a national securities exchange or the Nasdaq National Market or are held by
fewer than 800 shareholders, as of its most recent annual meeting of
shareholders, then the Delaware Company would become subject to certain
provisions of California law regardless of its state of incorporation.
Because the Company's Common Stock is traded on the Nasdaq National Market
and the Company's shares are held by at least 800 shareholders as of its most
recent annual meeting of shareholders, California law will not apply to the
Delaware Company if the reincorporation is approved. The Company would not be
subject to California law as long as it continued to meet both of these
requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
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SUMMARY OF FEDERAL TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation is intended to be a reorganization of capital stock
under the Internal Revenue Code of 1986, as amended. Generally, for federal
income tax purposes, no gain or loss should be recognized by holders of the
Company as a result of the reincorporation and no gain or loss should be
recognized by the Company or the Delaware Company.
Each former holder of Common Stock of the Company should have the same basis
in the Common Stock of the Delaware Company received pursuant to the
reincorporation as such shareholder had in the Common Stock of the Company held
by such shareholder at the time of consummation of the reincorporation. A
shareholder's holding period with respect to the Common Stock of the Delaware
Company received in the reincorporation should include the period during which
the shareholder held the corresponding shares of Common Stock of the Company,
provided that the shares of Common Stock of the Company were held by the
shareholder as capital assets at the time of consummation of the
reincorporation. Tax provisions are complex and subject to change and this
summary does not purport to be a complete discussion of all the possible tax
consequences of the reincorporation under federal laws. The Company has not
obtained a ruling from the Internal Revenue Service or an opinion of legal or
tax counsel with respect to the consequences of the reincorporation.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE REINCORPORATION, INCLUDING THE APPLICABILITY OF
THE LAWS OF ANY STATE OR OTHER JURISDICTION.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the outstanding shares of Common Stock
of the Company is required for approval of this proposal. Abstentions and broker
non-votes will each have the same effect as a negative vote on this proposal.
The Board of Directors believes that the proposed reincorporation of the
Company in Delaware and all related matters is in the best interests of the
Company and its shareholders for the reasons stated above. THEREFORE, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL TO
REINCORPORATE IN DELAWARE AND CERTAIN RELATED MATTERS. A VOTE FOR THE
REINCORPORATION PROPOSAL WILL CONSTITUTE APPROVAL OF THE MERGER, THE DELAWARE
CERTIFICATE, THE DELAWARE BYLAWS, THE FORM OF INDEMNIFICATION AGREEMENT AND THE
ADOPTION AND ASSUMPTION BY THE DELAWARE COMPANY OF ALL OF THE COMPANY'S STOCK
OPTION AND STOCK PURCHASE PLANS AND ALL OTHER ASPECTS OF THIS PROPOSAL NO. 2.
PROPOSAL NO. 3
AMENDMENT TO THE 1989 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve an
amendment to the Company's 1989 Option Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 500,000 shares, to a total of
6,105,850 shares (which includes shares previously issued upon the exercise of
options granted under the 1989 Option Plan). Management believes that the
availability of additional options to purchase Common Stock is necessary to
attract new key officers and other employees, and to enable the Company to
continue to provide its employees with equity ownership as an incentive to
contribute to the Company's success. The Board has approved the increase,
subject to shareholder approval.
The 1989 Option Plan currently provides for the issuance of 5,605,850 shares
of Common Stock upon the exercise of options granted thereunder. As of April 3,
1998, options for 3,033,681 shares were
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outstanding at a weighted average exercise price of $5.24 per share and options
for 2,379,172 shares had been exercised. The closing price of the Company's
Common Stock reported on The Nasdaq National Market on April 3, 1998 was $10.375
per share.
The numbers of shares of Common Stock subject to options granted under the
1989 Option Plan to certain persons during the year ended December 31, 1997 are
as follows: Ms. Hariton was granted an option to purchase 31,875; all current
executive officers as a group were granted options to purchase an aggregate of
31,875 shares; and all current employees, including officers who are not
executive officers, as a group were granted options to purchase an aggregate of
206,523 shares. During such year no options were granted under the 1989 Option
Plan to Messrs. Gilbertson, Dye, Klein or Morin, any directors who are not
executive officers, any other nominees for election as directors or any
associates of such directors or nominees or of any executive officers, and no
person was granted five percent or more of the total amount of options granted
under the 1989 Option Plan during that year.
SUMMARY OF THE 1989 STOCK OPTION PLAN
Set forth below is a summary of the principal features of the 1989 Option
Plan. Such summary is qualified in its entirety by the specific language of the
1989 Option Plan, a copy of which is available to any shareholder upon request.
Additional information concerning options outstanding under the 1989 Option Plan
is set forth under "Executive Compensation".
PURPOSE
The purpose of the 1989 Option Plan is to advance the interests of the
Company and its shareholders by giving employees, non-employee directors and
consultants a proprietary interest in the success of the Company, thus providing
them with an additional incentive to contribute toward the Company's success.
ADMINISTRATION
The 1989 Option Plan is administered by the Board of Directors of the
Company, or by a committee appointed by the Board and consisting of at least two
members of the Board. The 1989 Option Plan is currently being administered by
the Compensation and Stock Committee (the "Compensation Committee") which
consists of two non-employee directors. The interpretation and construction of
any provision of the 1989 Option Plan by the Board or the committee are deemed
to be final and conclusive.
ELIGIBILITY
The 1989 Option Plan provides that options may be granted to employees
(including officers and employee directors), non-employee directors and
consultants of the Company and its majority-owned subsidiaries. The Compensation
Committee selects the participants and determines the number of shares to be
subject to each option.
The 1989 Option Plan provides that the number of shares subject to options
that may be granted under the 1989 Option Plan to any employee during any fiscal
year shall not exceed (i) 500,000 in the case of any employee who serves as
Chairman of the Board, President, Chief Executive Officer or Chief Operating
Officer at any time during such fiscal year or (ii) 250,000 in the case of any
other employee. In addition, the value of the shares subject to all incentive
stock options held by an optionee that become exercisable for the first time
during any calendar year may not exceed $100,000 (determined as of the date of
grant).
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TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the person to whom such option is granted, which sets forth the terms and
conditions of the option. The following terms and conditions generally apply to
all options, unless the stock option agreement provides otherwise:
EXERCISE OF THE OPTION. The optionee must earn the right to exercise his
option by continuing to work for the Company. The Compensation Committee
determines when options granted under the 1989 Option Plan may be exercisable.
