<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
The 3DO Company
- --------------------------------------------------------------------------------
(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> 2
THE 3DO COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 16, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The
3DO Company, a Delaware corporation (the "Company"), will be held on Wednesday,
September 16, 1998, at 3:00 p.m., local time, at the Summerfield Suites Hotel,
400 Concourse Drive, Belmont, California 94002 (the "Annual Meeting") for the
following purposes:
1. To elect two directors for terms ending with the 2001 Annual
Meeting of Stockholders.
2. To approve an increase in the number of shares of Common Stock
reserved for issuance under the 1993 Incentive Stock Plan by
2,546,489 shares.
3. To approve an increase in the number of shares of Common Stock
reserved for issuance under the 1994 Employee Stock Purchase Plan
by 1,500,000 shares.
4. To confirm the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending March 31, 1999.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only stockholders of record at the close of business on July 22, 1998,
are entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to sign and
return the enclosed Proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has returned a proxy, and a proxy may be
revoked at any time prior to the Annual Meeting.
By order of the Board of Directors
W. M. (Trip) Hawkins III
Chairman and Chief Executive Officer
Redwood City, California
August 5, 1998
IMPORTANT:
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE , SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE
ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY
BY VOTING IN PERSON AT THE MEETING.
<PAGE> 3
THE 3DO COMPANY
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
The 3DO Company, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held Wednesday, September
16, 1998, at 3:00 p.m., local time, or at any adjournment thereof, for the
purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the
Summerfield Suites Hotel, 400 Concourse Drive, Belmont, California 94002. The
Company's principal executive offices are located at 600 Galveston Drive,
Redwood City, CA 94063. The Company's telephone number is (650) 261-3000.
These proxy solicitation materials were mailed on or about August 3,
1998, to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on July 22,1998, are
entitled to notice of the meeting and to vote at the meeting. At the record
date, 25,995,999 shares of the Company's Common Stock were issued and
outstanding and held of record by approximately 780 stockholders.
SOLICITATION OF PROXIES
This solicitation of proxies is made by the Company, and all related
costs will be borne by the Company. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegraph, or personal solicitations by directors, officers, or employees of the
Company. No additional compensation will be paid for any such services.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation, or a duly executed proxy bearing a
later date, or by attending the meeting and voting in person.
VOTING PROCEDURE
Each stockholder is entitled to one vote for each share held by such
stockholder on July 22, 1998. Shares of Common Stock may not be voted
cumulatively. All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes.
Directors will be elected by a plurality of the affirmative votes cast
by those shares present in person or represented by proxy and entitled to vote
at the Annual Meeting. Approval of an increase in the number of shares reserved
for issuance under the 1993 Incentive Stock Plan, approval of an increase in the
number of shares reserved for issuance under the 1994 Employee Stock Purchase
Plan, and the ratification of the appointment of KPMG Peat Marwick as the
Company's independent auditors for the fiscal year ending March 31, 1999,
require the affirmative vote of a majority of those shares present in person or
represented by proxy.
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<PAGE> 4
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting of
Stockholders must have been received by the Company no later than April 15,
1998, in order that they may be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
CERTAIN KNOWN STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of May 31,
1998, by (i) each stockholder known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, (ii) each director, (iii) the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers serving in that capacity as of March 31, 1998
(together, the "Named Officers"), and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
FIVE PERCENT STOCKHOLDERS, ----------------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT
- -------------------------------- ------ -------
<S> <C> <C>
W. M. (Trip) Hawkins III 3,083,403(2) 11.9%
600 Galveston Drive
Redwood City, California 94063
J & W Seligman & Co., Incorporated 2,622,900 10.1%
100 Park Avenue
New York, New York 10017
Electronic Arts, Inc. 1,363,668 5.3%
1450 Fashion Island Boulevard
San Mateo, CA 94404
William A. Hall 23,067(3) *
H. William Jesse, Jr. 2,000 *
Hugh C. Martin 20,000 *
John Adams 0 0
James Alan Cook 317,114(4) 1.2%
Stephen E. Fowler 97,243(5) *
Greg Richardson 66,905(6) *
All executive officers and directors
as a group (8 persons) 3,589,732(7) 13.8%
</TABLE>
- ----------
*Less than 1%.
