<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 Section 240.14a-11(c) or Section
240.14a-12
OVERLAND DATA, 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
OVERLAND DATA, INC.
8975 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123-1599
________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1998
________________________
The Annual Meeting of Shareholders (the "Meeting") of Overland Data, Inc.,
a California corporation (the "Company"), will be held at the principal
executive offices of the Company at 8975 Balboa Avenue, San Diego, California
92123-1599 on November 12, 1998, at 9:00 a.m., for the following purposes:
1. To elect five (5) directors of the Company to hold office until the
1999 Annual Meeting of Shareholders or until their respective
successors are duly elected and qualified;
2. To readopt and renew the supermajority vote provisions relating to the
"fair price provisions" for certain business combinations as set forth
in the Company's Amended and Restated Articles of Incorporation;
3. To approve an amendment to the Company's 1995 Stock Option Plan, as
amended, to increase the total number of shares of Common Stock
authorized for issuance thereunder from 572,500 to 1,000,000 shares,
thereby increasing the remaining number of shares available for future
issuance thereunder from 86,000 to 513,500 shares;
4. To approve an amendment to the Company's 1997 Executive Stock Option
Plan to increase the total number of shares of Common Stock authorized
for issuance thereunder from 550,000 to 800,000 shares, thereby
increasing the remaining number of shares available for future
issuance thereunder from 157,500 to 407,500 shares;
5. To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan to increase the total number of shares of Common Stock authorized
to be sold to employees thereunder from 250,000 to 500,000 shares,
thereby increasing the remaining number of shares available for future
sale to employees from 128,741 to 378,741 shares;
6. To ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of the Company for the fiscal year ending June
30, 1999; and
<PAGE>
7. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on October 1, 1998 will be entitled to vote at the Meeting. Each of
these shareholders is cordially invited to be present and vote at the Meeting in
person.
By Order of the Board of Directors
VERNON A. LoFORTI
SECRETARY
San Diego, California
October ___, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY. THIS IS IMPORTANT BECAUSE A MAJORITY OF THE
SHARES MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM
AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN THOUGH
YOU SEND IN YOUR PROXY NOW. IN ADDITION, YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE IT IS VOTED.
<PAGE>
OVERLAND DATA, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SHARES OUTSTANDING AND VOTING RIGHTS . . . . . . . . . . . . . . . . . . 2
PROPOSAL ONE -- ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . 4
PROPOSAL TWO -- READOPTION AND RENEWAL OF CERTAIN SUPERMAJORITY
PROVISIONS SET FORTH IN ARTICLE IV OF THE ARTICLES. . . . . . . . . . 22
PROPOSAL THREE -- AMENDMENT TO 1995 STOCK OPTION PLAN. . . . . . . . . 28
PROPOSAL FOUR -- AMENDMENT TO 1997 EXECUTIVE STOCK OPTION PLAN . . . . . 34
PROPOSAL FIVE -- AMENDMENT TO 1996 EMPLOYEE STOCK PURCHASE PLAN. . . . . 37
PROPOSAL SIX -- RATIFICATION OF INDEPENDENT AUDITORS . . . . . . . . . . 41
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE>
OVERLAND DATA, INC.
8975 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123-1599
_______________
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1998
_______________
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the Board of Directors
(the "Board") of Overland Data, Inc., a California corporation (the
"Company"), for use at the Company's Annual Meeting of Shareholders to be
held at the principal executive offices of the Company at 8975 Balboa Avenue,
San Diego, California 92123-1599 on November 12, 1998 at 9:00 a.m. (the
"Meeting"), for the purposes set forth in the accompanying notice and at any
adjournment or postponement of the Meeting. The mailing of this Proxy
Statement and the accompanying form of proxy (the "Proxy") to the
shareholders of the Company is expected to commence on or about October 14,
1998.
The shares of the Company's Common Stock ("Common Stock") represented by
proxy will be voted in accordance with the instructions given on the Proxy,
subject to the proper execution of the Proxy and its receipt by the Company
prior to the close of voting at the Meeting or any adjournment or
postponement thereof. Proxies received by the Company on which no contrary
instruction has been given will be voted: FOR the election of the directors
to the Board nominated by management; FOR readoption and renewal of the
supermajority vote provisions (the "Supermajority Vote Provisions"), relating
to the "fair price provisions" for certain business combinations as set forth
in Article IV of the Company's Amended and Restated Articles of Incorporation
(the "Articles"), which require a two-thirds vote to (i) approve specified
business combinations under certain circumstances and (ii) amend such Article
IV; FOR approval of an amendment to the Company's 1995 Stock Option Plan to
increase the number of shares of Common Stock authorized for issuance
thereunder; FOR approval of an amendment to the Company's 1997 Executive
Stock Option Plan to increase the number of shares of Common Stock authorized
for issuance thereunder; FOR approval of an amendment to the Company's 1996
Employee Stock Purchase Plan to increase the number of shares available for
purchase thereunder; and FOR ratification of the selection of independent
auditors for the fiscal year ending June 30, 1999. A shareholder giving a
proxy has the power to revoke it at any time before it is exercised by filing
with the Secretary of the Company an instrument revoking it or a duly
executed proxy bearing a later date. The powers of the proxy holders will be
suspended if the person executing the Proxy is present at the Meeting and
votes in person.
1
<PAGE>
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries and custodians holding shares of Common Stock in their names
which are beneficially owned by others ("record holders"), to forward to such
beneficial owners. In addition, the Company may reimburse such persons for
their cost of forwarding the solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented, if deemed
desirable or necessary, by either telephone, telegram, facsimile, Internet or
personal solicitation by directors, officers or employees of the Company. No
additional compensation will be paid for any such services. The Company
reserves the right, if deemed desirable or necessary, to retain a proxy
solicitation firm to deliver solicitation material to record holders for
distribution by them to their principals and to assist the Company in
collecting proxies from such holders. The costs of these services to the
Company, exclusive of out-of-pocket costs, is not expected to exceed $25,000.
Except as described above, the Company does not intend to solicit proxies
other than by mail.
SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of shares of Common Stock of record as of the close of
business on October 1, 1998 (the "Record Date"), are entitled to vote at the
Meeting. On the Record Date, [[________________]] shares of Common Stock
(collectively, the "Shares") were issued and outstanding. Each of the Shares
is entitled to one vote on all matters to be voted upon at the Meeting. The
presence, in person or by proxy duly authorized, of the holders of a majority
of the Shares will constitute a quorum for the transaction of business at the
Meeting and any continuation or adjournment thereof. Broker non-votes (i.e.,
shares of Common Stock held by a broker or nominee which are represented at
the Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular purpose) will be counted in determining
whether a quorum is present at the Meeting. Directors will be elected by a
plurality of votes of the Shares present in person or represented by proxy at
the Meeting. Any of the Shares not voted (whether by abstention, broker
non-votes or otherwise) will have no impact on the election of directors,
except to the extent that the failure to vote for one director nominee
results in another nominee receiving a larger portion of votes. The proposal
submitted to the Company's shareholders to readopt and renew the
Supermajority Vote Provisions (relating to the "fair price provisions" for
certain business combinations as set forth in Article IV of the Articles)
must be approved by the vote of two-thirds (2/3) of the Shares. Any Shares
not voted for such proposal (whether by abstention, broker non-votes or
otherwise) will have the effect of a vote against such proposal. The
proposals with respect to (i) amendments of the Company's 1995 Stock Option
Plan, 1997 Executive Stock Option Plan and 1996 Employee Stock Purchase Plan
and (ii) ratification of the Company's auditors, must be approved by the vote
of the holders of a majority of the Shares represented in person or by proxy
and entitled to vote at the Meeting. In determining whether the proposals of
the preceding sentence have been approved, abstentions and broker non-votes
are not counted as votes for or against such proposals.
2
<PAGE>
Your execution of the enclosed Proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder
giving a proxy has a right to revoke it at any time by either (i) a
later-dated proxy, (ii) a written revocation sent to and received by the
Secretary of the Company prior to the Meeting or (iii) attendance at the
Meeting and voting in person.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The Company's Bylaws (the "Bylaws") provide that the authorized number
of directors of the Company shall not be less than five (5) and not more than
seven (7), with the exact number of directors to be set by resolution duly
adopted by the Board or by the shareholders. The current number of directors
of the Company has been set by the Board at five (5), all of whom are to be
elected to the Board at the Meeting. Each director nominee elected at the
Meeting will hold office until the next Annual Meeting of Shareholders, or
until his successor is duly elected and qualified, unless he resigns or his
seat on the Board becomes vacant due to his death, removal or other cause in
accordance with the Bylaws. Management knows of no reason why any of these
nominees would be unable or unwilling to serve; but, in the event that any
director nominee is unable or unwilling to serve, the proxies will be voted
for the election of such other person(s) for the office of director as
management may recommend in the place of such nominee.
Any votes so cast may be distributed among the director nominees voted
for in such proportions as the person named in the Proxy shall in his or her
sole judgment determine. The Company's shareholders have cumulative voting
rights with respect to the election of the director nominees to the Board.
The Bylaws provide that no shareholder is entitled to cumulate votes (i.e.,
cast for any candidate a number of votes greater than the number of the
shareholder's shares) unless such candidate's name (or candidates' names)
have been placed in nomination prior to commencement of the voting and a
shareholder has given notice of the shareholder's intention to cumulate votes
prior to commencement of the voting. If any shareholder has given such
notice, then every shareholder entitled to vote may cumulate such
shareholder's votes for candidates in nomination and give one candidate a
number of votes equal to the number of directors to be elected multiplied by
the number of votes to which such shareholder's shares are entitled, or
distribute the shareholder's votes on the same principle among as many
candidates as the shareholder shall elect. The candidates receiving the
highest number of affirmative votes of the Shares entitled to be voted for
them, up to the number of directors to be elected by such shares, will be
elected. If voting for directors is conducted by cumulative voting, the
person named on the Proxy will have discretionary authority to cumulate votes
among the director nominees named.
4
<PAGE>
INFORMATION REGARDING DIRECTOR NOMINEES
The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of the five (5) director nominees
at the Meeting, each of whom is currently a director of the Company.
PRINCIPAL OCCUPATION FOR THE PAST DIRECTOR
NAME AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
Scott McClendon 59 Mr. McClendon has served as 1991
President, Chief Executive Officer
and a director since joining the
Company in October 1991. Prior
thereto, he was employed by
Hewlett-Packard, a global
manufacturer of computing,
communications and measurement
products and services, for over 32
years in various positions in
engineering, manufacturing, sales
and marketing, and last served as
the General Manager of the San
Diego Technical Graphics Division
and Site Manager of Hewlett-Packard
in San Diego, California.
Mr. McClendon holds B.S. and M.S.
degrees in Electrical Engineering
from Stanford University.
Martin D. Gray 50 Mr. Gray, one of the co-founders of 1980
the Company, has served as
Secretary and a director since the
Company's inception in September
1980 through November 1997 and
Assistant Secretary and a director
from then until the present. He
also has served as Chief Technical
Officer since November 1997 and as
staff engineer at the Company from
January 1986 until November 1997.
From January 1977 to July 1985,
Mr. Gray was Manager of Research
and Development at Cipher Data
Products, Inc. ("Cipher"), a tape
drive manufacturer. Mr. Gray has
several patents in the tape drive
industry and holds a B.S. degree in
Electrical Engineering from the
California Institute of Technology.
5
<PAGE>
William W. Otterson 68 Mr. Otterson has served as a 1982
director of the Company since 1982.
Since March 1986, he has been the
Director of the UCSD CONNECT
program. He holds a B.S. degree in
Engineering from Stanford
University and an M.B.A. from the
Stanford Graduate School of
Business.
Peter Preuss 55 Mr. Preuss has served as director 1998
of the Company since September
1998. Since 1985, Mr. Preuss has
been a private investor. Mr.
Preuss has also 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 (ISSCO), which he
founded. Mr. Preuss is currently a
director of DepoTech Corporation
and Network Computing Devices, both
public corporations, and serves as
a Regent of the University of
California. He holds a B.S. degree
in Mathematics from the Technical
University of Hanover and a Masters
Degree in Mathematics from the
University of San Diego.
John A. Shane 65 Mr. Shane has served as a director 1992
of the Company since July 1992. He
is the founder and has served as
President of Palmer Service
Corporation, a venture capital
firm, since 1972. He is a director
of Arch Communications Group, Inc.,
Gensym Corporation, Summa Four,
Inc. and United Asset Management
Corporation, each of which is a
public corporation. Mr. Shane
holds a B.A. degree in Economics
from Princeton University and an
M.B.A. from Harvard Business
School.
6
<PAGE>
VOTE REQUIRED AND RECOMMENDATION
The five (5) nominees for director receiving the highest number of
affirmative votes of the Shares present in person or represented by proxy at
the Meeting, and entitled to be voted for them, shall be elected as directors
of the Company. Votes withheld from any director nominee are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect under California law.
Holders of proxies solicited by this Proxy Statement will vote the proxies
received by them as directed on the proxy card or, if no direction is made,
for the election of the director nominees above listed.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE DIRECTOR NOMINEES ABOVE
LISTED.
7
<PAGE>
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the Company's current directors and executive
officers is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------- --- -------------------------
<S> <C> <C>
Scott McClendon 59 President, Chief Executive Officer and Director
Martin D. Gray 50 Vice President, Chief Technical Officer,
Assistant Secretary and Director
Vernon A. LoForti 45 Vice President, Chief Financial Officer and
Secretary
W. Michael Gawarecki 50 Vice President of Operations
Frank R. Kirchhoff 55 Vice President of Sales
Steven E. Richardson 47 Vice President of Marketing
Robert J. Scroop 50 Vice President of Engineering
William W. Otterson (1) 68 Director
Peter Preuss (1) 55 Director
John A. Shane (1) 65 Director
</TABLE>
______________
(1) Member of the Compensation and Audit Committees.