An option may be exercised by written notice of exercise to the Company
specifying the number of full shares of Common Stock to be purchased (which may
not be less than 10 shares), along with tender of payment to the Company of the
purchase price. Unless otherwise provided in the stock option agreement, the
purchase price of shares purchased upon exercise of an option may be paid by any
of the following means, or by any combination thereof: (i) cash; (ii) check;
(iii) other shares of the Company's Common Stock; (iv) a cashless exercise/sale
procedure (through which the funds to pay for the shares purchased upon exercise
of an option are delivered to the Company by a broker upon receipt of stock
certificates representing the shares being purchased); or (v) a cashless
exercise/loan procedure (through which the funds to pay for the shares purchased
upon exercise of an option are obtained from a margin loan from a broker) on or
before the settlement date for the sale of such shares to the broker.
EXERCISE PRICE. The exercise price of options granted under the 1989 Option
Plan is determined by the Compensation Committee and must not be less than: (i)
the fair market value of the Common Stock on the date the option is granted in
the case of incentive stock options; or (ii) 85% percent of such fair market
value in the case of nonstatutory stock options. Where the participant owns
stock representing more than 10% of the total combined voting power of the
Company's outstanding capital stock, the exercise price for a stock option must
not be less than 110% of such fair market value.
TERMINATION OF EMPLOYMENT. If an optionee's employment or other service
with the Company terminates for any reason other than permanent and total
disability or death, options under the 1989 Option Plan may be exercised not
later than 30 days after such termination (or such other period of time as is
determined by the Compensation Committee), but may be exercised only to the
extent the options were exercisable on the date of termination, subject to the
condition that no option may be exercised after expiration of its term.
DISABILITY. If an optionee should become permanently and totally disabled
while employed by or engaged in other service for the Company, or within 90 days
after termination of employment or other service, and such employment or other
service was not interrupted from the date of the option grant through the date
of disability or termination, options may be exercised at any time within 90
days following the date of disability, but only to the extent the options were
exercisable on the date of termination or disability, whichever occurs first,
subject to the condition that no option may be exercised after expiration of its
term.
DEATH. If an optionee should die while employed by or engaged in other
service to the Company, or within 90 days after termination of employment or
other service, and such employment or other service was not interrupted from the
date of the option grant through the date of death or termination, options may
be exercised at any time within six months following the date of death, but only
to the extent the options were exercisable on the date of termination or death,
whichever occurs first, subject to the condition that no option may be exercised
after expiration of its term.
TERMINATION OF OPTIONS. All options granted under the 1989 Option Plan
expire on the date specified in the option agreement, but in no event shall the
term of such options exceed 10 years. However, no options granted under the 1989
Option Plan to any participant who owns stock possessing more than 10% of the
total combined voting power of the Company's outstanding capital stock may have
a term exceeding five years from the date of grant.
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NONTRANSFERABILITY OF OPTIONS. An option is not transferable by the
optionee other than by will or the laws of descent and distribution and is
exercisable during his lifetime only by him, or in the event of his death, by a
person who acquires the right to exercise the option by bequest or inheritance
or by reason of the death of the optionee.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1989 Option Plan as may be
determined by the Compensation Committee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the Company's capital structure (whether by
reason of any recapitalization, stock dividend, stock split, combination of
shares or other similar change in corporate structure), appropriate adjustments
shall be made in the number of shares subject to each option and the per share
exercise price therefor.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company, all outstanding options granted prior to April 27,
1992 shall terminate, provided that all optionees shall be given not less than
10 days notice of such event and the vesting and exercisability of each
outstanding option shall be accelerated so that the optionee may, within such
ten-day period, exercise up to the entire unexercised portion of the options.
Upon any merger or consolidation in which the Company is not the surviving
corporation, all outstanding options granted prior to April 27, 1992 shall
either be assumed by the surviving entity or shall be subject to acceleration
and subsequent termination as set forth above if the required notice has been
given. Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company, all outstanding options granted on or after April
27, 1992 shall terminate if they are not exercised, but there will be no
acceleration of the vesting provisions of such options. Upon any merger or
consolidation in which the Company is not the surviving corporation, all
outstanding options granted on or after April 27, 1992 shall either be assumed
by the surviving entity or shall terminate, unless otherwise determined by the
Board.
AMENDMENT AND TERMINATION OF THE 1989 OPTION PLAN
The Board of Directors may amend the 1989 Option Plan at any time or from
time to time or may terminate it without the approval of the shareholders;
provided, however, that shareholder approval is required for any amendment that
increases the maximum number of shares for which options may be granted, changes
the standards of eligibility, or materially increases the benefits which may
accrue to participants under the 1989 Option Plan. However, no such action by
the Board of Directors or shareholders may alter or impair any option previously
granted under the 1989 Option Plan. In any event, the 1989 Option Plan shall
terminate in April 1999.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
provides favorable federal income tax treatment for "incentive stock options."
When an option granted under the 1989 Option Plan qualifies as an incentive
stock option, the optionee does not recognize income for federal income tax
purposes upon grant or exercise of the incentive stock option (unless the
alternative minimum tax applies as discussed below). The Company is not allowed
a deduction for federal income tax purposes as a result of the exercise of the
incentive stock option regardless of the applicability of the alternative
minimum tax. Upon a sale of the shares (assuming that the sale occurs no sooner
than two years after the grant of the option and one year after the receipt of
the shares by the optionee), any gain or loss will be treated as long-term
capital gain or loss for federal income tax purposes.
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The favorable federal income tax consequences described above will not apply
to the extent the optionee disposes of the shares acquired within one year of
the date of exercise or two years of the date of grant of the option
(hereinafter a "disqualifying disposition"). In the event of a disqualifying
disposition, the optionee generally will recognize ordinary income in the year
of disposition equal to the amount by which the fair market value of the stock
at the date of exercise exceeds the exercise price. Any additional gain will be
long-term capital gain if the optionee has held the stock for more than 12
months. If a loss is recognized, there will be no ordinary income and such a
loss will be a capital loss. A different rule for measuring income upon a
disqualifying disposition may apply if the optionee is also an officer, director
or 10% shareholder of the Company.
ALTERNATIVE MINIMUM TAX FOR NON-CORPORATE TAXPAYERS
The excess of the stock's fair market value over the exercise price of an
incentive stock option, which is generally not subject to tax at the time of
exercise, is treated as an item of income in determining an individual
taxpayer's alternative minimum tax liability. In determining alternative minimum
tax liability in subsequent years, however, the optionee will be entitled to
increase the basis of the stock by the amount of this income adjustment.
Furthermore, if there is a disqualifying disposition of the stock in the year of
exercise, the alternative minimum taxable income adjustment will be limited to
the gain on the sale.