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<PAGE> 5
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned.
(2) Includes 829,500 shares subject to an option exercisable within 60 days of
May 31, 1998.
(3) Includes 21,667 shares subject to an option exercisable within 60 days of
May 31, 1998.
(4) Includes 398,522 shares subject to an option exercisable within 60 days of
May 31, 1998.
(5) Includes 90,792 shares subject to an option exercisable within 60 days of
May 31, 1998.
(6) Includes 66,905 shares subject to an option exercisable within 60 days of
May 31, 1998.
(7) Includes shares held beneficially by executive officers and directors as
shown in the foregoing table.
PROPOSAL ONE
ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting. The Company's
Restated Certificate of Incorporation provides for a classified Board of
Directors so that, as nearly as possible, one-third of the Company's Board of
Directors is elected each year to serve a three-year term. Currently, the Board
of Directors consists of four directorships with staggered terms expiring at the
forthcoming Annual Meeting and at the Annual Meetings of Stockholders in 1999
and 2000. Trip Hawkins and Hugh C. Martin are the only directors whose terms as
directors expire at the forthcoming Annual Meeting. Mr. Hawkins and Mr. Martin
have been nominated by the Board of Directors for reelection as directors at the
forthcoming Annual Meeting for terms which will expire at the 2001 Annual
Meeting of Stockholders. Mr. Hawkins was previously elected by the stockholders.
Mr. Martin was appointed to the Board of Directors in 1996 to fill the remainder
of M. Richard Asher's term. Each director elected at the 1998 Annual Meeting of
Stockholders will serve until his successor has been duly elected and qualified.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE COMPANY POSITION DIRECTOR SINCE
- --------------- --- ---------------- --------------
<S> <C> <C> <C>
W. M. (Trip) Hawkins III 44 Chairman and CEO 1991
Hugh C. Martin (1) 44 Director 1996
</TABLE>
(1) Member of Compensation Committee
Mr. Hawkins, the founder of the Company, has been Chairman of the Board
and Chief Executive Officer of the Company since September 1991. He also served
as President of the Company from September 1991 until October 1995, and he
served as Secretary from September 1991 through February 1993. From August 1982
to December 1990, Mr. Hawkins served as president of Electronic Arts. He served
as the chief executive officer of Electronic Arts from August 1982 until May
1991, and was chairman of its board of directors from August 1982 until July
1994. Prior to founding Electronic Arts, Mr. Hawkins was a director of marketing
at Apple. Mr. Hawkins' term as a director expires at the 1998 Annual Meeting of
Stockholders.
Mr. Martin was appointed a director of the Company in April 1996. Since
January 1998, he has been CEO of Optical Networks, Incorporated. Until his
resignation from 3DO in June 1997, he served as President of the Company from
October 1995; Chief Operating Officer from January 1993 until October 1995; and
Senior Vice President, Engineering and Operations from May 1992 until January
1993. From March 1988 to April 1992, he served as a director and then a senior
director of Apple Computer, Inc. Previously, Mr. Martin co-founded and served as
the vice president and chief development officer of Ridge Computers, where he
co-designed one of the industry's first commercial RISC processors. Mr. Martin's
term as a director expires at the 1998 Annual Meeting of Stockholders.
REQUIRED VOTE
Those nominees receiving the greatest number of votes cast (although not
necessarily a majority of the votes cast) at the Annual Meeting will be elected
to the Board of Directors. Accordingly, directions to withhold authority and
broker non-votes will have no effect on the outcome of the vote. The Company's
Restated Certificate of Incorporation does not allow for cumulative voting in
the election of directors. A stockholder executing the enclosed proxy may vote
for the nominees or may withhold such vote from either or both of the nominees.
In each
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<PAGE> 6
case where the stockholder has appropriately specified how the proxy is to be
voted, it will be voted in accordance with such stockholder's specifications.