A description of the background of each of the Company's current
directors has been provided above under "Information Concerning Director
Nominees." Following is a description of the background of each of the
Company's other executive officers:
W. MICHAEL GAWARECKI. Mr. Gawarecki has served as Vice President of
Operations since joining the Company in July 1998. From October 1997 to June
1998, he was Vice President of Operations for SubMicron Systems, and, from
February 1994 to September 1997, was director of California operations for
Millipore Corporation, both companies serving the semiconductor industry.
From February 1993 to January 1994, he was Director of Advanced Manufacturing
at Telectronics Pacing Systems, a medical device company. Mr. Gawarecki
holds a B.A. degree in Business Administration from National University.
FRANK R. KIRCHHOFF. Mr. Kirchhoff has served as Vice President of Sales
since joining the Company in July 1993. From June 1987 to June 1993, he
served in various sales and
8
<PAGE>
marketing capacities at Western Digital Corporation, an information storage
products and services provider, including Vice President of International
Marketing from June 1987 to June 1988, Vice President of Domestic Sales from
July 1988 to August 1990 and Vice President of European Operations for
Western Digital Corporation from September 1990 to June 1993. From October
1983 to June 1987, Mr. Kirchhoff was Vice President of Sales for Cipher. He
holds a B.S. degree in Marketing from Hofstra University, New York and an
M.B.A. from Pepperdine University.
VERNON A. LOFORTI. Mr. LoForti has served as Vice President and Chief
Financial Officer since joining the Company in December 1995, as Secretary
from November 1997 until the present and as Assistant Secretary from December
1995 through November 1997. From August 1992 to December 1995, he was the
Chief Financial Officer for Priority Pharmacy, a privately held pharmacy
company. From 1981 to 1992, Mr. LoForti was Vice President of Finance for
Intermark, Inc., a publicly held conglomerate. He holds a B.S. degree in
Accounting from Brigham Young University and is a Certified Public Accountant.
STEVEN E. RICHARDSON. Mr. Richardson has served as Vice President of
Marketing since joining the Company in August 1997. From March 1997 to July
1997, he was Vice President of Marketing for Proxima Corporation. From
December 1987 to March 1997, he served in various marketing capacities at
Compression Labs, Inc., a provider of video communications solutions, most
recently as Vice President of Marketing. From June 1976 to December 1987, he
served in various capacities at Hewlett-Packard, most recently as Product
Marketing Manager for the Information Networks Division in Cupertino,
California. Mr. Richardson holds a B.S. degree in Electrical Engineering from
the Massachusetts Institute of Technology and an M.B.A. from Harvard Business
School.
ROBERT J. SCROOP. Mr. Scroop has served as Vice President of
Engineering since joining the Company in February 1993. From April 1990 to
February 1993, he was Vice President of Engineering of the Cipher Division of
Archive Corporation. From December 1985 to April 1990, he was Director of
Engineering for Cipher. Mr. Scroop holds a First Class Honours degree in
Electrical Engineering from Brunel University, England.
There are no family relationships among any of the Company's directors and
executive officers.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1998 ("Fiscal 98"), the Board held
six (6) regular meetings. Each director attended at least 75% of the
meetings held during Fiscal 98 which occurred on or after the initiation of
his term as a director.
9
<PAGE>
During Fiscal 98, the Board had an Audit Committee and a Compensation
Committee. The Company does not have a Nominating Committee nor a committee
that performs equivalent functions of a Nominating Committee. The Audit
Committee, composed of Messrs. Otterson, Preuss and Shane, is responsible for
reviewing financial statements, accounting and financial policies and
internal controls and reviewing the scope of the independent auditor's
activities and fees. Mr. Shane is chairman of the Audit Committee. The
Audit Committee held two (2) meetings during Fiscal 98. The Compensation
Committee, also composed of Messrs. Otterson, Preuss and Shane, is
responsible for reviewing and approving, within its authority, compensation,
benefits, training and other human resource policies. Mr. Otterson is
chairman of the Compensation Committee. The Compensation Committee held four
(4) meetings during Fiscal 98. Each director who served on the Audit
Committee or the Compensation Committee during Fiscal 98 attended at least
75% of such respective committee's meetings held during Fiscal 98 which
occurred on or after the initiation of his term as a director.
LEGAL PROCEEDINGS
The Company, its directors and certain of its officers were named as
defendants (the "Defendants") in two putative class action lawsuits filed on
April 21, 1997 and May 2, 1997 in the U.S. District Court for the Southern
District of California (the "Court"). In both cases, the plaintiffs
purported to represent a class of all persons who purchased shares of Common
Stock between February 21, 1997 and March 14, 1997. The complaints alleged
that the Defendants violated various federal securities laws through material
misrepresentations and omissions in connection with the Company's initial
public offering that was declared effective by the Securities and Exchange
Commission (the "SEC") on February 21, 1997. The suits sought rescission of
their share purchases or rescissory damages if their shares have been sold,
as well as attorneys' fees and other costs and expenses.
On September 16, 1997, the Court entered an order permitting the
voluntary dismissal of the first-filed lawsuit without prejudice, and the
plaintiff in the second lawsuit was appointed as the lead plaintiff in this
litigation. That person now has resigned as the lead plaintiff, and the
shareholder who had filed the first of the two lawsuits has petitioned the
Court for permission to intervene and serve as the lead plaintiff. That
application is pending.
The Defendants have answered the second complaint, have denied the
material allegations and have disavowed any wrongdoing. The litigation
currently is in the discovery phase, and trial has been scheduled for the
summer of 1999.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock issued and outstanding as
of August 31, 1998 by (i) each person who is known by the Company to own
beneficially more than five percent (5%) of the issued and outstanding shares
of Common Stock, (ii) each of the Company's directors and director nominees,
(iii) the Company's Chief Executive Officer and the other five (5) most
highly compensated executive officers of the Company whose total annual
salary and bonus exceeded $100,000 during Fiscal 98 (collectively, the "Named
Executive Officers"), and (iv) all current directors and executive officers
as a group. The table is based upon information supplied by directors,
officers and principal shareholders of the Company.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------
Name and Address Number Percent (1)
- ---------------- --------- -----------
<S> <C> <C>
Martin D. Gray (2) . . . . . . . . . . . . . . . . . . . . . . 1,761,007 16.7%
William W. Otterson (3). . . . . . . . . . . . . . . . . . . . 546,624 5.2%
Scott McClendon (4). . . . . . . . . . . . . . . . . . . . . . 507,980 4.8%
Peter Preuss (5) . . . . . . . . . . . . . . . . . . . . . . . 52,000 *
John A. Shane (6). . . . . . . . . . . . . . . . . . . . . . . 32,377 *
c/o Palmer Service Corporation
200 Unicorn Park Drive
Woburn, MA 01801
Frank R. Kirchhoff (7) . . . . . . . . . . . . . . . . . . . . 180,729 1.7%
Robert J. Scroop (8) . . . . . . . . . . . . . . . . . . . . . 85,450 *
Vernon A. LoForti (9). . . . . . . . . . . . . . . . . . . . . 47,052 *
Steven E. Richardson (10). . . . . . . . . . . . . . . . . . . 23,000 *
All current directors and officers as a group (9 persons)(11). 3,236,219 30.7%
</TABLE>
__________________
* Indicates ownership of less than one percent.
(1) Except as otherwise indicated, each beneficial owner has the sole power
to vote and, as applicable, dispose of all shares of Common Stock owned
by such beneficial owner, subject to community property laws where
applicable. Amounts shown for each shareholder include all shares of
Common Stock issuable upon the exercise of options which are exercisable
as of, or will become exercisable within 60 days of August 31, 1998.
The address for those individuals for whom an address is not otherwise
indicated is 8975 Balboa Avenue, San Diego, California 92123.
(2) Includes 14,110 shares of Common Stock issuable pursuant to stock
options exercisable by Mr. Gray within 60 days of August 31, 1998.
(3) Consists of 388,864 shares of Common Stock held by Anne S. Otterson,
spouse of
11
<PAGE>
Mr. Otterson, Trustee, Otterson Family Trust u/t/d February 8, 1980,
over which Mrs. Otterson holds voting and dispositive power, and
56,760, 50,000 and 45,000 shares held by Eric Otterson, John Otterson
and Helen Ann Otterson, respectively, children of Mr. Otterson. Mr.
Otterson is a director of the Company. Includes 6,000 shares of Common
Stock issuable pursuant to stock options exercisable by Mr. Otterson
within 60 days of August 31, 1998.
(4) Includes 223,261 shares of Common Stock held by Scott McClendon,
Trustee, McClendon Trust u/t/d December 31, 1991, over which Mr.
McClendon holds voting and dispositive power, 1,000 shares held by Fred
Clifton, Trustee, for FTC/ESC Trust u/t/d January 4, 1988, 100 shares
held by Philip McClendon, 1,000 shares held by Financial Services Corp.
for the benefit of Elizabeth McClendon, and 54,369 shares issuable
pursuant to stock options exercisable by Mr. McClendon within 60 days of
August 31, 1998.
(5) [ Mr. Preuss ]
(6) Includes 21,377 shares held by Palmer Partners, L.P., of which Mr. Shane
is the general partner. Also includes 6,000 shares of Common Stock
issuable pursuant to stock options exercisable by Mr. Shane within
60 days of August 31, 1998.
(7) Includes 27,586 shares of Common Stock held by Frank and JoAnne
Kirchhoff and 73,921 shares of Common Stock issuable pursuant to stock
options exercisable by Mr. Kirchhoff within 60 days of August 31, 1998.
(8) Includes 5,000, 2,700 and 2,400 shares of Common Stock held by Amanda L.
Scroop, Catherine E. Scroop and Christopher D. Scroop, respectively, and
53,750 shares issuable pursuant to stock options exercisable by Mr.
Scroop within 60 days of August 31, 1998.
(9) Includes 46,613 shares of Common Stock issuable pursuant to stock
options exercisable by Mr. LoForti within 60 days of August 31, 1998.
(10) Includes 20,000 shares of Common Stock issuable pursuant to stock
options exercisable by Mr. Richardson within 60 days of August 31, 1998.
(11) Includes 275,762 shares of Common Stock issuable pursuant to stock
options exercisable by all current directors and officers as a group
within 60 days of August 31, 1998.
12
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons
who own more than ten percent (10%) of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the SEC. Officers, directors and greater than ten-percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, the Company's officers, directors and greater than
ten-percent shareholders complied with all applicable Section 16(a) filing
requirements.
EXECUTIVE COMPENSATION
The Company's non-employee director compensation plan consists of both a
cash component and an equity component. During Fiscal 98, each of the
Company's non-employee directors received cash compensation of $3,000 per
quarter, plus reimbursement for such director's expenses relating to his
activities as a director. Beginning July 1, 1998, the Company reduced the
quarterly retainer to $2,000 per quarter, but added a $2,000 fee for each
Board meeting attended. During Fiscal 98, the equity component of the plan
consisted of the grant of fully vested stock options exercisable into (i)
6,000 shares of Common Stock to each newly appointed non-employee director,
and (ii) 2,500 shares of Common Stock to each non-employee director annually
thereafter. Pursuant to this plan, in August 1997, the Company granted fully
vested stock options exercisable into 6,000 shares of Common Stock to both
Messrs. Otterson and Shane. In order to attract and retain qualified Board
members, the Company changed the equity component for fiscal year 1999 to
provide for the grant to a non-employee director of stock options exercisable
into 50,000 shares of Common Stock upon such director's appointment to the
Board and eliminated the subsequent annual grant provisions. Such options,
which are exercisable at the fair market value of the Common Stock on the
date of grant, will vest at the rate of 2,000 shares per meeting of the Board
attended, with a maximum vesting of 20,000 shares per year. In September
1998, the Company granted options exercisable into 50,000 shares of Common
Stock to its new director, Mr. Preuss. Also, in recognition of the many
years of prior uncompensated service rendered by both Mssrs. Otterson and
Shane, and the fact that the total number of options previously granted to
each of them amounted to only 6,000 shares, the Board made an equalizing
grant of options exercisable into 50,000 shares of Common Stock to each.
13
<PAGE>
1995 STOCK OPTION PLAN. In October 1995, the shareholders of the
Company approved the Company's 1995 Stock Option Plan as amended (the "1995
Plan"). A total of 572,500 shares of Common Stock are currently authorized
for issuance under the 1995 Plan. The 1995 Plan provides that Non-Employee
Directors, employees and consultants of the Company are eligible to receive
options exercisable into shares of Common Stock. The options granted at such
time are exercisable at fair market value on the date of issuance, vest over
a maximum of five (5) years and have a term of ten (10) years from the date
of grant. Unless sooner terminated by the Board, the 1995 Plan expires on
October 10, 2005. The Board may amend, suspend, modify or terminate the 1995
Plan; provided, however, that shareholder approval is required to make any
amendment which: (i) materially increases the number of shares available for
issuance under the 1995 Plan (except as expressly permitted); (ii) materially
changes the class of persons who are eligible for the grant of incentive
stock options; or (iii) if required by Rule 16b-3 (or any successor) under
the Exchange Act, materially increases the benefits accruing to participants
under the 1995 Plan or materially modifies the requirements as to eligibility
for participation in the 1995 Plan.
As set forth in "Proposal Three -- Amendment to 1995 Stock Option Plan"
of this Proxy Statement, the Company's shareholders are being asked to
approve an amendment to the 1995 Plan to increase the number of shares of
Common Stock reserved for issuance with respect to options granted under the
1995 Plan from 572,500 to 1,000,000 shares.
1997 EXECUTIVE STOCK OPTION PLAN. In November 1997, the shareholders of
the Company approved the Company's 1997 Executive Stock Option Plan (the
"1997 Plan"). A total of 550,000 shares of Common Stock are currently
authorized for issuance under the 1997 Plan. The 1997 Plan provides that
only employees of the Company are eligible to receive options exercisable
into shares of Common Stock. The options granted at such time are exercisable
at fair market value on the date of issuance, vest over a maximum of five (5)
years and have a term of ten (10) years from the date of grant. Unless
sooner terminated by the Board, the 1997 Plan expires on August 12, 2007.