NONSTATUTORY STOCK OPTIONS
Options granted under the 1989 Option Plan that do not qualify as incentive
stock options are considered "nonstatutory" stock options and will not qualify
for any special tax benefits to the optionee. Because the Company's stock
options are not deemed to have a readily ascertainable value, the optionee will
not recognize any taxable income at the time he or she is granted a nonstatutory
option. However, upon exercise of a nonstatutory stock option, the optionee will
recognize ordinary income measured by the excess of the then fair market value
of the shares over the option price. Upon a sale of the shares by the optionee,
any difference between the sale price and the exercise price, to the extent not
recognized as ordinary income, will be treated as capital gain or loss.
The income recognized by an optionee who was an employee at the time of
grant will be treated as wage compensation and will be subject to federal and
state income tax and F.I.C.A. withholding by the Company out of the current
earnings paid to the optionee.
COMPANY TAX DEDUCTIONS
The Company generally will be allowed a tax deduction to the extent and in
the year that compensation income is recognized by the optionee upon the
exercise of nonstatutory stock options, provided the Company has withheld income
taxes in accordance with the law. The Company receives no deduction in
connection with the exercise of an incentive stock option. In the event of a
disqualifying disposition, however, the Company will be allowed a deduction for
the amount of income recognized by the optionee with respect to his exercise for
the tax year of the Company in which the disqualifying disposition occurs.
The foregoing summary of the effect of current federal income taxation upon
optionees and the Company with respect to the grant of options for, and the
purchase and subsequent disposition of, shares under the 1989 Option Plan does
not purport to be complete, and reference is made to the applicable provisions
of the Code. The foregoing summary also does not reflect provisions of the
income tax laws of any state or foreign jurisdiction in which optionees may
reside, and does not address prospective estate, gift and other tax consequences
of acquiring stock under the 1989 Option Plan.
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REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented by proxy and voting at the Annual Meeting is
required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a quorum
but will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE 1989 STOCK OPTION PLAN.
PROPOSAL NO. 4
AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders are being asked to approve an amendment
to the Company's Employee Stock Purchase Plan (the "Purchase Plan") to increase
the number of shares of Common Stock reserved for issuance thereunder by 200,000
shares, to a total of 1,450,000 shares. As of April 3, 1998, 1,116,436 shares of
Common Stock had been purchased under the Purchase Plan, at an average purchase
price of $5.25 per share, and 133,564 shares remained available for purchase.
Employee stock purchase plans of this type are a standard and competitive
perquisite in high technology companies. The Company believes that the Purchase
Plan is necessary to attract and retain qualified employees, and that the
increase is necessary to ensure that there will be a sufficient number of shares
issuable thereunder to satisfy near term requirements.
The numbers of shares of Common Stock purchased under the Purchase Plan by
certain persons during the year ended December 31, 1997 are as follows: Mr.
Gilbertson, Mr. Dye, Ms. Hariton, Mr. Klein and Mr. Morin purchased 5,332
shares, 1,349 shares, 5,715 shares, no shares and 1,941 shares, respectively;
all current executive officers as a group purchased 14,337 shares; and all
current employees, including officers who are not executive officers, as a group
purchased 202,981 shares. During such year no shares were purchased under the
1989 Option Plan by any directors who are not executive officers, any other
nominees for election as directors or any associates of such directors or
nominees or of any executive officers, and no person purchase five percent or
more of the total number of shares issued under the Purchase Plan during that
year.
SUMMARY OF THE PURCHASE PLAN
GENERAL
The Purchase Plan was adopted by the Company's Board of Directors and
shareholders in March 1992. An aggregate of 1,250,000 shares of Common Stock
have been reserved for issuance under the Purchase Plan. Subject to shareholder
approval, the Board of Directors has approved an amendment to increase the
number of shares reserved for issuance under the Purchase Plan by 200,000
shares, to a total of 1,450,000 shares.
The Purchase Plan, and the rights of participants to make purchases
thereunder, is intended to qualify as an "employee stock purchase plan" under
Sections 421 and 423 of the Internal Revenue Code. See "Federal Income Tax
Consequences" below.
The Purchase Plan is not qualified under Section 401(a) of the Internal
Revenue Code and is not subject to the Employee Retirement Income Security Act
of 1974, as amended.
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PURPOSE
The purpose of the Purchase Plan is to enable the Company to offer
incentives to its employees, so as to attract and retain the best available
officers and employees for positions of substantial responsibility, and to
promote the success of the Company's business.
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or by a
committee appointed by the Board (the "Committee") and is currently being
administered by the Board of Directors. Members of the Board of Directors who
are eligible employees are permitted to participate in the Purchase Plan:
however, no member of the Committee, while serving as such, shall be eligible to
participate in the Purchase Plan. All costs and expenses incurred in plan
administration are paid by the Company without charge to participants.
ELIGIBILITY
Any individual (including officers and employee directors) who is
customarily employed by the Company or a designated subsidiary for at least 20
hours per week and more than five months per calendar year is eligible to
participate in the Purchase Plan.
No employee is permitted to purchase shares under the Purchase Plan if such
employee owns, directly or indirectly (including stock purchasable under any
outstanding purchase rights), five percent or more of the total combined voting
power or value of all classes of stock of the Company or any of its
subsidiaries. In addition, purchase options granted to a participant under the
Purchase Plan (and all other purchase plans of the Company and its subsidiaries)
may not permit such individual to purchase Common Stock having a fair market
value of more than $25,000 (valued at the time each purchase right is granted)
during any one calendar year.
OFFERING DATES
The Purchase Plan is implemented in one-year offering periods beginning on
each June 1 and ending on May 31 of the following year. The Board or Committee,
at its discretion, may redesignate the commencement and termination date of
subsequent offering periods and may designate special short offering periods in
connection with such redesignations, but no such redesignation shall affect an
offering period in progress.
Each offering is divided into two six-month "purchase periods" during which
contributions are made through payroll deductions and at the end of which (the
"Purchase Date") shares are issued based on the contributions made during the
purchase period. A purchase period commencing on June 1 ends on the following
November 30. A purchase period commencing on December 1 ends on the following
May 31.