Although it is not contemplated that the named nominees will become unable to
serve prior to the Annual Meeting, the persons named on the enclosed proxy will
have the authority to vote for the election of any nominee designated by the
Board to fill the vacancy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The members of the Company's Board of Directors and certain information
about them (including terms of service) are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR AGE COMPANY POSITIONS SINCE
- -------- --- ----------------- --------
<S> <C> <C> <C>
W. M. (Trip) Hawkins III 44 Chairman of the Board and 1991
Chief Executive Officer
William A. Hall (1)(2) 66 Director 1997
H. William Jesse, Jr.(2) 46 Director 1997
Hugh C. Martin (1) 44 Director 1996
</TABLE>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Information concerning Mr. Hawkins and Mr. Martin can be found under the
caption "Proposal One: Election of Directors."
Mr. Hall has been a director of the Company since June 1997. He founded
Sight & Sound Distributing Company in December 1984 and has been its President
and CEO since that time. Since 1988 he has also been owner of W.A.H.
Management/Consulting, and since 1993 he has been Vice Chairman and majority
stockholder of U.S. Animation, Inc. He has been a partner in Lincolnshire
Management, Inc. since June 1994. Mr. Hall is also a director of Chromium
Graphics, Inc.; Credentials (TRW Credit); Northword Press; and Lincolnshire
Management, Inc. Mr. Hall's term as a director expires at the 1999 Annual
Meeting of Stockholders.
Mr. Jesse has been a director of the Company since September 1997. He
joined cybermeals, Inc. in 1997 and was elected its Chairman and Chief Executive
Officer in March 1998. From 1986 through March 1998, he was Chairman, President
and Chief Executive Officer of Jesse Hansen & Co. and remains as Chairman. He
also serves as Chairman and Chief Executive Officer of Vineyard Properties of
California, Inc. Mr. Jesse has previously served as Chief Executive Officer of
American Hawaii Cruises; Vice President of The Getz Corporation; Chief Executive
Officer of the Delta Queen Steamboat Co. and Vice President of its parent, The
Coca Cola Bottling Company of New York; and Vice President of Prudential Lines,
Inc. and General Manager of its Mediterranean/Mideast Division. Mr. Jesse serves
on the board of directors of The Wine Group, Inc., Stanislaus Food Products
Company, Wired Ventures, Inc., ExTerra Credit Recovery, and Online Partners,
Inc. Mr. Jesse's term as a director expires at the 2000 Annual Meeting of
Stockholders.
BOARD MEETINGS AND COMMITTEES
Standing committees of the Board are the Audit Committee and the
Compensation Committee. The Board of Directors has no nominating committee or
any other committee performing a similar function. Directors Hall and Martin are
currently the members of the Compensation Committee, which makes recommendations
concerning
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<PAGE> 7
salaries and incentive compensation for employees of the Company. Directors Hall
and Jesse are currently the members of the Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
During the Company's 1998 fiscal year, the Board of Directors met six
(6) times and took action by written consent two times; the Compensation
Committee met four (4) times and took action by written consent nine (9) times;
and the Audit Committee met once. In fiscal year 1998, no Director attended
fewer than 75% of the aggregate of the total number of meetings of the Board of
Directors (held during the period for which he has been a Director) and of the
committees of the Board on which he served (held during the period that he
served).
COMPENSATION OF DIRECTORS
Directors receive no fees for services provided in that capacity but are
reimbursed for out-of-pocket expenses in connection with attendance at Board of
Directors' meetings.
Pursuant to the terms of the 1995 Director Option Plan, each
non-employee director is automatically granted an option to purchase 100,000
shares of 3DO Common Stock upon his or her election as a director.
EXECUTIVE OFFICERS
The executive officers of the Company and certain information about them
as of June 30, 1998, are listed below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Trip Hawkins 44 Chairman of the Board and Chief Executive Officer
James Alan Cook 48 Executive Vice President, General Counsel and Secretary
John Adams 35 Chief Financial Officer
Stephen E. Fowler 39 Senior Vice President, Sales & Operations
Greg Richardson 31 Vice President, Marketing
</TABLE>
Mr. Hawkins' background is summarized in "Proposal One: Election of
Directors" above.
Mr. Cook became Executive Vice President, General Counsel and Secretary
of the Company in April 1996. He had been Senior Vice President, General Counsel
and Secretary since July 1994, and from January 1993 until July 1994, he served
as Vice President, General Counsel and Secretary of the Company. From January
1990 until January 1993, he was a partner in the law firm of Cook and Lefevre.