The Board may amend, suspend, modify or terminate the 1997 Plan; provided,
however, that shareholder approval is required to make any amendment which:
(i) materially increases the number of shares available for issuance under
the 1997 Plan (except as expressly permitted); (ii) materially changes the
class of persons who are eligible for the grant of incentive stock options;
or (iii) if required by Rule 16b-3 (or any successor) under the Exchange Act,
materially increases the benefits accruing to participants under the 1997
Plan or materially modifies the requirements as to eligibility for
participation in the 1997 Plan.
As set forth in "Proposal Four -- Amendment to 1997 Executive Stock
Option Plan" of this Proxy Statement, the Company's shareholders are being
asked to approve an amendment to the 1997 Plan to increase the number of
shares of Common Stock reserved for issuance with respect to options granted
under the 1997 Option Plan from 550,000 to 800,000 shares.
14
<PAGE>
1996 EMPLOYEE STOCK PURCHASE PLAN. In December 1996, the Board adopted
the 1996 Employee Stock Purchase Plan (the "Purchase Plan"), the purpose of
which is to provide an opportunity for the Company's employees to purchase
shares of Common Stock and thereby have an additional incentive to contribute
to the prosperity of the Company. The Purchase Plan became effective in
February 1997. The Purchase Plan allows employees to purchase shares of
Common Stock through payroll deductions. An administrative committee
appointed by the Board (the "Administrative Committee") determines periods of
up to 27 months (each an "Option Period"), during which each participant in
the Purchase Plan is granted an option to purchase that number of shares of
Common Stock which may be purchased with the payroll deductions accumulated
on behalf of such participant during a particular Option Period, as approved
by the Board. Option periods are currently set at six (6) months. The
Purchase Plan provides that (i) no employee shall be entitled to accrue
rights to purchase shares under the Purchase Plan at a rate that exceeds
$25,000 of the fair market value of such stock (determined at the time the
option is granted) for any calendar year in which such option is outstanding
at any time, and (ii) the maximum number of shares subject to any option
shall not exceed 1,500. Employees participating in the Purchase Plan may
purchase shares of Common Stock under each option at a price per share equal
to the lower of (x) not less than 85% of the fair market value of the Common
Stock on the date of commencement of participation in the Purchase Plan
Option Period or (y) not less than 85% of the fair market value of a share of
Common Stock on the date of purchase. Generally, any employee, including
executive officers (but excluding persons who hold five percent (5%) or more
of the Company's voting stock), regularly employed on a full-time basis by
the Company or by Overland Data (Europe) Limited, a wholly owned subsidiary
of the Company, on the first day of each Option Period is eligible to
participate in the Purchase Plan, subject to minimum eligibility periods, if
any, as established by the Administrative Committee. Participants may
authorize payroll deductions of up to 15% of their compensation, including
base, overtime and commissions, for the purchase of shares of Common Stock
under the Purchase Plan. The Purchase Plan currently authorizes the Company
to issue up to 250,000 shares of Common Stock under the Purchase Plan,
subject to the proposed increase to 500,000 shares set forth below in
Proposal Five. As of the date hereof, 121,259 shares of Common Stock have
been purchased under the Purchase Plan. The Purchase Plan will terminate in
January 2007.
As set forth in "Proposal Five -- Amendment to 1996 Employee Stock
Purchase Plan" of this Proxy Statement, the Company's shareholders are being
asked to approve an amendment to the Purchase Plan to increase the number of
shares of Common Stock reserved for issuance under the Purchase Plan from
250,000 to 500,000 shares.
401(K) PLAN. In February 1994, the Company adopted the Overland Data,
Inc. On-Track 401(k) Savings Plan (the "401(k) Plan"), that covers all
eligible employees of the Company who complete three months of service and
are at least 21 years old. Employees may elect to defer up to 15% of their
eligible compensation (not to exceed the statutorily prescribed annual limit)
in the form of elective deferral contributions to the 401(k) Plan. The
elective deferral contributions are fully vested and nonforfeitable at all
times and are invested in accordance with the directions of the participants.
The 401(k) Plan is intended to qualify under Section 401 of the Internal
15
<PAGE>
Revenue Code, as amended (the "IRC"), so that employee contributions and
income earned on such contributions are not taxable to employees until
withdrawn. The Company currently makes matching contributions on the first
6% of eligible compensation deferred by 401(k) Plan participants at the rate
of 50%.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table sets forth, for each of the last three fiscal years
ended June 30, 1998, the cash compensation for services in all capacities to
the Company of those persons who were, as of June 30, 1998, the Named
Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term
------------------------------------------------------- Compensation
Fiscal Other Awards Other
Year Salary Bonus (1) Comp. (2) # of options Comp. (3)
------ ---------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scott McClendon, 1998 $ 260,000 $ 38,220 - 100,000 $ 57
President & CEO 1997 240,000 - - 8,000 55
1996 210,000 63,000 - - 44
Frank R. Kirchhoff, 1998 175,000 32,160 - 30,000 39
VP of Sales 1997 175,000 - - 2,200 40
1996 165,000 24,750 - - 44
Steven E. Richardson, 1998 157,500 29,650 $ 77,790 80,000 35
VP of Marketing (4) 1997 - - - - -
1996 - - - - -
Robert J. Scroop, 1998 150,000 20,000 - 75,000 33
VP of Engineering 1997 140,000 - - 1,867 30
1996 125,000 12,500 - - 44
Martin D. Gray, 1998 140,000 14,000 - - 31
VP, CTO & Asst. Secty 1997 140,000 - - 1,667 30
1996 125,000 18,750 - - 44
Vernon A. LoForti, 1998 135,000 16,880 - 30,000 30
VP, CFO & Secty 1997 130,000 - - 2,167 30
1996 56,058 8,625 - 52,150 26
</TABLE>
(1) The fiscal 1998 bonus amounts were earned in fiscal year 1998 but paid
in August 1998.
(2) Hiring incentive inclusive of moving, relocation cost, and tax uplift.
(3) Consists of premiums for term life insurance with no cash surrender value.
(4) Steven E. Richardson became Vice President of Marketing effective August
4, 1997. His annual base salary was $175,000 at June 30, 1998.
16
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information for the Named Executive
Officers with respect to grants of options to purchase Common Stock of the
Company made during Fiscal 98:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at assumed Value at assumed
--------------------------------------------------------------------- Annual Rates of
No. of % of Total Fair Stock Price
Securities Options Market Appreciation for
Underlying Granted to Exercise Value on Option Term (2)
Options Employees In Price Date of Expiration --------------------------
Granted Fiscal 1998 (1) per share Grant Date 5% 10%
---------- --------------- --------- --------- ----------- ----------- ------------
<C> <C> <C> <C> <C> <C> <C> <C>
Scott McClendon 100,000 19.6% $ 6.63 $ 6.63 7/1/07 $ 416,957 $1,056,651
Frank R. Kirchhoff 30,000 5.9% 7.50 7.50 8/12/07 141,501 358,592
Steven E. Richardson 80,000 15.7% 7.50 7.50 8/12/07 377,337 956,245
Robert J. Scroop 75,000 14.7% 7.50 7.50 8/12/07 353,753 896,480
Vernon A. LoForti 30,000 5.9% 7.50 7.50 8/12/07 141,501 358,592
--------
315,000
--------
--------
</TABLE>
____________________
(1) Based on a total of 511,000 options granted to all employees during Fiscal
98.
(2) In accordance with the rules of the Securities and Exchange Commission, the
potential realizable values for the options are based on assumed rates of
stock price appreciation of 5% and 10% compounded annually from the date
the respective options were granted to their expiration dates. The gains
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise. These assumed
rates of appreciation do not represent the Company's estimate or projection
of the appreciation of shares of the Common Stock and actual gains, if any,
on stock option exercises will depend on the future performance of the
Common Stock.
17
<PAGE>
OPTION EXERCISES
The following table sets forth information for the Named Executive Officers
with respect to exercises of options to purchase shares of Common Stock during
Fiscal 98 and the number and value of unexercised stock options held at June 30,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options at June 30, 1998 Options at June 30, 1998 (1)
Acquired on Value ---------------------------- ---------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott McClendon 25,619 103,750 $ 74,000 $ 15,750
Frank R. Kirchhoff 63,921 32,500 259,228 10,500
Steven E. Richardson 80,000 - -
Robert J. Scroop 35,617 76,250 141,750 5,250
Martin D. Gray 12,857 $ 55,607 12,860 1,250 46,551 5,150
Vernon A. LoForti 28,242 56,075 78,225 78,225
</TABLE>
_________________
(1) Based upon the difference between the closing bid price of the Common
Stock of $5.00 as quoted on the Nasdaq National Market System on
June 28, 1998 and the exercise price.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") makes
recommendations to the Board regarding compensation of the Company's
directors and officers and oversees the administration of the Company's
employee stock option plans. All decisions of the Committee relating to
compensation of the Company's executive officers are reviewed and approved by
the entire Board. The policy of the Committee with respect to executive
compensation is that such compensation should (i) be effective in attracting
and retaining key executives critical to the Company's success, (ii) align
the interests of the executives with the interests of the Company's
shareholders, (iii) reflect the Company's financial performance and (iv)
reward executives for their individual performance. Executive compensation
includes base salary, bonuses based on the Company's performance and stock
option grants. These programs are designed to provide incentives for both
short and long-term performance.
18
<PAGE>
BASE SALARY
The base salary of the Company's Chief Executive Officer (the "CEO") is
set at an amount which the Committee believes is competitive with the
salaries paid to the chief executive officers of other companies of
comparable size in similar industries. Salary levels of the Company's other
executive officers are set in a like manner. In evaluating salaries, the
Committee utilizes information and surveys of the compensation practices of
high technology companies provided by the management and human resource
consulting firms of Watson Wyatt and Radford Associates. The Committee also
relies on information provided by the Company's Human Resources Department
and its knowledge of local pay practices. Furthermore, the Committee
considers the executives' performance of their job responsibilities and the
overall financial performance of the Company. The Committee recognized the
record revenues and earnings generated by the Company during its fiscal year
ended June 30, 1997 when establishing the salaries for Fiscal 98.
BONUSES
The CEO and executive officers participate in the Company's executive
bonus plan. For Fiscal 1998, the plan established by the Committee provided
three performance measurement points: (1) actual net revenues achieved by the
Company in comparison to the approved annual financial plan, (2) actual net
income achieved by the Company in comparison to the approved annual financial
plan, and (3) individual job performance goals and qualitative objectives.
The bonus plan for each executive was tailored to be unique to his/her area
of responsibility. Although the net revenues achieved by the Company came
within 5% of the approved annual financial plan, net income fell
significantly below the planned level. Additionally, individual job
performance goals were only partially achieved by the executive officers.
STOCK OPTION GRANTS
The Company provides its executive officers with long-term incentives
through the grant of stock options. The exercise price of all options is
equal to the closing market price of the Common Stock on the date of grant
and the options generally vest over a four year period. An initial grant of
options is made at the time an executive is hired and the Committee considers
on an annual basis additional grants based on the performance of both the
individual executives and the Company as a whole. The Committee takes into
account the executive's position and level of responsibility, existing stock
and unvested option holdings and the potential reward if the stock price
appreciates in the public market. Upon his hire in August 1997, the
Committee granted a total of 80,000 options to Mr. Richardson, the Company's
Vice President of Marketing. Also in August 1997, the Committee determined
that the unvested option holdings of the other executive officers were
insufficient to provide the level of long-term incentive desired by the
Committee and, consequently, the Committee made a special grant of 235,000
options to those executive officers.
19
<PAGE>
The Compensation Committee believes that management compensation levels
during Fiscal 98 appropriately reflect the application of the Compensation
Committees's compensation policy.
Compensation Committee:
William W. Otterson
Peter Preuss
John A. Shane
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act or the Exchange
Act except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
acts.
20
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG OVERLAND DATA, THE NASDAQ 100 INDEX, AND
THE NASDAQ COMPUTER INDUSTRY COMPOSITE INDEX
Overland Data, Inc.
<TABLE>
<CAPTION>
NASDAQ Computer NASDAQ Overland
Date Industry Index Composite Index Data, Inc.