GRANT OF OPTION; PURCHASE OF STOCK
At the beginning of an offering period, each participant is granted a
purchase option to purchase up to the number of shares equal to the
participant's accumulated payroll deductions at the end of each purchase period
(at the rate designated by such employee, not to exceed an amount equal to 10%
of the participant's compensation during the applicable purchase period) divided
by 85% of the fair market value of a share of the Company's Common Stock at the
beginning of the offering period. If the total number of shares that would
otherwise be subject to options exceeds the number of shares then available
under the Purchase Plan (after deduction of all shares for which options have
been exercised or are then outstanding), the Company will make a pro rata
allocation of the shares remaining available for option grant in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
Executing the enrollment agreement to participate in the Purchase Plan does
not obligate the employee to make the stock purchase; the enrollment agreement
is merely an election by the employee to
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have shares placed under option to him. Unless the employee's participation is
withdrawn as provided in the Purchase Plan, his option for the purchase of
shares will be exercised automatically at each Purchase Date, and the maximum
number of full shares subject to option that are purchasable with the
accumulated payroll deductions in his account will be purchased for him at the
applicable option price. Any cash remaining to the credit of a participant's
account under the Purchase Plan after the purchase of shares at the end of an
offering period is returned to the participant without interest.
PURCHASE PRICE
The purchase price of the Common Stock acquired at the end of a purchase
period will be equal to the lesser of (i) 85% of the fair market value per share
of Common Stock on the date on which such offering period begins or (ii) 85% of
the fair market value per share of Common Stock on the Purchase Date. The fair
market value of the Common Stock shall be the opening sales price as reported on
The Nasdaq National Market on the date of determination.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the Purchase Plan is
accumulated by payroll deductions over the offering period. The deductions may
not exceed 10% of the total compensation which a participant receives during the
offering period, and shall not be less than $10.00 per month. A participant may
discontinue his participation the Purchase Plan (see "Withdrawal from the
Purchase Plan" below) or may decrease, but not increase, his rate of payroll
deductions at any time during the offering period. Payroll deductions for a
participant shall commence on the first payday following the commencement of the
offering period and shall continue until altered or terminated as provided in
the Purchase Plan.
All payroll deductions made for a participant are credited to his account
under the Purchase Plan and are deposited with the general funds of the Company.
All payroll deductions received or held by the Company under the Purchase Plan
may be used by the Company for any corporate purpose, and the Company shall not
be obligated to segregate such payroll deductions.
NONASSIGNABILITY
Purchase rights will be exercisable only by the participant. No purchase
rights, including but not limited to accumulated payroll deductions and any
rights with regard to the exercise of a purchase option or to receive shares
under the Purchase Plan, may be assigned, transferred, pledged or otherwise
disposed of in any way (other than upon death of a participant as provided in
the Purchase Plan) for any reason.
WITHDRAWAL FROM THE PURCHASE PLAN
A participant may terminate his participation in the Purchase Plan and his
interest in the then-current offering period in whole, but not in part, by
giving written notice to the Company of his election to withdraw all of the
accumulated payroll deductions credited to his account under the Purchase Plan.
Such withdrawal may be elected by a participant at any time prior to the end of
the applicable offering period. Any withdrawal by the participant of his
accumulated payroll deductions for a given offering period automatically
terminates the participant's interest in that offering period of the Purchase
Plan. A participant's withdrawal from an offering period will not have any
effect upon his eligibility to participate in subsequent offerings under the
Purchase Plan or in any similar plan which may hereafter be adopted by the
Company.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company or any designated subsidiary for at least 20
hours per week during the applicable offering period, cancels his participation
in the Purchase Plan immediately. In such event, the payroll deductions credited
to the participant's account will
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be returned to him or, in the case of death, to the person or persons entitled
thereto as provided in the Purchase Plan.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of any recapitalization, stock dividend, stock split,
combination of shares, or other similar change in corporate structure effected
without receipt of consideration), appropriate adjustments will be made to (i)
the class and maximum number of shares purchasable under the Purchase Plan, (ii)
the class and maximum number of shares purchasable per participant under any
outstanding purchase right or over the term of the Purchase Plan, and (iii) the
class and number of shares purchasable and the price per share payable under all
outstanding purchase rights.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Purchase Plan will terminate upon the earlier of (i) March 12, 2012 or
(ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights. However, the Board may from time to time
alter, amend, suspend or discontinue the provisions of the Purchase Plan. If
such right is exercised by the Company, then the Purchase Plan will terminate in
its entirety and no further purchase rights will be granted or exercised
thereunder.
The Board may not, without shareholder approval, (i) increase the number of
shares issuable under the Purchase Plan, except in connection with certain
changes in the Company's capital structure, (ii) permit payroll deductions at a
rate in excess of 10% of the participant's compensation rate, (iii) materially
increase the benefits accruing to participants under the Plan, or (iv)
materially modify the requirements for eligibility to participate in the
Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Internal revenue Code. Under these provisions, no income will be taxable
to a participant at the time of grant or exercise of a purchase option. As
summarized below, a participant may become liable for tax upon disposition of
the shares acquired, and the method of taxation will depend upon the
participant's holding period.
In order to receive the favorable Federal income tax consequences associated
with the Purchase Plan, the participant generally must not sell or dispose of
the shares acquired upon exercise of the purchase option within two years from
the grant date (the first day of the offering period) or within 12 months after
the Purchase Date. If the participant satisfies these requirements, then the
lesser of (a) the excess of the fair market value of the shares at the time of
sale or disposition over the option price, or (b) the excess of the fair market
value of the shares at the grant date over the option price (which is computed
as if exercised on the grant date), will be treated as ordinary income to the
participant. Any further gain upon the sale or disposition will generally be
taxed as a long-term capital gain calculated by adding the amount of ordinary
income to the basis of the shares. If the selling price is less than the option
price, there is no ordinary income and the participant would have a long-term
capital loss on the difference.
If the participant fails to satisfy the holding period requirements outlined
above, the disposition of shares of Common Stock he or she receives under the
Purchase Plan generally will be treated as a "disqualifying disposition." In the
event of a disqualifying disposition, the participant generally will recognize
ordinary income in the year of disposition equal to the amount by which the fair
market value of the stock at the date of exercise exceeded the exercise price.
Any additional gain will be long term or short-term gain, depending on how long
the participant has held the stock. The Company may be allowed a deduction to
the extent of the ordinary income recognizable by the participant. These holding
period requirements do not apply to options exercised or stock transferred after
the participant's death.
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The company is not entitled to a deduction for amounts taxed as ordinary
income to a participant, except to the extent that ordinary income must be
reported upon sales or other dispositions of shares before the expiration of the
holding period described above.