From June 1985 to December 1989, he was a sole practitioner operating as the Law
Offices of James Alan Cook.
Mr. Fowler was appointed as the Company's Senior Vice President, Sales &
Operations in April 1998. Previously, he served as Senior Vice President,
Operations from May 1997; Vice President, Operations from October 1995; Vice
President, Developer & Customer Services from June 1994; and Senior Director,
Developer Services from January 1993. From September 1990 to January 1993 he
served as Vice President, Technical Services at Gupta Corporation. From April
1984 to August 1990, he served in various senior management position including
Director, Worldwide Services at Application Development Systems.
Mr. Adams became the Company's Chief Financial Officer in March 1998.
Previously, he served as Vice President, Planning & Analysis and Director of
Operations at International Thomson Publishing from 1996-1998; Senior Manager,
Financial Planning from 1995-1996 and Manager, Financial Planning & Analysis
from 1994-1995 at The Walt Disney Company; Manager, Business Planning at The Gap
Incorporated from 1993-1994; and he held various planning positions at the
Pepsi-Cola Company from 1986 to 1993.
5
<PAGE> 8
Mr. Richardson was named Vice President, Marketing of the Company in
April 1998. He previously served as Vice President, Sales and Marketing from
August 1997; Vice President and Executive Producer, Studio 3DO from April 1997;
Vice President Software Publishing & Licensing from July 1996; Director,
Software Business Development from June 1995; and various marketing and business
development positions from October 1992.
CERTAIN TRANSACTIONS AND REPORTS
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct or
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than ten percent (10%) of the Company's
outstanding Common Stock are subject to the reporting requirements of Section
16(a) of the Securities and Exchange Act of 1934, as amended, which require them
to file reports with respect to their ownership of the Company's Common Stock
and their transactions in such Common Stock. Based upon (i) the copies of
Section 16(a) reports that the Company received from such persons for their
transactions in the Common Stock and their Common Stock holdings for the fiscal
year ending March 31, 1998, and (ii) the written representations received from
one or more of such persons that no annual Form 5 reports were required to be
filed by them for the 1998 fiscal year, the Company believes that all reporting
requirements under Section 16(a) for such fiscal year were met in a timely
manner by its executive officers, Board members and greater than ten percent
(10%) stockholders.
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<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION TABLES
Summary Compensation Table. The following table sets forth the
compensation paid by the Company to the Chief Executive Officer and the four
most highly compensated executive officers of the Company other than the Chief
Executive Officer (collectively the "Named Officers") during the last fiscal
year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
FISCAL ANNUAL COMPENSATION OPTIONS/SARs ALL OTHER
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS # COMPENSATION(1)
- --------------------------- ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Trip Hawkins 1998 $295,792 -0- 1,760,000(3) $ 660
Chairman and Chief 1997 $295,000 $ 35,128 2,620,000(4) $ 660
Executive Officer(2) 1996 $290,042 -0- 500,000 $ 660
Hugh C. Martin 1998 $ 96,176 $147,500 773,000(5) $304,027(6)
Director & 1997 $288,750 $ 27,611 1,096,000(7) $421,033(8)
President (through June 1997) 1996 $270,800 -0- 80,000 $197,206(9)
James Alan Cook 1998 $275,504 $100,000 704,000(10) $ 660
Executive Vice President, 1997 $243,552 $ 20,408 738,000(11) $ 660
General Counsel, and 1996 $226,237 -0- 68,000 $ 630
Secretary
Stephen E. Fowler 1998 $199,473 -0- 307,000(12) $ 3,265(13)
Senior Vice President, 1997 $167,722 $ 9,974 234,000(14) $ 220
Sales & Operations 1996 $150,762 -0- 17,000 $ 198
Greg Richardson 1998 $160,945 -0- 223,700(15) $ 438
Vice President, Marketing 1997 $128,570 $ 20,031 194,400(16) $ 2,071(17)
1996 $ 97,827 $ 26,779 13,500 $ 2,073(18)
John Adams 1998 $ 8,654 -0- 150,000 -0-
Chief Financial Officer
(from March 1998)
Terrence Schmid 1998 $140,523 -0- 160,000(19) $ 339
Chief Financial Officer 1997 $ 90,583 $ 2,125 115,000(20) $ 79
(May 1997 to February 1998)
</TABLE>
(1) The amounts include premiums paid by the Company for group term life
insurance.