<S> <C> <C> <C>
21-Feb-97 100.00 100.00 100.00
24-Feb-97 101.73 100.81 103.30
25-Feb-97 101.78 101.00 109.89
26-Feb-97 101.48 100.47 102.20
27-Feb-97 97.41 98.38 95.05
28-Feb-97 97.61 98.10 96.70
03-Mar-97 98.53 98.27 98.90
04-Mar-97 99.14 98.73 103.30
05-Mar-97 100.40 99.61 100.00
06-Mar-97 97.92 98.58 101.10
07-Mar-97 96.46 98.31 96.70
10-Mar-97 97.73 99.13 96.70
11-Mar-97 96.86 98.68 97.80
12-Mar-97 95.80 97.74 96.43
13-Mar-97 95.76 96.92 93.41
14-Mar-97 95.51 96.90 91.21
17-Mar-97 94.71 95.89 52.75
18-Mar-97 93.96 95.13 54.95
19-Mar-97 91.56 93.63 53.85
20-Mar-97 92.68 94.37 53.85
21-Mar-97 91.40 93.99 52.75
24-Mar-97 90.10 93.13 49.45
25-Mar-97 90.95 93.54 44.51
26-Mar-97 94.61 95.11 43.96
27-Mar-97 93.37 93.64 43.41
31-Mar-97 91.10 91.56 43.96
01-Apr-97 90.59 91.20 45.05
02-Apr-97 89.33 90.01 48.35
03-Apr-97 91.79 90.96 48.35
04-Apr-97 94.32 92.69 52.75
07-Apr-97 95.59 93.78 52.75
08-Apr-97 96.65 94.23 54.95
09-Apr-97 95.21 93.64 53.85
10-Apr-97 93.14 92.61 54.40
11-Apr-97 90.30 90.45 51.65
14-Apr-97 92.47 91.16 52.75
15-Apr-97 91.07 90.90 51.65
16-Apr-97 90.84 90.70 51.65
17-Apr-97 91.79 91.21 50.55
18-Apr-97 93.37 91.62 50.55
21-Apr-97 92.27 90.23 52.75
22-Apr-97 93.48 90.89 48.35
23-Apr-97 96.39 91.97 47.25
24-Apr-97 96.51 92.04 47.25
25-Apr-97 94.39 90.63 47.25
28-Apr-97 95.50 91.23 47.25
29-Apr-97 98.47 93.13 49.45
30-Apr-97 100.84 94.49 47.25
01-May-97 101.88 95.22 46.15
02-May-97 104.97 97.83 46.15
05-May-97 107.93 100.37 49.45
06-May-97 105.90 99.55 51.65
07-May-97 105.23 99.14 52.75
08-May-97 106.65 99.74 52.75
09-May-97 106.95 100.05 54.95
12-May-97 107.62 100.74 57.14
13-May-97 105.83 99.95 56.04
14-May-97 105.40 100.09 54.40
15-May-97 107.93 101.44 58.24
16-May-97 106.07 100.48 52.75
19-May-97 105.64 100.52 54.95
20-May-97 108.92 102.22 54.95
21-May-97 110.44 102.96 56.04
22-May-97 110.20 102.87 54.95
23-May-97 111.78 104.15 56.04
27-May-97 115.06 105.61 54.40
28-May-97 115.01 105.69 59.34
29-May-97 113.34 105.15 56.04
30-May-97 111.10 104.95 58.24
02-Jun-97 111.61 105.28 58.24
03-Jun-97 108.10 103.79 58.24
04-Jun-97 106.89 103.40 60.44
05-Jun-97 107.98 104.18 59.34
06-Jun-97 109.81 105.29 59.34
09-Jun-97 110.79 105.82 57.14
10-Jun-97 108.84 105.05 57.14
11-Jun-97 109.73 105.51 57.14
12-Jun-97 109.35 105.77 59.34
13-Jun-97 110.99 106.65 58.24
16-Jun-97 112.41 107.32 59.34
17-Jun-97 114.41 108.15 53.85
18-Jun-97 111.94 107.35 56.04
19-Jun-97 112.67 108.46 55.77
20-Jun-97 112.73 108.45 54.95
23-Jun-97 111.56 107.49 53.85
24-Jun-97 113.93 108.85 50.55
25-Jun-97 112.93 108.39 51.65
26-Jun-97 111.31 107.65 49.45
27-Jun-97 110.95 107.78 48.35
30-Jun-97 110.86 108.08 47.25
01-Jul-97 110.06 107.79 47.81
02-Jul-97 112.59 109.09 48.35
03-Jul-97 113.68 109.99 47.25
07-Jul-97 114.65 110.22 50.55
08-Jul-97 116.58 111.30 50.55
09-Jul-97 117.67 111.41 49.45
10-Jul-97 117.39 111.74 48.35
11-Jul-97 118.84 112.61 48.35
14-Jul-97 122.39 114.21 48.35
15-Jul-97 125.14 115.57 47.25
16-Jul-97 131.07 118.46 50.55
17-Jul-97 130.06 117.58 51.65
18-Jul-97 126.84 116.01 51.65
21-Jul-97 125.28 115.13 51.65
22-Jul-97 129.47 117.20 53.85
23-Jul-97 129.41 117.49 54.95
24-Jul-97 128.60 117.60 56.04
25-Jul-97 128.15 117.63 60.44
28-Jul-97 126.72 117.18 67.03
29-Jul-97 127.91 117.84 63.74
30-Jul-97 129.28 119.02 64.84
31-Jul-97 130.28 119.45 61.54
01-Aug-97 130.62 119.49 61.54
04-Aug-97 132.56 120.32 61.54
05-Aug-97 134.55 121.52 62.64
06-Aug-97 135.31 122.19 56.04
07-Aug-97 135.01 121.72 52.75
08-Aug-97 132.34 119.80 56.04
11-Aug-97 130.17 118.92 63.74
12-Aug-97 128.92 118.13 65.93
13-Aug-97 129.94 118.67 65.93
14-Aug-97 130.51 118.91 65.93
15-Aug-97 127.45 117.07 61.54
18-Aug-97 128.98 117.63 60.44
19-Aug-97 132.83 119.96 59.34
20-Aug-97 135.72 122.06 59.34
21-Aug-97 133.14 120.46 67.03
22-Aug-97 132.16 119.81 63.19
25-Aug-97 131.84 120.03 63.74
26-Aug-97 130.28 119.26 61.54
27-Aug-97 130.26 119.58 59.34
28-Aug-97 127.84 118.51 62.09
29-Aug-97 128.43 118.96 61.54
02-Sep-97 132.04 121.27 61.54
03-Sep-97 131.51 121.28 62.50
04-Sep-97 132.12 121.76 60.44
05-Sep-97 132.68 122.59 61.54
08-Sep-97 133.42 123.31 63.74
09-Sep-97 134.47 124.12 63.74
10-Sep-97 131.53 122.85 61.54
11-Sep-97 132.05 122.90 60.99
12-Sep-97 131.93 123.61 59.89
15-Sep-97 128.84 122.53 61.54
16-Sep-97 133.17 125.05 60.44
17-Sep-97 131.85 124.89 61.54
18-Sep-97 131.73 125.16 61.54
19-Sep-97 132.97 125.93 61.54
22-Sep-97 133.80 126.62 60.44
23-Sep-97 135.50 127.21 61.54
24-Sep-97 133.65 126.46 63.19
25-Sep-97 132.53 125.82 69.23
26-Sep-97 132.55 126.07 68.13
29-Sep-97 133.99 127.03 70.33
30-Sep-97 131.30 126.33 68.69
01-Oct-97 131.28 126.68 68.13
02-Oct-97 131.98 127.59 69.23
03-Oct-97 133.57 128.60 69.23
06-Oct-97 133.98 129.05 70.88
07-Oct-97 135.93 130.20 71.98
08-Oct-97 136.33 130.54 71.43
09-Oct-97 136.74 130.84 71.43
10-Oct-97 135.54 130.33 71.43
13-Oct-97 135.70 130.56 74.18
14-Oct-97 134.61 129.86 71.43
15-Oct-97 133.03 129.16 71.43
16-Oct-97 130.50 127.38 70.33
17-Oct-97 127.70 124.92 63.74
20-Oct-97 129.33 126.32 63.74
21-Oct-97 132.43 128.35 65.93
22-Oct-97 131.44 128.01 63.74
23-Oct-97 128.61 125.25 58.24
24-Oct-97 126.44 123.73 63.74
27-Oct-97 116.87 115.05 57.14
28-Oct-97 125.55 120.14 59.34
29-Oct-97 123.29 120.12 60.44
30-Oct-97 119.69 117.69 57.14
31-Oct-97 121.97 119.43 58.24
03-Nov-97 125.36 122.16 59.34
04-Nov-97 125.05 122.25 57.14
05-Nov-97 125.00 122.71 57.14
06-Nov-97 123.10 121.67 60.44
07-Nov-97 122.39 120.09 55.50
10-Nov-97 120.52 119.22 57.70
11-Nov-97 120.46 118.78 58.24
12-Nov-97 116.54 115.54 57.70
13-Nov-97 119.34 116.86 56.04
14-Nov-97 121.91 118.68 63.19
17-Nov-97 125.06 120.97 61.54
18-Nov-97 123.32 119.94 60.44
19-Nov-97 123.49 120.00 60.44
20-Nov-97 126.11 121.90 61.54
21-Nov-97 125.52 121.47 59.89
24-Nov-97 122.21 118.94 61.54
25-Nov-97 122.88 119.09 60.99
26-Nov-97 123.57 119.50 59.34
28-Nov-97 124.21 119.95 60.44
01-Dec-97 127.70 122.21 61.54
02-Dec-97 124.10 120.39 60.44
03-Dec-97 124.90 121.05 62.64
04-Dec-97 124.14 120.92 60.99
05-Dec-97 126.16 122.45 58.24
08-Dec-97 128.39 123.77 58.24
09-Dec-97 123.62 121.45 57.70
10-Dec-97 121.26 119.66 56.60
11-Dec-97 117.30 116.80 57.70
12-Dec-97 114.31 115.16 50.55
15-Dec-97 114.06 115.16 48.91
16-Dec-97 116.04 116.39 46.15
17-Dec-97 114.70 115.97 50.55
18-Dec-97 111.98 114.15 49.45
19-Dec-97 112.19 114.27 47.81
22-Dec-97 113.21 114.82 46.15
23-Dec-97 110.52 113.16 43.96
24-Dec-97 109.26 112.38 45.05
26-Dec-97 110.58 113.27 42.86
29-Dec-97 113.46 115.22 45.05
30-Dec-97 115.97 117.29 44.23
31-Dec-97 115.56 117.69 48.35
02-Jan-98 117.67 118.53 46.15
05-Jan-98 118.60 119.47 53.85
06-Jan-98 117.89 118.42 52.75
07-Jan-98 116.14 117.04 50.55
08-Jan-98 116.53 116.58 49.45
09-Jan-98 111.84 112.66 51.65
12-Jan-98 113.64 112.98 49.45
13-Jan-98 116.91 115.54 53.85
14-Jan-98 116.99 116.07 54.95
15-Jan-98 117.38 115.94 46.71
16-Jan-98 118.29 117.13 46.71
20-Jan-98 120.91 119.17 46.15
21-Jan-98 120.76 119.01 47.25
22-Jan-98 119.79 118.15 45.05
23-Jan-98 119.99 118.11 45.05
26-Jan-98 119.40 117.02 46.15
27-Jan-98 121.79 118.33 45.05
28-Jan-98 125.13 120.72 43.96
29-Jan-98 126.06 121.37 43.96
30-Jan-98 126.21 121.36 45.05
02-Feb-98 129.91 123.88 45.61
03-Feb-98 131.53 124.88 48.35
04-Feb-98 133.09 125.94 47.81
05-Feb-98 132.26 125.67 48.35
06-Feb-98 134.29 126.98 43.96
09-Feb-98 133.43 126.69 46.71
10-Feb-98 135.16 128.08 46.15
11-Feb-98 134.59 128.05 46.15
12-Feb-98 135.02 128.48 46.15
13-Feb-98 134.37 128.19 45.05
17-Feb-98 133.31 127.66 45.05
18-Feb-98 134.75 128.58 44.51
19-Feb-98 136.66 129.43 43.96
20-Feb-98 137.17 129.51 51.65
23-Feb-98 140.83 131.28 51.65
24-Feb-98 139.31 130.31 49.72
25-Feb-98 142.69 132.39 49.45
26-Feb-98 143.20 133.18 48.35
27-Feb-98 142.21 132.69 49.45
02-Mar-98 140.01 131.79 50.55
03-Mar-98 139.36 131.69 50.00
04-Mar-98 139.93 131.88 50.00
05-Mar-98 133.06 128.30 46.15
06-Mar-98 137.55 131.41 43.96
09-Mar-98 132.59 129.29 45.61
10-Mar-98 135.33 131.04 43.96
11-Mar-98 136.14 131.67 43.96
12-Mar-98 137.18 132.21 45.61
13-Mar-98 138.04 132.78 45.61
16-Mar-98 138.72 134.01 45.05
17-Mar-98 136.87 133.35 43.96
18-Mar-98 137.73 134.02 48.35
19-Mar-98 138.56 134.90 56.32
20-Mar-98 136.73 134.09 52.20
23-Mar-98 137.89 134.34 52.75
24-Mar-98 140.14 135.83 52.20
25-Mar-98 142.87 136.74 52.75
26-Mar-98 143.58 137.04 55.22
27-Mar-98 143.25 136.67 54.95
30-Mar-98 142.71 136.30 55.50
31-Mar-98 144.39 137.57 54.95
01-Apr-98 145.57 138.47 54.40
02-Apr-98 145.87 138.87 49.45
03-Apr-98 146.30 139.05 50.00
06-Apr-98 142.66 137.08 49.45
07-Apr-98 139.30 134.80 46.71
08-Apr-98 140.95 135.43 45.05
09-Apr-98 141.91 136.42 48.35
13-Apr-98 142.62 136.77 48.35
14-Apr-98 143.86 138.13 46.71
15-Apr-98 146.41 139.64 46.43
16-Apr-98 146.29 139.26 45.61
17-Apr-98 147.00 139.89 45.61
20-Apr-98 150.00 141.43 45.33
21-Apr-98 152.37 142.68 45.61
22-Apr-98 155.33 143.71 44.51
23-Apr-98 150.47 141.00 43.96
24-Apr-98 149.33 140.07 44.23
27-Apr-98 145.56 136.42 45.05
28-Apr-98 146.51 137.28 45.61
29-Apr-98 148.31 138.77 47.53
30-Apr-98 149.04 140.03 47.81
01-May-98 149.38 140.40 47.25
04-May-98 149.89 140.81 47.25
05-May-98 148.64 139.76 47.81
06-May-98 148.27 139.15 47.25
07-May-98 145.42 137.53 46.71
08-May-98 149.25 139.72 47.25
11-May-98 146.84 138.50 46.15
12-May-98 149.07 139.41 45.05
13-May-98 150.17 139.86 43.96
14-May-98 150.71 139.80 43.96
15-May-98 148.30 138.41 45.05
18-May-98 146.54 137.27 46.15
19-May-98 148.19 138.34 45.05
20-May-98 145.86 137.28 45.05
21-May-98 143.83 136.47 44.51
22-May-98 141.99 135.27 44.51
23-May-98 139.60 133.26 44.51
27-May-98 141.05 133.48 44.51
28-May-98 141.42 134.50 43.96
29-May-98 138.77 133.32 44.51
01-Jun-98 134.76 130.91 45.05
02-Jun-98 137.67 132.04 45.61
03-Jun-98 135.09 130.58 43.96
04-Jun-98 139.14 132.65 43.96
05-Jun-98 140.45 133.62 43.96
08-Jun-98 140.26 133.98 45.05
09-Jun-98 142.67 134.96 45.05
10-Jun-98 139.90 132.90 44.78
11-Jun-98 138.53 131.13 45.05
12-Jun-98 138.66 130.78 43.96
15-Jun-98 136.78 128.59 43.96
16-Jun-98 141.82 131.39 43.96
17-Jun-98 143.14 133.13 44.23
18-Jun-98 143.42 132.85 43.96
19-Jun-98 144.81 133.50 44.51
22-Jun-98 148.13 135.34 44.51
23-Jun-98 153.20 138.24 43.96
24-Jun-98 157.09 140.73 41.76
25-Jun-98 154.84 139.64 44.51
26-Jun-98 156.01 140.11 43.96
29-Jun-98 158.66 141.73 43.41
30-Jun-98 158.60 142.00 44.51
</TABLE>
The above graph assumes that $100.00 was invested in the Common Stock and
in each index on February 21, 1997, the effective date of the Company's initial
public offering. Although the Company has not declared a dividend on its Common
Stock, the total return for each index assumes the reinvestment of dividends.