------------------------
The foregoing summary of the effect of current Federal income taxation upon
participants in the Purchase Plan and the Company with respects to the grant of
options for, and the purchase and subsequent disposition by the participant of ,
shares under the Purchase Plan does not purport to be complete, and reference is
made to the applicable provisions of the Internal Revenue Code. The discussion
of laws herein, is based only on such laws, court decisions and administrative
rulings as of the date hereof. The foregoing summary also does not reflect
provisions of the income tax laws of any state or foreign jurisdiction in which
participants may reside, and does not address prospective estate, gift and other
tax consequences of acquiring stock under the Purchase Plan.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented by proxy and voting at the Annual Meeting is
required for the approval of the above amendment to the Purchase Plan.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum but will have no effect on the outcome of
the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") as the
independent auditors of the Company for the current fiscal year. The selection
of the independent auditors is being submitted to the shareholders for
ratification at the Annual Meeting. In the event that ratification by the
shareholders of the selection of KPMG as the Company's independent auditors is
not obtained, the Board of Directors will reconsider such selection.
KPMG has audited the Company's financial statements since 1988. Its
representatives are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
The ratification of the selection of KPMG will require the affirmative vote
of not less than a majority of the shares of the Company's Common Stock
represented and voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF KPMG.
OTHER BUSINESS
The Company currently knows of no other matters to be submitted at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of proxy to vote the
shares they represent as the Board of Directors may recommend.
Dated: April 29, 1998 THE BOARD OF DIRECTORS
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of this day of , 1998 by and between Network Computing
Devices, Inc., a California corporation ("NCD California"), and Network
Computing Devices, Inc., Delaware, a Delaware corporation ("NCD Delaware").
RECITALS
WHEREAS, NCD Delaware is a corporation duly organized and existing under the
laws of the State of Delaware;
WHEREAS, NCD California is a corporation duly organized and existing under
the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, NCD Delaware has authority to
issue 1,000 shares of Common Stock, par value $.001 per share (the "NCD Delaware
Common Stock"), of which 1000 shares are issued and outstanding and owned by NCD
California;
WHEREAS, as of , 1998, the record date of the 1998 Annual Meeting
of Shareholders (the "Annual Meeting"), NCD California has authority to issue
(i) 30,000,000 shares of Common Stock (the "NCD California Common Stock"), of
which shares are issued and outstanding and (ii) 3,000,000 shares of
undesignated Preferred Stock, of which no shares are issued and outstanding;
WHEREAS, the respective Boards of Directors for NCD Delaware and NCD
California have determined that, for the purpose of effecting the
reincorporation of NCD California in the State of Delaware, it is advisable and
to the advantage of said two corporations and their shareholders that NCD
California merge with and into NCD Delaware upon the terms and conditions herein
provided; and
WHEREAS, the respective Boards of Directors of NCD Delaware and NCD
California, the shareholders of NCD California, and the sole stockholder of NCD
Delaware have adopted and approved this Merger Agreement;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, NCD California and NCD Delaware hereby agree to merge as follows:
1. MERGER. NCD California shall be merged with and into NCD Delaware, and
NCD Delaware shall survive the merger ("Merger"), effective upon the date when
this Merger Agreement is made effective in accordance with applicable law (the
"Effective Date").
2. GOVERNING DOCUMENTS. The Certificate of Incorporation of NCD Delaware
shall be amended and restated as in the form attached hereto as APPENDIX A-1,
and shall be the Certificate of Incorporation of the surviving corporation. The
Bylaws of NCD Delaware shall be amended and restated as in the form attached
hereto as APPENDIX A-2 and shall be the Bylaws of the surviving corporation.
3. DIRECTORS AND OFFICERS. The directors and officers of NCD California
shall become the directors and officers of NCD Delaware upon the Effective Date.
4. SUCCESSION. On the Effective Date, NCD Delaware shall succeed to NCD
California in the manner of and as more fully set forth in Section 259 of the
General Corporation Law of the State of Delaware.
5. FURTHER ASSURANCES. From time to time, as and when required by NCD
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of NCD California such deeds and
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other instruments, and there shall be taken or caused to be taken by it such
further and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, of record or otherwise, in NCD Delaware the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of NCD California, and otherwise to
carry out the purposes of this Merger Agreement and the officers and directors
of NCD Delaware are fully authorized in the name and on behalf of NCD California
or otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
6. STOCK OF NCD CALIFORNIA. Upon the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof, each share of
NCD California Common Stock outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of NCD
Delaware Common Stock.
7. STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of NCD
California stock shall be deemed for all purposes to evidence ownership of and
to represent the shares of NCD Delaware stock into which the shares of NCD
California stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of NCD Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to NCD Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of NCD Delaware stock evidenced by such
outstanding certificate as above provided.
8. OPTIONS. Upon the Effective Date, each outstanding option or other
right to purchase shares of NCD California stock, including those options
granted under the 1989 Stock Option Plan (the "1989 Plan"), the 1994 Outside
Directors' Stock Option Plan (the "Directors' Plan") and the 1992 Employee Stock
Purchase Plan (the "Purchase Plan") of NCD California, shall be converted into
and become an option or right to purchase the same number of shares of NCD
Delaware stock at a price per share equal to the exercise price of the option or
right to purchase NCD California stock and upon the same terms and subject to
the same conditions as set forth in the 1989 Plan, the Directors' Plan and the
Purchase Plan, respectively, and other agreements entered into by NCD California
pertaining to such options or rights. A number of shares of NCD Delaware stock
shall be reserved for purposes of such options and rights equal to the number of
shares of NCD California stock so reserved as of the Effective Date. As of the
Effective Date, NCD Delaware shall assume all obligations of NCD California
under agreements pertaining to such options and rights, including the 1989 Plan
and the Directors' Plan, and the outstanding options or other rights, or
portions thereof, granted pursuant thereto.
9. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Date, NCD Delaware
hereby assumes all obligations of NCD California under any and all employee
benefit plans in effect as of said date or with respect to which employee rights
or accrued benefits are outstanding as of said date.
10. OUTSTANDING COMMON STOCK OF NCD DELAWARE. Forthwith upon the Effective
Date, the One thousand (1,000) shares of NCD Delaware Common Stock presently
issued and outstanding in the name of NCD California shall be canceled and
retired and resume the status of authorized and unissued shares of NCD Delaware
Common Stock, and no shares of NCD Delaware Common Stock or other securities of
NCD Delaware shall be issued in respect thereof.
11. COVENANTS OF NCD DELAWARE. NCD Delaware covenants and agrees that it
will, on or before the Effective Date:
a. Qualify to do business as a foreign corporation in the State of
California, and in all other states in which NCD California is so qualified
and in which the failure so to qualify would have a material adverse impact
on the business or financial condition of NCD Delaware. In connection
therewith, NCD Delaware shall irrevocably appoint an agent for service of
process as required under
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the provisions of Section 2105 of the California Corporations Code and under
applicable provisions of state law in other states in which qualification is
required hereunder.
b. File any and all documents with the California Franchise Tax Board
necessary to the assumption by NCD Delaware of all of the franchise tax
liabilities of NCD California.