(2) See "Employment Contract" below.
(3) Includes 1,560,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Hawkins
agreed to certain adjustments to the option vesting schedules.
(4) Includes 500,000 options that were originally granted in fiscal 1994,
10,000 options that were originally granted in fiscal 1995 at $11.00 per
share, and 50,000 options that were originally granted in fiscal 1996 at
$11.875 per share that in fiscal 1997 were twice exchanged for new options,
first at $8.25 per share and later at $5.50 per share, after Mr. Hawkins
agreed to certain adjustments to the option vesting schedules.
(5) Includes 673,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Martin
agreed to certain adjustments to the option vesting schedules.
(6) Includes a gain of $303,964 realized upon the sale of shares acquired
through the exercise of incentive stock options.
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<PAGE> 10
(7) Includes 75,000 options granted in fiscal 1995 at $9.875 per share (see
footnote 8), 8,000 options granted in fiscal 1995 at $10.75 per share
(see footnote 8), 10,000 options granted in fiscal 1995 at $11.00 per
share, 20,000 options granted in fiscal 1996 at $11.875 per share, and
60,000 options granted in fiscal 1996 at $11.50 per share that in fiscal
1997 were twice exchanged for new options, first at $8.25 per share and
later at $5.50 per share, after Mr. Martin agreed to certain adjustments
to the option vesting schedules. Also includes 250,000 options granted
in fiscal 1997 at $8.25 per share that were exchanged for new options at
$5.50 per share, after Mr. Martin agreed to certain adjustments to the
option vesting schedule.
(8) Includes a gain of $420,313 realized upon the sale of shares acquired
through the exercise of incentive stock options.
(9) Includes a gain of $196,500 realized upon the sale of shares acquired
through the exercise of incentive stock options.
(10) Includes 594,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Cook
agreed to certain adjustments to the option vesting schedules.
(11) Includes 4,000 options granted in fiscal 1995 at $9.875 per share (see
footnote 10), 12,000 options granted in fiscal 1995 at $10.75 per share
(see footnote 10), 10,000 options granted in fiscal 1995 at $11.00 per
share, 28,000 options granted in fiscal 1996 at $11.875 per share, and
40,000 options granted in fiscal 1996 at $11.50 per share that in fiscal
1997 were twice exchanged for new options, first at $8.25 per share and
later at $5.50 per share, after Mr. Cook agreed to certain adjustments
to the option vesting schedules. Also includes 150,000 options granted
in fiscal 1997 at $8.25 per share that were exchanged for new options at
$5.50 per share, after Mr. Cook agreed to certain adjustments to the
option vesting schedule.
(12) Includes 150,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Fowler
agreed to certain adjustments to the option vesting schedules.
(13) Includes a gain of $2,739 realized upon the sale of shares acquired
through the Employee Stock Purchase Plan.
(14) Includes 194,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Fowler
agreed to certain adjustments to the option vesting schedules.
(15) Includes 147,200 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr.
Richardson agreed to certain adjustments to the option vesting
schedules.
(16) Includes a gain of $1,902 realized upon the sale of shares acquired
through the Employee Stock Purchase Plan.
(17) Includes a gain of $1,945 realized upon the sale of shares acquired
through the Employee Stock Purchase Plan.
(18) Includes 174,400 options granted in previous fiscal years that in fiscal
1997 were twice exchanged for new options, first at $8.25 per share and
later at $5.50 per share, after Mr. Richardson agreed to certain
adjustments to the option vesting schedules.
(19) Includes 100,000 options granted in previous fiscal years that in fiscal
1998 were exchanged for new options at $3.25 per share after Mr. Schmid
agreed to certain adjustments to the option vesting schedules.
(20) Includes 15,000 options granted on May 10, 1996, at $8.75 per shares
that were exchanged on October 10, 1996, for new options at $5.50 per
share after Mr. Schmid agreed to certain adjustments to the option
vesting schedule.