Shareholder returns over the period presented should not be considered
indicative of future returns. Pursuant to SEC regulations, the graph shall not
be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall
it be incorporated by reference into any filing under the Securities Act or the
Exchange Act.
21
<PAGE>
PROPOSAL TWO
READOPTION AND RENEWAL OF CERTAIN SUPERMAJORITY PROVISIONS
SET FORTH IN ARTICLE IV OF THE ARTICLES
(ITEM 2 ON THE PROXY CARD)
This proposal involves the readoption and renewal of the supermajority
vote provisions (the "Supermajority Vote Provisions") set forth in Sections 3
and 5 of Article IV ("Article IV") of the Company's Amended and Restated
Articles of Incorporation (the "Articles"). Section 3 of Article IV contains
certain "fair price provisions" (the "Fair Price Provisions") that, under
certain circumstances, require the approval of the holders of two-thirds
(2/3) of the Voting Stock (as defined in Article IV) and satisfaction of
certain minimum price and procedural requirements as a condition to any
Business Combination (as defined in Article IV) with any beneficial owner of
ten percent (10%) or more of the Voting Stock (a "Major Shareholder"). In
addition, Section 5 of Article IV requires the approval of two-thirds (2/3)
of the Voting Stock for any amendment, change or repeal of Article IV or any
other amendment of the Articles that would have the effect of modifying or
permitting circumvention of the provisions of Article IV.
The full text of Article IV is set forth in ATTACHMENT A to this Proxy
Statement. The information set forth below describing this proposal to
readopt and renew the Supermajority Vote Provisions is qualified in its
entirety by reference to ATTACHMENT A; and, unless otherwise defined herein,
all capitalized terms used below are defined with reference to Article IV.
Shareholders are encouraged to read carefully the following information and
ATTACHMENT A.
BACKGROUND AND REASONS FOR THE PROPOSAL
The Board, by unanimous vote at its meeting held on September 25, 1998,
approved and is recommending to the shareholders for approval at the Meeting
this proposal to readopt and renew the Supermajority Vote Provisions.
Effective January 24, 1997, the shareholders of the Company by written
consent in lieu of a special meeting approved the Fair Price Provisions
contained in Article IV. The Articles containing Article IV were filed with
the Secretary of State of the State of California on February 3, 1997.
Under Section 710 of the General Corporation Law of California (the
"California Law"), the two-thirds (2/3) vote requirements contained in
Sections 3 and 5 of Article IV (as described below) constitute "supermajority
vote provisions." Section 710 of the California Law provides that amendments
to the articles of incorporation of a California corporation that include a
supermajority vote provision cease to be effective two (2) years after the
most recent filing of the amendment to adopt or readopt such supermajority
vote provision. However, at any time within one year before the expiration
date, a supermajority vote provision may be renewed for another two-year
period by (i) readopting the provision by the approval of at least as large a
proportion of the outstanding shares as is required for the approval of the
specified corporate action (in this
22
<PAGE>
case, two-thirds (2/3) of the outstanding Shares), and (ii) filing a
certificate of amendment of its articles of incorporation pursuant to the
California Law.
In the event that the Supermajority Vote Provisions are not readopted
and renewed as described above, the corporate actions previously subject to
supermajority vote will thereafter require a vote of only a majority of the
outstanding shares of Common Stock. Given that the Supermajority Vote
Provisions currently contained in Article IV were filed on February 3, 1997,
the corporate actions set forth in Sections 3 and 5 of Article IV, which are
currently subject to the Supermajority Vote Provisions, would require only a
vote of the outstanding shares of Common Stock to the extent that the
Supermajority Vote Provisions contained in Article IV are not readopted and
renewed prior to the conclusion of the two-year period on February 3, 1999.
The Board believes that failure to readopt and renew the Supermajority Vote
Provisions would weaken the Fair Price Provisions, because it would become
easier to avoid the higher standards of Board approval set forth in Section 2
(as described below) of Article IV given the lower, majority vote
shareholder approval resulting in Section 3 (as described below) of Article
IV. Furthermore, it would become easier to amend, change or repeal Article IV
given the lower, majority vote shareholder approval resulting in Section 5
(as described below) of Article IV.
The general purpose of the Fair Price Provisions contained in Article IV
is to help (i) assure shareholders of the Company fair and equitable
treatment in the event of a takeover attempt, (ii) ensure that all
shareholders are afforded the opportunity to discuss fully matters which
affect their rights, (iii) promote continuity and stability in the Company's
business, management and policies and (iv) increase the Company's financial
flexibility. Readoption and renewal of the Supermajority Vote Provisions in
Article IV may continue to increase the ability of the Board, in such an
event, to take sufficient time to review a takeover proposal and possible
alternatives. In order to discharge their obligations to the Company and its
shareholders, the Board must have the ability to evaluate any attempt to take
over the Company or accumulate a significant block of its shares in an
atmosphere of calm and careful deliberation. In addition, Article IV,
augmented by the Supermajority Vote Provisions, is intended to encourage any
party seeking to acquire control of the Company to negotiate directly with
the Board. The Board believes that the Supermajority Vote Provisions
contribute to the above objectives, provide important additional protection
to the Company against unfair or coercive efforts to take control of the
Company and should be renewed.
The Board has observed that certain actions, including partial tender
offers followed by Business Combinations involving less favorable
"two-tiered" pricing, have been employed in recent years as techniques in
seeking to effect corporate takeovers. The Board believes that such actions
can be highly disruptive to a company's business operations and can result in
dissimilar treatment of different shareholders. For example, the terms of a
Business Combination may not reflect arm's-length bargaining, because one
party could dominate both sides of the negotiations. In addition, the fact
that the controlling party may solicit the votes of the remaining
shareholders on a Business Combination does not assure those shareholders
that the terms of such Business Combination (e.g., the consideration that
they will receive for their shares) will be equal to or in as desirable a
form as those obtained by the controlling party in acquiring its controlling
interest.
23
<PAGE>
This proposal is being recommended by the Board for shareholder approval as a
means of (i) mitigating the negative effects of these kinds of actions on
shareholders and (ii) increasing the ability and flexibility of the Board to
deal with unsolicited takeover proposals and, generally, in directing the
Company's business.
Article IV is not designed to prevent or discourage all tender offers or
takeover attempts for the Company. It does make, however, the acquisition
and exercise of control of the Company and the removal of incumbent officers
and directors more difficult. Readoption and renewal of the Supermajority
Vote Provisions in Article IV therefore will continue to enhance the ability
of such officers and directors to retain their positions. Nevertheless, the
Board continues to believe that the readoption and renewal of the
Supermajority Vote Provisions as part of the Fair Price Provisions will help
provide fairer treatment for all shareholders in the event of an actual or
threatened attempt to acquire control of the Company.
This proposal to readopt and renew the Supermajority Vote Provisions is
not being made in response to any specific effort of any person or group of
which the Company is aware to accumulate the Company's securities or to
obtain control of the Company.
If the readoption and renewal of the Supermajority Vote Provisions are
approved by the shareholders at the Meeting, then the Supermajority Vote
Provisions will continue to be effective for a two-year period commencing on
the date on which an appropriate certificate of amendment of the Articles is
filed in the office of the Secretary of State of the State of California.
Minor adjustments may be made to the language proposed in ATTACHMENT A if
requested by the California Secretary of State.
SUMMARY OF CERTAIN SECTIONS OF ARTICLE IV
As detailed in Article IV, a Business Combination includes, among other
transactions, the following: (i) any merger or consolidation of the Company
with or into a Major Shareholder; (ii) any sale, lease, exchange, transfer or
distribution to shareholders or other disposition of substantially all or any
Substantial Part of the assets of the Company to or with a Major Shareholder;
(iii) the purchase, exchange, lease or other acquisition by the Company of
substantially all of the assets of a Major Shareholder; (iv) the issuance of
any securities of the Company, eighty percent (80%) or more of which are
issued to a Major Shareholder, and (v) any reclassification of the Voting
Stock that has the effect, directly or indirectly, of increasing the
proportionate amount of Voting Stock that is owned by a Major Shareholder.
Section 2 of Article IV provides that, subject to Section 3 of Article
IV (as described below), the Company shall not be a party to a Business
Combination unless: (i) the Business Combination was approved by the Board
prior to the Major Shareholder involved in such Business Combination becoming
such; (ii) the Major Shareholder involved in such Business Combination sought
and obtained the unanimous prior approval of the Board to become a Major
Shareholder and such Business Combination was approved by not less than
eighty percent (80%)
24
<PAGE>
of the Board; or (iii) such Business Combination was approved by not less
than ninety percent (90%) of the Board.
Section 3 of Article IV currently provides that the approval
requirements recited above shall not apply if a Business Communication is
approved by the vote of at least two-thirds (2/3) of the shares of the Voting
Stock of the Company and certain other conditions are satisfied. These other
conditions require, among other things, that the consideration to be paid to
the Company's shareholders in a Business Combination be not less than the
higher of: (i) the highest price per share paid by a Major Shareholder in
acquiring any of the Voting Stock; or (ii) an amount which bears the same or
a greater percentage relationship to the market price of the Voting Stock as
the highest price per share determined in item (i) bears to the market price
of the Voting Stock prior to the acquisition of the Voting Stock by such
Major Shareholder (collectively, the "Minimum Price Requirements"). Failure
to readopt and renew the Supermajority Vote Provisions would cause the above
shareholder vote requirement to lower from two-thirds (2/3) to a majority of
the Voting Stock.
Section 5 of Article IV currently provides that any amendment, change or
repeal of Article IV or any other amendment of the Articles which would have
the effect of modifying or permitting circumvention of the provisions of
Article IV requires the approval of at least two thirds (2/3) of the Voting
Stock. Failure to readopt and renew the Supermajority Vote Provisions would
cause the above shareholder vote requirement to lower from two-thirds (2/3)
to a majority of the Voting Stock.
POSSIBLE DISADVANTAGES
The readoption and renewal of the Supermajority Vote Provisions may make
certain Business Combinations opposed by the incumbent Board more difficult
to effect. The readoption and renewal of the Supermajority Provisions may
discourage certain speculative accumulations of the Company's stock and
related fluctuations in market price, thereby depriving some shareholders of
an opportunity to sell their shares at a temporarily higher market price.
Nevertheless, the Board believes that the benefits of the Supermajority Vote
Provisions outweigh any disadvantages that they might have. Similar
proposals have been adopted by many publicly held companies in recent years
because of their favorable aspects. The Board believes that this proposal to
readopt and renew the Supermajority Vote Provisions is in the best interests
of the Company and its shareholders and recommends that shareholders approve
this proposal.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control
through market purchases may cause the market price of the stock to reach
levels that are higher than would otherwise be the case. The Supermajority
Vote Provisions may discourage such purchases and may therefore deprive some
holders of the Company's stock of an opportunity to sell their shares at a
temporarily higher market price.
25
<PAGE>
In addition, although the Supermajority Vote Provisions and the Fair
Price Provisions are designed to help assure fair treatment of all
shareholders in the event of a Business Combination, they do not provide that
shareholders necessarily will receive a price for their shares in an
acquisition that they, or the Board, deem favorable. Accordingly, readoption
and renewal of the Supermajority Vote Provisions would not preclude the
incumbent directors, or any future directors, from opposing a Business
Combination proposal, whether or not such a proposal satisfies the
requirements of the Fair Price Provisions, if they believe that such proposal
is not in the best interests of the Company and its shareholders. Similarly,
the Fair Price Provisions do not preclude the Board from approving a Business
Combination proposal with a Major Shareholder that does not otherwise satisfy
the requirements of the Fair Price Provisions, if the Board believed such a
proposal was in the Company's and the shareholders' best interests.
Because of the higher percentage requirements for shareholder approval
of any subsequent Business Combination and the possibility of having to pay a
higher price to other shareholders in such a Business Combination, it may
become more costly for a purchaser to acquire control of the Company if the
Supermajority Vote Provisions are readopted and renewed. The Supermajority
Vote Provisions therefore may decrease the likelihood that an offer will be
made for less than two-thirds (2/3) of the Voting Stock and, as a result, may
adversely affect those shareholders who would desire to participate in such
an offer. A potential purchaser of stock seeking to obtain control may also
be discouraged from purchasing stock because a two-thirds (2/3) vote would be
required in order to change or eliminate these provisions.
In certain cases, the Minimum Price Requirements, while providing
objective pricing criteria, could be arbitrary and not indicative of value.
In addition, a major shareholder may be unable in certain circumstances to
comply with all the procedural requirements of the Fair Price Provisions. In
these circumstances, unless a potential purchaser is willing and able to
acquire at least two-thirds (2/3) of the Voting Stock as the first step in a
Business Combination or obtain the voting support needed for a two-thirds
(2/3) shareholder vote, it would be forced either to negotiate with the Board
and offer terms acceptable to it or to abandon the proposed Business
Combination.
Another effect of the readoption and renewal of the Supermajority Vote
Provisions would be to give veto power to the holders of a minority of the
Voting Stock with respect to a Business Combination that is opposed by the
Board, but which holders of a majority (but less than two-thirds (2/3)) of
the Voting Stock may believe to be desirable and beneficial. The above
circumstance could prevent the removal of current management even if such
removal was deemed beneficial by a majority (but less than two-thirds (2/3))
of the outstanding shares of Common Stock. For information regarding the
Company's current significant shareholders and stock ownership by the Board
and management, see "Proposal One -- Election of Directors of the Company --
Security Ownership of Certain Beneficial Owners and Management."