12. BOOK ENTRIES. As of the Effective Date, entries shall be made upon the
books of NCD Delaware in accordance with the following:
a. The assets and liabilities of NCD California shall be recorded at
the amounts at which they were carried on the books of NCD California
immediately prior to the Effective Date, with appropriate adjustments to
reflect the retirement of the one thousand (1,000) shares of NCD Delaware
Common Stock presently issued and outstanding.
b. There shall be credited to the capital stock of NCD Delaware the
aggregate amount of the par value of all shares of NCD Delaware stock
resulting from the conversion of the outstanding California Common Stock
pursuant to the Merger.
c. There shall be credited to the capital surplus account of NCD
Delaware the aggregate of the amounts shown in the capital stock and capital
surplus accounts of NCD California immediately prior to the Effective Date,
less the amount credited to the common stock account of NCD Delaware
pursuant to Paragraph (b) above.
d. There shall be credited to the retained earnings account of NCD
Delaware an amount equal to that carried in the retained earning account of
NCD California immediately prior to the Effective Date.
13. CONDITIONS. It shall be a condition precedent to the consummation of
the Merger and the other transactions contemplated by this Merger Agreement that
(i) the shares of Delaware Common Stock to be issued by NCD Delaware shall, upon
official notice of issuance, be listed on the Nasdaq National Market prior to or
on the Effective Date and (ii) the shareholders of NCD California approve the
Merger.
14. AMENDMENT. At any time before or after approval and adoption by the
shareholders of NCD California, this Merger Agreement may be amended in any
manner as may be determined in the judgment of the respective Boards of
Directors of NCD Delaware and NCD California to be necessary, desirable or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purposes and intent of this Merger Agreement.
15. ABANDONMENT. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either NCD California or NCD Delaware or both, notwithstanding
approval of this Merger Agreement by the sole stockholder of NCD Delaware and
the shareholders of NCD California.
16. COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
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IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolution of the Board of Directors of NCD California and NCD Delaware, is
hereby executed on behalf of each of said two corporations by their respective
officers thereunto duly authorized.
Network Computing Devices, Inc.,
Delaware,
a Delaware corporation
By:
-----------------------------------
Robert G. Gilbertson,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST:
- ---------------------------------------------
Joseph L. Ramirez, SECRETARY
Network Computing Devices, Inc.,
a California corporation
By:
-----------------------------------
Robert G. Gilbertson,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST:
- ---------------------------------------------
Joseph L. Ramirez, SECRETARY
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APPENDIX A-1
RESTATED CERTIFICATE OF INCORPORATION
OF NETWORK COMPUTING DEVICES, INC. DELAWARE
FIRST: The name of the corporation (hereinafter sometimes referred to as
the "Corporation") is Network Computing Devices, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the
City of Dover, County of Kent. The name of the registered agent at that address
is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Thirty-Three Million Shares
(33,000,000) consisting of:
1. Thirty Million (30,000,000) shares of Common Stock, par value one
tenth of one cent ($0.001) per share (the "Common Stock"); and
2. Three Million (3,000,000) shares of Preferred Stock, par value
one tenth of one cent ($0.001) per share (the "Preferred Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock
in series and, by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereon. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the Common Stock without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of
any such holders is required pursuant to the certificate or certificates
establishing the series of Preferred Stock.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
SIXTH:
A. The number of directors shall initially be seven (7) and thereafter
shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). All directors shall hold office until the expiration of
the term for which elected, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
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B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation or other cause (including
removal from office by a vote of the stockholders) may be filled only by a
majority vote of the directors then in office, though less than a quorum, or
by sole remaining director, and directors so chosen shall hold office for a
term expiring at the next annual meeting of stockholders at which the term
of office of the class to which they have been elected expires, and until
their respective successors are elected, except in the case of the death,
resignation, or removal of any director.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the stockholders shall require, in
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; PROVIDED, HOWEVER, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
amend or repeal this Certificate of Incorporation.
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APPENDIX A-2
BYLAWS OF NETWORK COMPUTING DEVICES, INC.
Article 1. STOCKHOLDERS
1.1. PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President and Chief Executive Officer or,
if not so designated, at the registered office of the corporation.
1.2. ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President and Chief Executive Officer at the time and place to
be fixed by the Board of Directors or the President and stated in the notice of
the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
1.3. SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the Board of Directors, the Chairman of the Board or the President
and Chief Executive Officer or the holders of 10% or more of the outstanding
voting power of the Corporation. Business transacted at any special meeting of
stockholders shall be confined to the purpose or purposes stated in the notice
of meeting.
1.4. NOTICE OF MEETINGS. Written notice of each meeting of stockholders,
whether annual or special, shall be given not less than ten (10) nor more than
sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required by law (meaning here and hereafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and hour
of the meeting. The notice of a special meeting shall state, in addition, the
purpose or purposes for which the meeting is called. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5. VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present. This list shall preemptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by each of them.
1.6. QUORUM. Except as otherwise provided by law or these Bylaws, the
holders of a majority of the shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
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1.7. ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the holders of a majority of the shares of stock present
or represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. When a meeting is adjourned to another place,
date or time, written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
1.8. VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons to
vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
1.9. ACTION AT MEETING. When a quorum is present at any meeting, any
election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election, and all other matters shall be
determined by a majority of the votes cast affirmatively or negatively on the
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, a majority of each such
class present or represented and voting affirmatively or negatively on the
matter) shall decide such matter, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these Bylaws.
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting. The corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
corporation may designate one or more persons as an alternate inspector to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting may, and
to the extent required by law, shall, appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability.
1.10. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder
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proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been advanced by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, notice by the stockholders to be timely must be received
not later than the close of business on the tenth day following the day on which
the date of the annual meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
1.11. CONDUCT OF BUSINESS. At every meeting of the stockholders, the
Chairman of the Board, if there is such an officer, or if not, the person
appointed by the Board of Directors, shall act as Chairman. The Secretary of the
corporation or a person designated by the Chairman of the meeting shall act as
Secretary of the meeting. Unless otherwise approved by the Chairman of the
meeting, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these Bylaws to
act by proxy, and officers of the corporation.
The Chairman of the meeting shall call the meeting to order, establish the
agenda, and conduct the business of the meeting in accordance therewith or, at
the Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the stockholders in attendance. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this Section
1.11 and Section 1.10, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
1.12. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken
at any annual or special meeting of stockholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the actions so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
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Article 2. BOARD OF DIRECTORS
2.1. GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2. NUMBER AND TERM OF OFFICE. The number of directors shall initially be
seven (7) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption). All directors shall hold office until the expiration
of the term for which elected and until their respective successors are elected,
except in the case of the death, resignation or removal of any director.