Employment Contract. On or about February 1, 1993, Mr. Hawkins entered
into a five-year employment agreement with the Company. This employment
agreement provided for an annual base salary of $295,000, a bonus payable in the
discretion of the Board of Directors, and salary and bonus reviews at least
annually. The employment agreement provided that Mr. Hawkins' optioned shares
would continue to vest in accordance with their applicable vesting schedules,
provided that Mr. Hawkins devoted at least fifty percent (50%) of his business
efforts and time to the Company, and provided further that he was not employed
by any third party during that time period. In the event Mr. Hawkins' employment
was terminated without cause after a change in control of the Company, Mr.
Hawkins would have become fully vested in his shares.
Option Grants in Last Fiscal Year. The following table sets forth
certain information concerning grants of stock options to each of the Named
Officers during the fiscal year ended March 31, 1998. The table also sets forth
hypothetical gains or "opinion spreads" for the options at the end of their
respective ten-year terms. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions.
8
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rate of
Options Stock Price
Granted to Appreciation
Employees Exercise for Options Term(4)
Date Options in Fiscal Price Expiration ------------------------------
Name Granted Granted(1)(2) Year Per Share(2) Date 5% 10%
- ---- ------- ------------- --------- ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Adams
New Options 2/6/98 150,000 1.2445 $2.1250 2/6/08 $ 200,460.16 $ 508,005.41
Total 150,000 1.2445 $ 200,460.16 $ 508,005.41
James Alan Cook
New Options 4/11/97 160,000 1.3274 $3.2500 4/11/07 $ 327,025.21 $ 828,746.08
2/6/98 20,000 0.1659 $2.1250 2/6/08 $ 26,728.02 $ 67,734.05
2/6/98 30,000 0.2489 $2.1250 2/6/08 $ 40,092.03 $ 101,601.08
Repriced Options 4/11/97 5,381 0.0446 $3.2500 4/11/07 $ 10,998.27 $ 27,871.77
4/11/97 29,718 0.2466 $3.2500 4/11/07 $ 60,740.84 $ 153,929.22
4/11/97 12,000 0.0996 $3.2500 4/11/07 $ 24,526.89 $ 62,155.96
4/11/97 8,000 0.0664 $3.2500 4/11/07 $ 16,351.26 $ 41,437.30
4/11/97 2,000 0.0166 $3.2500 4/11/07 $ 4,087.82 $ 10,359.33
4/11/97 10,282 0.0853 $3.2500 4/11/07 $ 21,015.46 $ 53,257.29
4/11/97 2,400 0.0199 $3.2500 4/11/07 $ 4,905.38 $ 12,431.19
4/11/97 150,000 1.2445 $3.2500 4/11/07 $ 306,586.13 $ 776,949.45
4/11/97 8,000 0.0664 $3.2500 4/11/07 $ 16,351.26 $ 41,437.30
4/11/97 14,619 0.1213 $3.2500 4/11/07 $ 29,879.88 $ 75,721.49
4/11/97 31,466 0.2611 $3.2500 4/11/07 $ 64,313.59 $ 162,983.28
4/11/97 1,600 0.0133 $3.2500 4/11/07 $ 3,270.25 $ 8,287.46
4/11/97 218,534 1.8130 $3.2500 4/11/07 $ 446,663.29 $1,131,932.47
------- ------ -------------- -------------
Total 704,000 5.8407 $ 1,403,535.58 $3,556,834.72
Stephen E. Fowler
New Options 4/11/97 110,000 0.9126 $3.2500 4/11/07 $ 224,829.83 $ 569,762.93
2/6/98 28,000 0.2323 $2.1250 2/6/08 $ 37,419.23 $ 94,827.68