Despite the foregoing, the Board believes that the benefits of seeking
to protect shareholders from any inequitable two-step Business Combinations
outweigh any potential disadvantages from discouraging such proposals and
that it is prudent and in the best interests of
26
<PAGE>
the Company and its shareholders to provide the advantages of greater
assurance of equal treatment in Business Combinations that will result from
the readoption and renewal of the Supermajority Vote Provisions.
VOTE REQUIRED AND RECOMMENDATION
The California Law provides that an amendment of a corporation's
articles of incorporation which, like the Supermajority Vote Provisions,
includes a supermajority vote provision, must be approved by at least as
large a proportion of the outstanding shares as is required pursuant to that
amendment for the approval of the specified corporate action or actions.
Accordingly, given that the Supermajority Vote Provisions of Article IV
require a two-thirds (2/3) vote of the shares of the Voting Stock, the
readoption and renewal of the Supermajority Vote Provisions require approval
by the affirmative vote of the holders of two-thirds (2/3) of the Shares
entitled to vote at the Meeting. Proxies solicited by the Board will be voted
in favor of the readoption and renewal of the Supermajority Vote Provisions
unless shareholders specify otherwise.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF PROPOSAL TWO AND
THE READOPTION AND RENEWAL OF THE SUPERMAJORITY VOTE PROVISIONS CONTAINED IN
ARTICLE IV.
27
<PAGE>
PROPOSAL THREE
AMENDMENT TO 1995 STOCK OPTION PLAN
(ITEM 3 ON THE PROXY CARD)
The Company's 1995 Stock Option Plan, as amended (the "1995 Plan")
became effective upon its approval by the Board on October 10, 1995, subject
to shareholder approval. The general purpose of the 1995 Plan is to assist
the Company in the recruitment, retention and motivation of employees,
directors and consultants who are in a position to make contributions to the
Company's progress. The 1995 Plan offers a significant incentive to the
employees, directors and consultants of the Company by enabling such persons
to acquire shares of Common Stock, thereby increasing their proprietary
interest in the growth and success of the Company.
During Fiscal 98, the Company hired a number of new key employees who
were granted options upon hire. In addition, a total of 150,000 options were
granted in September 1998 to non-employee directors. See "Proposal One --
Election of Directors -- Executive Compensation." As a result of these
special grants, the number of remaining shares available for grant under the
1995 Plan has been substantially depleted. Consequently, on September 25,
1998, the Board approved an amendment to the 1995 Plan to increase the number
of shares of Common Stock reserved for issuance with respect to options
granted under the 1995 Plan from 572,500 to 1,000,000 shares. This amendment
is being presented to the Company's shareholders for their approval.
SHARES SUBJECT TO THE 1995 PLAN
Currently, there are 572,500 shares of Common Stock reserved for
issuance with respect to options granted under the 1995 Plan, of which
486,500 options have been granted and 86,000 options are available for grant
as of September 28, 1998.
In the event of a subdivision of the outstanding shares of Common Stock,
or a combination or consolidation of the outstanding Common Stock (by
reclassification of otherwise) into a lesser number of shares, or a similar
occurrence, or declaration of a divided payable in shares of Common Stock or,
if in an amount that has a material effect on the price of the shares, in
cash, the Compensation Committee will make adjustments in the number and/or
exercise price of options and/or the number of shares available for issuance
under the 1995 Plan, as appropriate.
If this proposal is approved, the aggregate number of shares of Common
Stock that will be available for issuance under the 1995 Plan will be
increased from 572,500 to 1,000,000 shares and the remaining number of shares
available for future issuance will be increased from 86,000 to 513,500.
28
<PAGE>
ADMINISTRATION
The 1995 Plan is administered by the Compensation Committee of the Board
(the "Compensation Committee"), which is composed of at least two
Non-Employee Directors (as such term is defined in Rule 16b-3 and further
defined below). Subject to the limitations set forth in the 1995 Plan, the
Compensation Committee has the authority to determine to whom options will be
granted (including initial grants to incoming directors), the term during
which an option may be exercised and the rate at which an option may be
exercised (including acceleration of vesting upon a change of control). In
general terms, a "Non-Employee Director" within the meaning of Rule 16b-3 is
a member of the Board who (i) is not currently an officer or employee of the
Company or a parent or subsidiary of the Company, (ii) does not receive
compensation, either directly or indirectly, from the Company, or a parent or
subsidiary of the Company, for services rendered as a consultant or in any
other non-director capacity except for an amount that does not exceed the
dollar amount for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K promulgated under the Securities Act ("Regulation S-K"),
(iii) does not possess an interest in any other transaction for which
disclosure would be required pursuant to Item 404(a) under Regulation S-K,
and (iv) is not engaged in a business relationship for which disclosure would
be required pursuant to Item 404(b) of Regulation S-K.
The 1995 Plan provides for the grant of both incentive stock options
("ISOs") intended to qualify as such under Section 422(b) of the IRC and
nonstatutory stock options ("NSOs"). ISOs may be granted only to employees
(including officers and directors who are also employees) of the Company.
NSOs may be granted to employees (including officers and directors who are
also employees), directors and consultants of the Company. If any options
granted under the 1995 Plan for any reason expire or are canceled or
otherwise terminated without having been exercised in full, the shares
allocable to the unexercised portion of such options again become available
for issuance under the 1995 Plan. Options granted pursuant to the 1995 Plan
will vest at the times determined by the Compensation Committee (generally
over a five-year period).
The maximum term of each stock option granted under the 1995 Plan is ten
years. Stock options granted under the 1995 Plan must be exercised by the
optionee during its term or within 30 days after termination of the
optionee's employment, except that the period may be extended on certain
events, including death and termination due to disability, but not beyond the
maximum ten-year term.
The exercise price of all ISOs granted under the 1995 Plan must be no
less than 100% of the fair market value per share of Common Stock on the date
of grant. In the case of NSOs, the per share exercise price may be no less
than 85% of the fair market value per share of Common Stock on the date of
grant. With respect to an employee who owns more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
of its subsidiaries, the exercise price of any option granted must be no less
than 110% of the fair market value per share of Common Stock on the date of
grant. In addition to payment in cash, the 1995 Plan permits an optionee to
pay the exercise price of an option, all or in part, with shares of Common
Stock which have already been owned by the Optionee or his or her
representative for
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<PAGE>
more than 12 months and which are surrendered to the Company in good form for
transfer. Such shares shall be valued at their fair market value on the date
when the new shares of Common Stock are purchased under the 1995 Plan
pursuant to option exercise. Payment may also be made by delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell the optionee's shares and deliver all or a
part of the sales proceeds to the Company in payment of all or part of the
exercise price and any withholding taxes or by delivery (on a form prescribed
by the Company) of an irrevocable direction to pledge the optionee's shares
to a securities broker or lender approved by the Company, as security for a
loan, and to deliver all or part of the loan proceeds to the Company in
payment of all or part of the exercise price and any withholding taxes.
Based upon the closing price of the Common Stock on the Nasdaq National
Market System on September 15, 1998 ($[[____]] per share), the maximum
aggregate value of the underlying securities to be issued under the 1995
Plan, if the 1995 Plan is amended as proposed, is $[[___]] million. The
actual value of the shares of Common Stock to be issued under the 1995 Plan
will be determined by the fair market value of the underlying securities on
the date(s) such securities are issued.
NONTRANSFERABILITY
During an optionee's lifetime, such optionee's option(s) shall be
exercisable only by him or her and shall not be transferable. In the event
of an optionee's death, such optionee's option(s) shall not be transferable
other than by will or by the laws of descent and distribution.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the 1995 Plan at any time,
except that any amendment, suspension or termination shall not affect any
option previously granted. Any amendment of the 1995 Plan, however, which
(i) materially increases the number of shares of Common Stock available for
issuance, (ii) materially changes the class of persons who are eligible for
the grant of ISOs or (iii) if required by Rule 16b-3 (or any successor to
such rule) under the Exchange Act, materially increases the benefits accruing
to participants under the 1995 Plan or materially modifies the requirement as
to eligibility for participation in the 1995 Plan, will be subject to
approval of the Company's shareholders by the affirmative vote of the holders
of a majority of the securities of the Company present or represented and
entitled to vote at a duly held shareholders' meeting. Shareholder approval
is not required for any other amendment of the 1995 Plan. Unless sooner
terminated by the Board, the 1995 Plan will terminate on October 10, 2005,
and no further options may be granted or stock sold pursuant to the 1995 Plan
following the termination date.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS
Under federal income tax law, a grant of an ISO under the 1995 Plan is
not a taxable event for the Company or the recipient. Generally, the
exercise of an ISO also will not result in any federal income tax
consequences to the Company or the recipient except in circumstances where
the alternative minimum tax applies. In calculating alternative minimum
taxable income ("AMTI"), the excess of the fair market value of the shares of
Common Stock acquired upon exercise of the ISO, generally determined at the
time of exercise, over the amount paid for the shares of Common Stock by the
taxpayer, is included. However, if such shares are disposed of in a
"disqualifying disposition" (as defined below) in the year of exercise, then
the maximum amount included as AMTI is the gain on the disposition of such
shares.
When the recipient disposes of ISO shares after such shares have been
held for at least two years from the date of grant of the ISO and one year
after its exercise ("ISO holding period"), the recipient will recognize
capital gain or loss equal to the difference between the basis in the shares
(generally the exercise price) and the amount received in such disposition.
If the recipient disposes of such shares prior to the expiration of the ISO
holding period, a "disqualifying disposition" is deemed to have occurred and
the recipient must recognize compensation (ordinary) income equal to the
lesser of (i) the difference between the ISO exercise price and the stock's
fair market value on the date of exercise or (ii) the recipient's actual
gain, if any, on the purchase and sale. The compensation income is then
added to the basis of the ISO shares for purposes of calculating gain or loss
on the disposition of the ISO shares. The Company is entitled to take a
deduction for the compensation income recognized on the disqualifying
disposition if it has properly tracked the disqualifying transaction.
NONSTATUTORY STOCK OPTIONS
There are no federal income tax consequences to the Company or the
recipient as a result of a grant of an NSO under the 1995 Plan. Upon
exercise of an NSO, the recipient will generally recognize ordinary income in
an amount equal to the excess of the fair market value of the shares of stock
acquired at the time of exercise over the exercise price. Upon the
subsequent disposition of the shares, the optionee will realize a capital
gain or loss, depending on whether the selling price exceeds the fair market
value of the shares on the date of exercise. The optionee's holding period
in the shares, for capital gain and loss purposes, begins on the date of
exercise.
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of an NSO granted under the 1995
Plan for any amounts included by the recipient as ordinary income at the time
the recipient is taxed on such amounts. This compensation is subject to
withholding and the Company reports the income on a Form W-2 or 1099.
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<PAGE>
Section 162(m) of the IRC denies a deduction for taxable compensation
paid by a public company to its chief executive officer or any of its other
four (4) highest paid executives in excess of $1 million per year. Certain
performance-based compensation is not included in calculating the $1 million
threshold. Stock options may qualify for this exclusion if the plan under
which they are granted meets certain conditions. As presently administered,
the 1995 Plan does not satisfy these conditions. Accordingly, the Company
may not be able to claim a tax deduction for certain exercises of NSOs or
disqualifying dispositions of ISOs by the CEO or any of the Company's other
four (4) highest paid executives to the extent that the income from such
exercises or dispositions, combined with such executive's other taxable
compensation for the year, exceeds $1 million.
OTHER TAX CONSEQUENCES
The foregoing discussion is intended to be a general summary only of the
federal income tax aspects of options granted under the 1995 Plan. Tax
consequences may vary depending on the particular circumstances at hand. In
addition, administrative and judicial interpretations of the application of
the federal income tax laws are subject to change. Furthermore, no
information is given with respect to state or local taxes that may be
applicable. Participants in the 1995 Plan who are residents of or are
employed in a country other than the United States may be subject to taxation
in accordance with the tax laws of that particular country in addition to or
in lieu of United States federal income taxes.
EXEMPTION FROM SECTION 16 OF THE EXCHANGE ACT
Section 16 of the Exchange Act ("Section 16") establishes insider
liability for profits realized from any "short-swing" trading transaction
(i.e., purchase and sale, or sale and purchase within less than six months).
Grants of options are generally viewed as purchases of the underlying
securities for purposes of Section 16. Rule 16b-3 of the Exchange Act
provides that transactions by officers and directors pursuant to an employee
stock option plan, such as option grants, are exempt from Section 16
liability provided that the plan meets certain requirements. In general,
such exemption from such rules require that the transactions be: (i) approved
by the Board, or a committee of the Board that is composed solely of two or
more Non-Employee Directors; (ii) approved or ratified by either the
affirmative votes of the holders of a majority of the securities of the
issuer present, or represented, and entitled to vote at a meeting duly held
in accordance with the applicable laws of the state or other jurisdiction in
which the Company is incorporated or the written consent of the holders of a
majority of the securities of the Company entitled to vote, provided that
such ratification occurs no later than the date of the next annual meeting of
shareholders; or (iii) equity securities of the Company so acquired are held
by the officer or director for a period of at least six months following the
date of such acquisition, provided that this condition shall be satisfied
with respect to a derivative security if at least six months elapse from the
date of acquisition of the derivative security to the date of disposition of
the derivative security (other than upon exercise or conversion) or its
underlying equity security.
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<PAGE>
The 1995 Plan is structured to comply with the above exemption
requirements of Rule 16b-3 (or its successor rule) under the Exchange Act.
VOTE REQUIRED AND RECOMMENDATION
An affirmative vote by the holders of a majority of the Shares present
in person or represented by proxy at the Meeting is required for approval of
the amendment to the 1995 Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1995 PLAN.
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<PAGE>
PROPOSAL FOUR
AMENDMENT TO 1997 EXECUTIVE STOCK OPTION PLAN
(ITEM 4 ON THE PROXY CARD)
The Company's 1997 Executive Stock Option Plan (the "1997 Plan") became
effective upon its approval by the shareholders in November 1997. The
general purpose of the 1997 Plan is to assist the Company in the recruitment,
retention and motivation of only employees of the Company. The 1997 Plan
offers a significant incentive to employees of the Company by enabling such
persons to acquire shares of Common Stock, thereby increasing their
proprietary interest in the growth and success of the Company.