2.3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.4. RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the President and Chief Executive
Officer, two or more directors, or by one director in the event that there is
only a single director in office.
2.7. NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone or
electronic voice message system at least 24 hours in advance of the meeting,
(ii) by sending a telegram, telecopy or telex, or delivering written notice by
hand, to his last known business or home address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least three (3) day in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
2.8. PARTICIPATION IN MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or
any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
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2.9. QUORUM. A majority of the total number of authorized directors shall
constitute a quorum at any meeting of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third ( 1/3) of the
number so fixed constitute a quorum. In the absence of a quorum at any such
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice other than announcement at the meeting, until a
quorum shall be present. Interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or at a meeting of a
committee which authorizes a particular contract or transaction.
2.10 ACTION AT MEETING. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these Bylaws.
2.11. ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board or
committee.
2.12. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least a majority of the voting
power of all of the outstanding shares of capital stock entitled to vote
generally in the election of directors, voting together as a single class.
2.13. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these Bylaws for the
Board of Directors.
2.14. COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to the determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.15. NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights of holders
of any class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of Directors generally. However, any stockholder entitled to vote
in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary of the Corporation. To be timely, a stockholder nomination for a
director to be elected at an
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annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for director to be elected at a special meeting,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.15 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.15 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines that
a nomination of any candidate for election as a Director at such meeting was not
made in accordance with the applicable provisions of this Section 2.15, such
nomination shall be void; provided, however, that nothing in this Section 2.15
shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
Article 3. OFFICERS
3.1. ENUMERATION. The officers of the corporation shall consist of a Chief
Executive Officer, a President, a Secretary, a Chief Financial Officer and such
other officers with such other titles as the Board of Directors shall determine,
including, at the discretion of the Board of Directors, a Chairman of the Board,
and one or more Vice Presidents and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2. ELECTION. Officers shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of stockholders.
Officers may be appointed by the Board of Directors at any other meeting.
3.3. QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote appointing him, or until his earlier death, resignation or removal.
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3.5. RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer may be removed at any time, with or without cause, by
the Board of Directors.
3.6. CHAIRMAN OF THE BOARD. The Board of Directors may appoint a Chairman
of the Board. If the Board of Directors appoints a Chairman of the Board, he
shall perform such duties and possess such powers as are assigned to him by the
Board of Directors. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, and, if he is a director, at
all meetings of the Board of Directors.
3.7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject
to the direction of the Board of Directors, have responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive or which are delegated to him or her by the Board of
Directors. The Chief Executive Officer shall perform such other duties and shall
have such other powers as the Board of Directors may from time to time
prescribe. He or she shall have power to sign stock certificates, contracts and
other instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation, other than the Chairman of the Board.
3.8. PRESIDENT. Should there exist an office of President which is held by
a person other than the Chief Executive Officer and which differs from the
office of Chief Executive Officer, the President shall have the responsibilities
delegated to him or her by the Board of Directors.
3.9. VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the Chief Executive Officer and when so performing shall
have at the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the Secretary, including, without limitation, the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to keep a record of the proceedings of all meetings of stockholders and the
Board of Directors, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as
the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Secretary, the Assistant Secretary (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary secretary to keep a record of the meeting.
3.11. CHIEF FINANCIAL OFFICER. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform such duties and shall have such powers as may
from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer. In addition, the Chief Financial Officer shall perform such
duties and have such powers
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as are incident to the office of chief financial officer, including without
limitation, the duty and power to keep and be responsible for all funds and
securities of the corporation, to maintain the financial records of the
Corporation, to deposit funds of the corporation in depositories as authorized,
to disburse such funds as authorized, to make proper accounts of such funds, and
to render as required by the Board of Directors accounts of all such
transactions and of the financial condition of the corporation.
3.12. SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13. DELEGATION OF AUTHORITY. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Article 4. CAPITAL STOCK
4.1. ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2. CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation. Any or
all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable
securities laws or any agreement among any number of shareholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3. TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or authenticity of signature
as the corporation or its transfer agent may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by the
Bylaws, the corporation shall be entitled to treat the record holder of stock as
shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been transferred on the books of the corporation in accordance with
the requirements of these Bylaws.
4.4. LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously saved certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5. RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change,
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concession or exchange of stock, or for the purpose of any other lawful action.
Such record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Article 5. GENERAL PROVISIONS
5.1. FISCAL YEAR. The fiscal year of the corporation shall be as fixed by
the Board of Directors.
5.2. CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3. WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy, telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
5.4. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Except as
the Board of Directors may otherwise designate, the President or any officer of
the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution) at
any meeting of stockholders or shareholders (or with respect to any action of
stockholders) of any other corporation or organization, the securities of which
may be held by this corporation and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of this corporation's
ownership of securities in such other corporation or other organization.
5.5. EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6. CERTIFICATE OF INCORPORATION. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7. SEVERABILITY. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
5.8. PRONOUNS. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
5.9. NOTICES. Except as otherwise specifically provided herein or required
by law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in
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every instance be effectively given by hand delivery to the recipient thereof,
by depositing such notice in the mails, postage paid, or by sending such notice
by prepaid telegram, mailgram, telecopy or commercial courier service. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
5.10. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
5.11. TIME PERIODS. In applying any provision of these Bylaws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included.
5.12. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Article 6. AMENDMENTS
6.1. BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in these
Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
6.2. BY THE STOCKHOLDERS. Except as otherwise set forth in these Bylaws,
these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by
the affirmative vote of the holders of a majority of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote at any
annual meeting of stockholders, or at any special meeting of stockholders,
PROVIDED notice of such alteration, amendment, repeal or adoption of new Bylaws
shall have been stated in the notice of such special meeting.
Article 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
7.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by Delaware Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of his or her heirs, executors and
administrators; PROVIDED, HOWEVER, that, except as provided in Section 7.2 of
this Article 7, the Corporation
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shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, unless the Delaware General Corporation
Law then so prohibits, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer (and
not in any other capacity in which service was or is tendered by such person
while a director or officer, including, without limitation. service to an
employee benefit plan) in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section or otherwise.
7.2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 7.1 is not
paid in full by the Corporation within ninety (90) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if such suit is not frivolous or brought in bad faith, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other then an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
7.3. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of related expenses, to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification of and advancement of expenses to directors
and officers of the Corporation.
7.4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person in
Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5. INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article 7.