In August 1997, the Company hired a new Vice President of Marketing;
and, in August 1998, the Company hired a new Vice President of Operations. A
total of 130,000 options were granted to these two new executive officers
under the 1997 Plan. In addition, a total of 235,000 options were granted
under the 1997 Plan pursuant to special grants made to the other executive
officers to increase their long-term Company incentives. See "Proposal One
- -- Election of Directors -- Report of the Compensation Committee on Executive
Compensation -- Stock Option Grants." As a result of these grants, the
number of remaining shares available for grant under the 1997 Plan has been
substantially depleted. Consequently, in September 1998, the Board approved,
subject to shareholder approval, an amendment to the 1997 Plan to increase
the number of shares of Common Stock reserved for issuance with respect to
options granted under the 1997 Plan from 550,000 to 800,000 shares. This
amendment is being presented to the Company's shareholders for their approval
at the Meeting.
SHARES SUBJECT TO THE 1997 PLAN
Currently, there are 550,000 shares of Common Stock reserved for
issuance with respect to options granted under the 1997 Plan, of which
392,500 options have been granted and 157,500 options are available for grant
as of September 30, 1998.
In the event of a subdivision of the outstanding shares of Common Stock,
or a combination or consolidation of the outstanding shares of Common Stock
(by reclassification of otherwise) into a lesser number of shares, or a
similar occurrence, or declaration of a divided payable in shares of Common
Stock or, if in an amount that has a material effect on the price of the
shares, in cash, the Compensation Committee will make adjustments in the
number and/or exercise price of options and/or the number of shares available
for issuance under the 1997 Plan, as appropriate.
If this proposal is approved, the aggregate number of shares of Common
Stock that will be available for issuance under the 1997 Plan will be
increased from 550,000 to 800,000 shares and the remaining number of shares
available for future issuance will be increased from 157,000 to 407,500.
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<PAGE>
ADMINISTRATION
The 1997 Plan is administered in the same manner as the 1995 Plan,
except that the 1997 Plan is only available to employees of the Company. See
corresponding section above under "Proposal Three -- Amendment to 1995 Stock
Option Plan."
Based upon the closing price of the Common Stock on the Nasdaq National
Market System on September 15, 1998 ($[[____]] per share), the maximum
aggregate value of the underlying securities to be issued under the 1997
Plan, if the 1997 Plan is amended as proposed, is $[[____]] million. The
actual value of the shares of Common Stock to be issued under the 1997 Plan
will be determined by the fair market value of the underlying securities on
the date(s) such securities are issued.
NONTRANSFERABILITY
During an optionee's lifetime, such optionee's option(s) shall be
exercisable only by him or her and shall not be transferable. In the event
of an optionee's death, such optionee's option(s) shall not be transferable
other than by will or by the laws of descent and distribution.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the 1997 Plan at any time,
except that any amendment, suspension or termination shall not affect any
option previously granted. Any amendment of the 1997 Plan, however, which
(i) materially increases the number of shares of Common Stock available for
issuance, (ii) materially changes the class of persons who are eligible for
the grant of ISOs or (iii) if required by Rule 16b-3 (or any successor to
such rule) under the Exchange Act, materially increases the benefits accruing
to participants under the 1997 Plan or materially modifies the requirement as
to eligibility for participation in the 1997 Plan, will be subject to
approval of the Company's shareholders by the affirmative vote of the holders
of a majority of the securities of the Company present or represented and
entitled to vote at a duly held shareholders' meeting. Shareholder approval
is not required for any other amendment of the 1997 Plan. Unless sooner
terminated by the Board, the 1997 Plan will terminate on August 12, 2007, and
no further options may be granted or stock sold pursuant to the 1997 Plan
following the termination date.
FEDERAL INCOME TAX CONSEQUENCES
See the corresponding section above under "Proposal Three -- Amendment
to 1995 Stock Option Plan."
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<PAGE>
OTHER TAX CONSEQUENCES
The above discussion of federal income tax consequences under "Proposal
Three -- Amendment to 1995 Stock Option Plan," is intended to be a general
summary only of the federal income tax aspects of options granted under the
1997 Plan. Tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial
interpretations of the application of the federal income tax laws are subject
to change. Furthermore, no information is given with respect to state or
local taxes that may be applicable. Participants in the 1997 Plan who are
residents of or are employed in a country other than the United States may be
subject to taxation in accordance with the tax laws of that particular
country in addition to or in lieu of United States federal income taxes.
EXEMPTION FROM SECTION 16 OF THE EXCHANGE ACT
See the corresponding section above under "Proposal Three -- Amendment
to 1995 Stock Option Plan."
The 1997 Plan is structured to comply with the above exemption
requirements of Rule 16b-3 (or its successor rule) under the Exchange Act.
VOTE REQUIRED AND RECOMMENDATION
An affirmative vote by the holders of a majority of the Shares present
in person or represented by proxy at the Meeting is required for approval of
the amendment to the 1997 Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1997 PLAN.
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<PAGE>
PROPOSAL FIVE
APPROVAL OF AMENDMENT TO 1996 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 5 ON THE PROXY CARD)
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
became effective in February 1997 and, to date, employee participation in the
Purchase Plan has been significant. Since inception, a total of 121,259
shares of Common Stock has been sold to employees under the Purchase Plan,
leaving 128,741 shares of Common Stock available for future sale to employees
thereunder. Given that the Common Stock is trading at relatively low market
prices compared to the initial public offering price of the Common Stock at
the inception of the Purchase Plan, the Company anticipates that the number
of shares of Common Stock that will be sold to employees under the Purchase
Plan will accelerate. Consequently, on September 25, 1998, the Board
approved, subject to shareholder approval, an amendment to the Purchase Plan
to increase the number of shares of Common Stock available for sale to
employees thereunder from 250,000 to 500,000 shares. This amendment is being
presented to the Company's shareholders for their approval at the Meeting.
SUMMARY OF THE PURCHASE PLAN
PURPOSE. The purpose of the Purchase Plan is to provide an opportunity
for the employees of the Company (and certain designated subsidiaries) to
purchase shares of Common Stock through payroll deductions and thereby have
an additional incentive to contribute to the prosperity of the Company.
ADMINISTRATION. The Board has broad authority to make policy decisions
concerning the Purchase Plan. The Board has appointed an Administrative
Committee to handle the day-to-day operations of the Purchase Plan and to
perform such other functions relating to the Purchase Plan as delegated by
the Board. All questions of interpretation or application of the Purchase
Plan are determined by the Board or the Administrative Committee and its
decisions are final, conclusive and binding upon all participants.
ELIGIBILITY. Any employee regularly employed on a full-time basis (more
than 20 hours per week or five months per year) by the Company on the first
day of an Option Period (as defined below) is eligible to participate in the
Purchase Plan with respect to such Option Period; provided, however, that an
employee may not participate in the Purchase Plan if, immediately after an
option is granted, such employee owns (or is considered to own) shares of
stock possessing five percent (5%) or more of either the total combined
voting power or value of all classes of stock of the Company (or any of its
subsidiaries). The Company has reserved the right to require a minimum period
of service of up to two (2) years to participate in any future Option Period.
An eligible employee becomes a participant in the Purchase Plan by filing with
the Company an enrollment
37
<PAGE>
form authorizing payroll deductions at least ten (10) days prior to the
commencement of an Option Period.
PARTICIPATION. Under the Purchase Plan, shares of Common Stock are
offered for purchase through a series of successive option periods lasting up
to twenty-seven (27) months (each an "Option Period"). The Board has
determined that the Option Periods initially will have a duration of six (6)
months, although the length or date of commencement of an Option Period may
change in the future. Each eligible employee who elects to participate in
the Purchase Plan for a particular Option Period will be granted a purchase
option on the first day of such Option Period. To participate in the
Purchase Plan, each eligible employee must authorize payroll deductions at
the rate of any whole percentage of such employee's compensation, not to
exceed fifteen percent (15%) of such compensation; provided however, that (i)
in no event shall an employee be permitted to accrue rights to purchase
shares under the Purchase Plan (and all other employee stock purchase plans
of the Company) at a rate that exceeds $25,000 of the fair market value of
such stock (determined at the time an option is granted) for any calendar
year in which such option is outstanding at any time and (ii) the maximum
number of shares subject to any option shall not exceed 1,500.
Once an employee becomes a participant in the Purchase Plan, such
employee will automatically participate in each successive Option Period
until such time as the employee withdraws from the Purchase Plan or the
employee's employment with the Company terminates. At the beginning of each
Option Period, each participant is automatically granted an option to
purchase shares of Common Stock. The option expires at the end of the Option
Period or upon termination of employment, whichever is earlier, but is
exercised automatically at the end of each Option Period for the purchase of
the number of full shares of Common Stock to the extent of the accumulated
payroll deductions credited to such participant's account during such Option
Period.
PURCHASE PRICE, SHARES PURCHASED. Shares of Common Stock may be
purchased under the Purchase Plan at a price (the "Purchase Price") equal to
the lower of (i) eighty-five percent (85%) of the fair market value per share
of Common Stock on the date when an Option Period begins, or (ii) eighty-five
percent (85%) of the fair market value per share of Common Stock on the date
when the Common Stock is purchased. The "fair market value" of the Common
Stock on any relevant date will be the mean between the highest bid and the
highest asked prices as reported on the Nasdaq National Market System. The
number of shares of Common Stock that a participant purchases in each Option
Period is determined by dividing the total amount of payroll deductions
withheld from such participant's compensation prior to the exercise date of
an option (the "Exercise Date") by the Purchase Price.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including disability or death, cancels immediately his or her
option and participation in the Purchase Plan. In such event, the payroll
deductions credited to such participant's account will be returned to him or
her or, in the case of death, to the person or persons entitled thereto.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION, CHANGE IN CONTROL. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend,
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<PAGE>
combination, reclassification or other change in the capital structure of the
Company effected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the Purchase Plan, the number and class of shares of stock
subject to options outstanding under the Purchase Plan, and the exercise
price of any such outstanding options. Any such adjustment shall be made by
the Board, whose determination shall be conclusive. Notwithstanding the
foregoing, in connection with any merger involving the Company or sale of all
or substantially all of the Company's assets, in the discretion of the Board,
each option shall be assumed or an equivalent option substituted by such
successor corporation. In the event that the successor corporation refuses
to assume or substitute for these options, the Board shall shorten the Option
Period then in progress to a new Exercise Date. In the event that the Board
sets a new Exercise Date, the Board will notify each participant with at
least ten (10) business days' prior notice that his or her option shall be
exercised automatically on the new Exercise Date, unless prior to such date
the participant has withdrawn from the Option Period.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN. The Board at any time
may terminate or amend the Purchase Plan. An Option Period may be terminated
by the Board at the end of any Option Period if the Board determines that
termination of the Purchase Plan is in the best interests of the Company and
its shareholders. In the event that the Board determines that the ongoing
operation of the Purchase Plan may result in unfavorable accounting
consequences, the Board may, in its discretion, modify or amend the Purchase
Plan to reduce or eliminate such accounting consequences. No amendment shall
be effective unless it is approved by the holders of a majority of the votes
cast at a duly held shareholders' meeting, if such amendment would require
shareholder approval in order to comply with Section 423 of the IRC.
CHANGE OF PARTICIPATION LEVEL AND WITHDRAWAL. Generally, a participant
may reduce (but not increase) his or her level of participation in, or
withdraw from, an Option Period at any time without affecting his or her
eligibility to participate in future Option Periods. Once a participant
withdraws from a particular Option Period, such participant may not
participate again in such Option Period.
FEDERAL TAX INFORMATION FOR PURCHASE PLAN. 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 IRC. Under these
provisions, no income will be taxable to a participant until the shares
purchased under the Purchase Plan are sold or otherwise disposed of. Upon
sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of tax will depend upon the holding period. If
the shares are sold or otherwise disposed of more than two (2) years from the
first day of the Option Period and more than one (1) year from the date of
transfer of the stock to the participant, then the participant will recognize
ordinary income measured as the lesser of (i) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (ii) an amount equal to fifteen percent (15%) of the fair market
value of the shares as of the first day of the Option Period. Any additional
gain will be treated as long-term capital gain. If the shares are sold or
otherwise disposed of before the expiration of this holding period, the
participant will recognize ordinary income generally measured as the excess
of the fair market value of the shares on the date the shares are purchased
39
<PAGE>
over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending
on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant, except to
the extent ordinary income is recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding period(s)
described above and except to the extent permitted under Section 162(m) of
the IRC.
The foregoing discussion is intended to be a general summary only of the
federal income tax aspects of options granted under the Purchase Plan. Tax
consequences may vary depending on the particular circumstances at hand. In
addition, administrative and judicial interpretations of the application of
the federal income tax laws are subject to change. Furthermore, no
information is given with respect to state or local taxes that may be
applicable. Participants in the Purchase Plan who are residents of or are
employed in a country other than the United States may be subject to taxation
in accordance with the tax laws of that particular country in addition to or
in lieu of United States federal income taxes.
PLAN BENEFITS
The following table sets forth the benefits or amounts which were
received by or allocated to each of the following individuals under the
Purchase Plan for the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE (1) NUMBER OF SHARES
- ----------------- ---------------- ----------------
<S> <C> <C>
Scott McClendon $18,844 3,000
President and Chief Executive
Officer
Vernon A. LoForti 1,567 254
Vice President, CFO and Secretary
Steven E. Richardson 8,250 1,500
Vice President of Marketing
</TABLE>
_________________
(1) Represents the market value on the date of purchase. The purchase price
paid by each participant in the Purchase Plan is fifteen percent (15%)
below market value.
VOTE REQUIRED AND RECOMMENDATION
An affirmative vote by the holders of a majority of the Shares present
in person or represented by proxy at the Meeting is required for approval of
the amendment to the Purchase Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE PURCHASE
PLAN.