7.6. INSURANCE. The Corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another
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corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
7.7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any
provision of this Article 7 by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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APPENDIX B
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 199 , is made by and
between Network Computing Devices, Inc., a Delaware corporation (the "Company"),
and (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of Directors
of the Company (the "Board") has concluded that, to retain and attract talented
and experienced individuals to serve as directors, officers and agents of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its directors, officers
and agents and the directors, officers and agents of its subsidiaries, and to
assume for itself maximum liability for expenses and damages in connection with
claims against such directors, officers and agents in connection with their
service to the Company and its subsidiaries, and has further concluded that the
failure to provide such contractual indemnification could result in great harm
to the Company and its subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
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H. The Company desires and has requested the Indemnitee to serve or continue
to serve as a director, officer or agent of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee or other agent
of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise; or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor
corporation of the Company or a subsidiary of the Company, or was a
director, officer, employee or agent of another enterprise at the request
of, for the convenience of, or to represent the interests of such
predecessor corporation.
(b) EXPENSES. For purposes of this Agreement, "expenses" include all
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under this Agreement or Section 145 or
otherwise; provided, however, that "expenses" shall not include any
judgments, fines, ERISA excise taxes or penalties, or amounts paid in
settlement of a proceeding.
(c) PROCEEDING. For the purposes of this Agreement, "proceeding" means
any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) SUBSIDIARY. For purposes of this Agreement, "subsidiary" means any
corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. LIABILITY INSURANCE.
(a) MAINTENANCE OF D&O INSURANCE. The Company hereby covenants and
agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to
any possible proceeding by reason of the fact that the Indemnitee was an
agent of the Company, the Company, subject to Section 3(c), shall promptly
obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from established
and reputable insurers.
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(b) RIGHTS AND BENEFITS. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if the Indemnitee is a
director; or of the Company's officers, if the Indemnitee is not a director
of the Company but is an officer; or of the Company's key employees, if the
Indemnitee is not a director or officer but is a key employee.
(c) LIMITATION ON REQUIRED MAINTENANCE OF D&O
INSURANCE. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium
costs for such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by exclusions
so as to provide an insufficient benefit, or the Indemnitee is covered by
similar insurance maintained by a subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
(a) SUCCESSFUL DEFENSE. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding
(including, without limitation, an action by or in the right of the Company)
to which the Indemnitee was a party by reason of the fact that he is or was
an Agent of the Company at any time, against all expenses of any type
whatsoever actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding.
(b) THIRD PARTY ACTIONS. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is
or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against
any and all expenses and liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and
amounts paid in settlement) actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding, provided the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and its stockholders, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
(c) DERIVATIVE ACTIONS. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such
capacity, the Company shall indemnify the Indemnitee against all expenses
actually and reasonably incurred by him in connection with the
investigation, defense, settlement, or appeal of such proceeding, provided
the Indemnitee acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and its
stockholders; except that no indemnification under this subsection 4(c)
shall be made in respect to any claim, issue or matter as to which such
person shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction unless and only to the extent that the court
in which such proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such amounts which the court shall deem proper.
(d) ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, and
if prior to, during the pendency of after completion of such proceeding
Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's
heirs, executors and administrators against any and all expenses and
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred to the
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<PAGE>
extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be obligated to
indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 8(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement, notify
the Company of the commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of a
proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such proceeding in accordance with the
terms of such policies.
(c) In the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by
the Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel
by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any
fees of counsel subsequently incurred by the Indemnitee with respect to the
same proceeding, provided that (i) the Indemnitee shall have the right to
employ his counsel in any such proceeding at the Indemnitee's expense; and
(ii) if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (B) the Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
the Indemnitee in the conduct of any such defense, or (C) the Company shall
not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
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8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board, (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the
Company under the General Corporation Law of Delaware or (iv) the proceeding
is brought to establish or enforce a right to indemnification under this
Agreement or any other statute or law or otherwise as required under Section
145.
(b) LACK OF GOOD FAITH. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(c) UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. NON-EXCLUSIVITY. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
10. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. SURVIVAL OF RIGHTS.
(a) All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
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(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place.
13. INTERPRETATION OF AGREEMENT. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
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The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
NETWORK COMPUTING DEVICES, INC.
By
--------------------------------------
Title
--------------------------------------
Address:
-------------------------------
-------------------------------
INDEMNITEE:
[Indemnitee's Printed Name]
Address:
-------------------------------
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<PAGE>
PRELIMINARY COPY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NETWORK COMPUTING DEVICES, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Network Computing Devices, Inc., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated April 29, 1998, and
the Annual Report on Form 10-K for the year ended December 31, 1997, and
hereby appoints Robert G. Gilbertson and Joseph L. Ramirez, or either of
them, proxies and attorneys-in-fact, with full power to each of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Shareholders of Network Computing Devices, Inc.,
to be held on May 28, 1998, at 10:00 a.m., local time, at 301 Ravendale
Drive, Mountain View, California, and at any adjournment(s) thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth on the
reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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x FOLD AND DETACH HERE x
<PAGE>
/X/ PLEASE MARK YOUR CHOICES LIKE THIS
1. ELECTION OF DIRECTORS
FOR* / / AGAINST / /
Nominees
Robert G. Gilbertson, Philip Greer, Douglas H. Klein, Paul Low, Stephen A.
MacDonald, Rudolph G. Morin, Peter Preuss
- -------------------------------------------------------
For all nominees, except as noted above
* FOR all nominees listed or, in the discretion of the proxies, for such
other persons as may be nominated if any such nominees does not or cannot
stand for election (except as indicated).
2. Proposal to approve the reincorporation of the Company in the State of
Delaware and other related changes to the rights of shareholders.
FOR / / AGAINST / /
3. Proposal to approve an amendment to the 1989 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by
500,000 shares.
FOR / / AGAINST / /
4. Proposal to approve an amendment to the Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares.
FOR / / AGAINST / /
5. Proposal to ratify the appointment of KPMG Peat Marwick as the independent
auditors of the Company.
FOR / / AGAINST / /
6. In their discretion, the proxies are authorized to vote upon such other
matter or matters that may properly come before the meeting and any
adjournment thereof.
This Proxy should be marked, dated, signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.
This proxy will be voted as directed or, if no direction is indicated, will
be voted for the election of named directors, for the reincorporation in
Delaware, for the amendment of the 1989 Stock Option Plan, for the amendment
of the Employee Stock Purchase Plan, and for the ratification of the
appointment of KPMG Peat Marwick as the independent auditors of the Company.
Signature(s)___________________________________________ Date__________________
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
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x FOLD AND DETACH HERE x