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PROPOSAL SIX
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 6 ON THE PROXY CARD)
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending June 30, 1999, and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Meeting. PricewaterhouseCoopers
LLP has audited the Company's financial statements annually since the
Company's inception. Its representatives are expected to be present at the
Meeting, will have the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
Shareholder ratification of the selection of PricewaterhouseCoopers LLP
as the Company's independent auditors is not required by the Company's Bylaws
or otherwise. The Board is submitting the selection of
PricewaterhouseCoopers LLP to the shareholders for ratification as a matter
of good corporate practice. In the event that the shareholders fail to
ratify the selection, the Board will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Board in its discretion may
direct the appointment of a different independent accounting firm at any time
during the year if the Board determines that such a change could be in the
best interests of the Company and its shareholders.
VOTE REQUIRED AND RECOMMENDATION
An affirmative vote by the holders of a majority of the shares presented
in person or represented by proxy at the Meeting is required for approval by
ratification of auditors.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 1999.
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OTHER BUSINESS
The Company knows of no other matters to be submitted at the Meeting.
If any other matters are properly brought before the Meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent in accordance with their judgment.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented by such shareholders
at the 1999 Annual Meeting of Shareholders must be received by the Company at
its principal executive offices no later than June 16, 1999, and must satisfy
the conditions established by the SEC for shareholder proposals to be
included in the Company's proxy statement for that meeting.
Proxies received in connection with the 1999 Annual Meeting of
Shareholders will confer on the Company discretionary authority (i) to vote
on any shareholder proposal that is received by the Company after August 30,
1999 and (ii) to vote on any shareholder proposal that is received by the
Company on or before August 30, 1999 if the proxy statement includes advice
on the nature of the matter and how the Company intends to exercise its
discretion to vote on such matter.
FORM 10-K
A copy of the Company's Annual Report for Fiscal 98 is being mailed with
this Proxy Statement to shareholders entitled to notice of the Meeting. At
any shareholder's written request, the Company will provide without charge, a
copy of the Annual Report for Fiscal 98 which incorporates the Form 10-K as
filed with the SEC, including the financial statements and a list of
exhibits. Requests should be sent to Investor Relations, Overland Data, Inc.,
8975 Balboa Avenue, San Diego, California 92123-1599.
By Order of the Board of Directors
VERNON A. LoFORTI
SECRETARY
------------------------------------
San Diego, California
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ATTACHMENT A
TO PROXY STATEMENT
OF OVERLAND DATA, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF OVERLAND DATA, INC.
ARTICLE IV
"SECTION 1. (a) The term "Beneficial Owner" and correlative terms
shall have the meaning as set forth in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, or any similar successor rule. Without
limitation and in addition to the foregoing, any shares of Voting Stock of
the Corporation which any Major Shareholder has the right to vote or to
acquire (i) pursuant to any agreement, (ii) by reason of tenders of shares by
shareholders of the Corporation in connection with or pursuant to a tender
offer made by such Major Shareholder (whether or not any tenders have been
accepted, but excluding tenders which have been rejected), or (iii) upon the
exercise of conversion rights, warrants, options or otherwise, shall be
deemed "beneficially owned" by such Major Shareholder.
(b) The term "Business Combination" shall mean:
(i) Any merger or consolidation (whether in a single
transaction or a series of related transactions, including a series of
separate transactions with a Major Shareholder, any Affiliate or Associate
thereof, or any Person acting in concert therewith) of the Corporation or any
Subsidiary with or into a Major Shareholder or of a Major Shareholder with or
into the Corporation or a Subsidiary;
(ii) Any sale, lease, exchange, transfer, distribution to
shareholders or other disposition, including, without limitation, a mortgage,
pledge or any other security device, to or with a Major Shareholder by the
Corporation or any of its Subsidiaries (in a single transaction or a series
of related transactions) of all, substantially all or any Substantial Part of
the assets of the Corporation or a Subsidiary (including, without limitation,
any securities of a Subsidiary);
(iii) The purchase, exchange, lease or other acquisition by
the Corporation or any of its Subsidiaries (in a single transaction or a
series of related transactions) of all, substantially all or any Substantial
Part of the assets or business of a Major Shareholder;
(iv) The issuance of any securities, or of any rights,
warrants or options to acquire any securities, of the Corporation or a
Subsidiary, eighty percent (80%) or more of which are issued to a Major
Shareholder, or the acquisition by the Corporation or a Subsidiary of any
securities, or of any rights, warrants or options to acquire any securities,
of a Major Shareholder;
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(v) Any reclassification of Voting Stock, recapitalization
or other transaction (other than a redemption in accordance with the terms of
the security redeemed) which has the effect, directly or indirectly, of
increasing the proportionate amount of Voting Stock of the Corporation or any
Subsidiary thereof which is beneficially owned by a Major Shareholder, or any
partial liquidation, spin off, split off or split up of the Corporation or
any Subsidiary thereof; provided, however, that this Section 1(b)(v) shall
not relate to any transaction of the types specified herein that has been
approved by eighty percent (80%) of the Board of Directors; or
(vi) Any agreement, contract or other arrangement providing
for any of the transactions described herein.
(c) The term "Major Shareholder" shall mean any Person which,
together with its "Affiliates" and "Associates" (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934, as amended, or any similar successor
Rule) and any Person acting in concert therewith, is the Beneficial Owner of
shares possessing ten percent (10%) or more of the voting power of the Voting
Stock of the Corporation, and any Affiliate or Associate of a Major
Shareholder, including a Person acting in concert therewith. The term "Major
Shareholder" shall not include a Subsidiary of the Corporation.
(d) The term "other consideration to be received" shall include,
without limitation, Voting Stock of the Corporation retained by its existing
shareholders in the event of a Business Combination which is a merger or
consolidation in which the Corporation is the surviving corporation.
(e) The term "Person" shall mean any individual, corporate,
partnership or other Person, group or entity (other than the Corporation, any
Subsidiary of the Corporation or a trustee holding stock for the benefit of
employees of the Corporation or its Subsidiaries, or any one of them,
pursuant to one or more employee benefit plans or arrangements). When two or
more Persons act as a partnership, limited partnership, syndicate,
association or other group for the purpose of acquiring, holding or disposing
of shares of stock, such partnerships, syndicate, association or group will
be deemed a "Person."
(f) The term "Subsidiary" shall mean any business entity fifty
percent (50%) or more of which is beneficially owned by the Corporation.
(g) The term "Substantial Part" as used in reference to the assets
of the Corporation, of any Subsidiary or of any Major Shareholder means
assets having a value of more than five percent (5%) of the total
consolidated assets of the Corporation as of the most recent fiscal year
ending prior to the time the determination is made.
(h) The term "Voting Stock" shall mean stock or other securities
entitled to vote upon any action to be taken in connection with any Business
Combination or entitled to vote generally in the election of directors, and
shall also include stock or other securities convertible into Voting Stock.
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SECTION 2. Notwithstanding any other provision of these Articles of
Incorporation and except as set forth in Section 3 of this Article IV,
neither the Corporation nor any Subsidiary shall be party to a Business
Combination unless:
(a) The Business Combination was approved by the Board of
Directors of the Corporation prior to the Major Shareholder involved in the
Business Combination becoming such; or
(b) The Major Shareholder involved in the Business Combination
sought and obtained the unanimous prior approval of the Board of Directors to
become a Major Shareholder and the Business Combination was approved by not
less than eighty percent (80%) of the Board of Directors; or
(c) The Business Combination was approved by not less than ninety
percent (90%) of the Board of Directors of the Corporation.
SECTION 3. The approval requirements of Section 2 of this Article IV
shall not apply if the Business Combination is approved by the vote of at
least sixty-six and two-thirds percent (66-2/3%) of the shares of the Voting
Stock of the Corporation and all of the following conditions are satisfied:
(a) The aggregate of the cash and the fair market value of other
consideration to be received per share (as adjusted for stock splits, stock
dividends, reclassification of shares into a lesser number and similar
events) by holders of the Voting Stock of the Corporation in the Business
Combination is not less than the higher of: (i) the highest per share price
(including brokerage commissions, soliciting dealers' fees, dealer-management
compensation, and other expenses, including, but not limited to, costs of
newspaper advertisements, printing expenses and attorneys' fees) paid by the
Major Shareholder in acquiring any of the Corporation's Voting Stock; or
(ii) an amount which bears the same or a greater percentage relationship to
the market price of the Corporation's Voting Stock as the highest per share
price determined in (i) above bears to the market price of the Corporation's
Voting Stock immediately prior to the commencement of acquisition of the
Corporation's Voting Stock by such Major Shareholder;
(b) The consideration to be received in such Business Combination
by holders of the Voting Stock of the Corporation shall be, except to the
extent that a shareholder agrees otherwise as to all or a part of his or her
shares, in the same form and of the same kind as paid by the Major
Shareholder in acquiring his Voting Stock of the Corporation;
(c) After become a Major Shareholder and prior to the consummation
of such Business Combination: (i) such Major Shareholder shall not have
acquired any newly-issued shares of capital stock, directly or indirectly,
from the Corporation or a Subsidiary (except upon conversion of convertible
securities acquired by it prior to becoming a Major Shareholder or upon
compliance with the provisions of this Article IV or as a result of a pro
rata share dividend or share split); and (ii) such Major Shareholder shall
not have received the benefits directly or
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indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits provided by
the Corporation or a Subsidiary, or made any major changes in the
Corporation's business or equity capital structure; and
(d) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, as amended, and Rules promulgated
thereunder, whether or not the Corporation is then subject to such
requirements, shall be mailed to all shareholders of the Corporation for the
purpose of soliciting shareholders' approval of such Business Combination and
shall contain at the front thereof, in a prominent place: (i) any
recommendations as to the advisability (or inadvisability) of the Business
Combination which any one or more members of the Board of Directors may
choose to state; and (ii) the opinion of a reputable national investment
banking firm as to the fairness (or lack thereof) of the terms of such
Business Combination, from the point of view of the remaining shareholders of
the Corporation (such investment banking firm to be engaged solely on behalf
of the remaining shareholders, to be paid a reasonable fee for their services
by the Corporation upon receipt of such opinion, to be one of the so-called
major bracket investment banking firms which has not previously been
associated with such Major Shareholder and to be selected by the Board of
Directors).
SECTION 4. The affirmative vote required by this Article IV is in
addition to the vote of the holders of any class or series of stock of the
Corporation otherwise required by law, these Articles of Incorporation, or
any resolution which has been adopted by the Board of Directors providing for
the issuance of a class or series of stock.
SECTION 5. Any amendment, change or repeal of this Article IV or any
other amendment of these Articles of Incorporation which would have the
effect of modifying or permitting circumvention of the provisions of this
Article IV shall require approval by at least a sixty-six and two-thirds
percent (66-2/3%) vote of the Voting Stock of the Corporation.
SECTION 6. The requirement of a super majority vote set forth in
this Article IV will expire only as required by Section 710 of the California
Corporations Code, as it may be amended from time to time, unless readopted
in accordance therewith."
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COMPANY #
CONTROL #
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THERE ARE THREE WAYS TO VOTE YOUR PROXY
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 THROUGH 6
<TABLE>
<CAPTION>
VOTE BY PHONE VOTE VIA INTERNET
1-800-240-6326 HTTP://NORWEST.EPROXY.COM/OVRL VOTE BY MAIL
<S> <C> <C>
Use any touch-tone Use the Internet to vote your Mark, sign and date your proxy
telephone to vote your proxy 24 hours a day, 7 days a card and return it in the
proxy 24 hours a day, week. Have your proxy card in postage-paid envelope we have
7 days a week. Have hand when you access the web provided.
your proxy card in site. You will be prompted to
hand when you call. enter your 3-digit company
You will be prompted number and a 7-digit control
to enter your 3-digit number, which are located above,
company number and a to create an electronic ballot.
7-digit control number,
which are located above,
and then follow the
simple instructions.
</TABLE>
ARROW PLEASE DETACH HERE ARROW
<TABLE>
<S> <S> <C>
1. ELECTION OF DIRECTORS:
/ / FOR electing Scott McClendon, Martin D. Gray,
William W. Otterson, Peter Preuss and John A. Shane for a
term of one (1) year (except as marked to the contrary
below).
Your telephone
or Internet / / WITHHOLD AUTHORITY to vote for Scott McClendon,
vote authorizes Martin D. Gray, William W. Otterson, Peter Preuss and
the named John A. Shane.
proxies to vote
your shares in (INSTRUCTION: To withhold authority to vote for any
the same manner individual nominee, write that nominee's name in the
as if you marked, space provided below.)
signed and
returned the ----------------------------------------------------------
proxy card. The
deadline for 2. Proposal to readopt the supermajority vote provisions
telephone or of the Company's Articles of Incorporation relating
Internet voting to the "fair price provisions" for certain business
is noon EDT, one combinations.
business day
prior to the / / FOR / / AGAINST / / ABSTAIN
annual meeting.
3. Proposal to increase the number of shares issuable under
the Company's 1995 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to increase the number of shares issuable under
the Company's 1997 Executive Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to increase the number of shares which can
be sold to employees under the Company's 1996 Employee
Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal to appoint PricewaterhouseCoopers LLP as
independent auditors.
/ / FOR / / AGAINST / / ABSTAIN
Date:
-------------------------------
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(Signature)
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(Signature if held jointly)
Please sign exactly as your name(s)
appear to the left. When signing in
fiduciary or representative capacity,
please add your full title. If shares
are registered in more than one name,
all holders must sign. If signature is
for a corporation or partnership, the
handwritten signature and title of an
authorized officer or person are
required, together with the full
company name.
</TABLE>
<PAGE>
[OVERLAND LOGO] OVERLAND DATA, INC.
PROXY 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I appoint Scott McClendon and Vernon A. LoForti, or either of them ("Appointed
Proxies"), with power of substitution to each, to vote all shares of Common
Stock which I have power to vote at the Annual Meeting of Shareholders
("Meeting") of Overland Data, Inc. to be held on Tuesday, November 12, 1998 at
9:00 a.m., or at any adjournment or postponement thereof, in accordance with the
instructions on the reverse side of this card and with the same effect as though
I were present in person and voting such shares. The Appointed Proxies are
authorized in their discretion to vote upon such other business as may properly
come before the meeting.
(CONTINUED, AND TO BE SIGNED AND DATED ON REVERSE SIDE)