2/6/98 12,000 0.0996 $2.1250 2/6/08 $ 16,036.81 $ 40,640.43
Repriced Options 4/11/97 40,000 0.3319 $3.2500 4/11/07 $ 81,756.30 $ 207,186.52
4/11/97 2,500 0.0207 $3.2500 4/11/07 $ 5,109.77 $ 12,949.16
4/11/97 7,500 0.0622 $3.2500 4/11/07 $ 15,329.31 $ 38,847.47
4/11/97 7,000 0.0581 $3.2500 4/11/07 $ 14,307.35 $ 36,257.64
4/11/97 10,000 0.0830 $3.2500 4/11/07 $ 20,439.08 $ 51,796.63
4/11/97 10,000 0.0830 $3.2500 4/11/07 $ 20,439.08 $ 51,796.63
4/11/97 50,472 0.4187 $3.2500 4/11/07 $ 103,160.10 $ 261,427.95
4/11/97 29,528 0.2450 $3.2500 4/11/07 $ 58,979.47 $ 148,692.07
------- ------ -------------- -------------
Total 307,000 2.5470 $ 597,806.33 $1,514,185.11
William A. Hall
New Options 6/24/97 100,000 0.8296 $3.6250 6/24/07 $ 227,974.30 $ 577,731.64
------- ------ -------------- -------------
Total 100,000 0.8296 $ 227,974.30 $ 577,731.64
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Trip Hawkins
New Options 2/6/98 40,000 0.3319 $2.1250 2/6/08 $ 53,456.04 $ 135,468.11
2/6/98 160,000 1.3274 $2.1250 2/6/08 $ 213,824.17 $ 541,872.44
Repriced Options 4/11/97 68,067 0.5647 $3.2500 4/11/07 $ 139,122.65 $ 352,564.12
4/11/97 8,000 0.0664 $3.2500 4/11/07 $ 11,822.79 $ 28,070.44
4/11/97 8,500 0.0705 $3.2500 4/11/07 $ 14,133.39 $ 34,295.71
4/11/97 500,000 4.1482 $3.2500 4/11/07 $ 632,987.27 $1,464,883.66
4/11/97 18,000 0.1493 $3.2500 4/11/07 $ 36,790.34 $ 93,233.93
4/11/97 2,000 0.0166 $3.2500 4/11/07 $ 4,087.82 $ 10,359.33
4/11/97 1,500 0.0124 $3.2500 4/11/07 $ 3,065.86 $ 7,769.49
4/11/97 22,000 0.1825 $3.2500 4/11/07 $ 44,965.97 $ 113,952.59
4/11/97 431,933 3.5835 $3.2500 4/11/07 $ 882,831.11 $2,237,267.38
4/11/97 500,000 4.1482 $3.2500 4/11/07 $ 1,021,953.77 $2,589,831.50
------- ------ -------------- -------------
Total 1,760,000 14.6016 $ 3,059,041.18 $7,609,568.70
H. William Jesse
New Options 9/19/97 100,000 0.8296 $3.6250 9/19/07 $ 227,974.30 $ 577,731.64
------- ------ -------------- -------------
Total 100,000 0.8296 $ 227,974.30 $ 577,731.64
Hugh C. Martin
New Options(4) 6/30/97 100,000 0.8296 $3.5000 6/30/07 $ 220,113.12 $ 557,809.86
Repriced Options 4/11/97 75,000 0.6222 $3.2500 4/11/07 $ 153,293.07 $ 388,474.72
4/11/97 6,000 0.0498 $3.2500 4/11/07 $ 12,263.45 $ 31,077.98
4/11/97 42,000 0.3484 $3.2500 4/11/07 $ 85,844.12 $ 217,545.85
4/11/97 10,000 0.0830 $3.2500 4/11/07 $ 20,439.08 $ 51,796.63
4/11/97 250,000 2.0741 $3.2500 4/11/07 $ 510,976.88 $1,294,915.75
4/11/97 35,533 0.2948 $3.2500 4/11/07 $ 72,626.17 $ 184,048.97
4/11/97 18,000 0.1493 $3.2500 4/11/07 $ 36,790.34 $ 93,233.93
4/11/97 2,000 0.0166 $3.2500 4/11/07 $ 4,087.82 $ 10,359.33
4/11/97 18,000 0.1493 $3.2500 4/11/07 $ 36,790.34 $ 93,233.93
4/11/97 2,000 0.0166 $3.2500 4/11/07 $ 4,087.82 $ 10,359.33
4/11/97 214,467 1.7793 $3.2500 4/11/07 $ 438,350.72 $1,110,866.78
------- ------ -------------- -------------
Total 773,000 6.4131 $ 1,595,662.93 $4,043,723.06
Greg Richardson
New Options 4/11/97 51,500 0.4272 $3.2500 4/11/07 $ 105,261.24 $ 266,752.64
2/6/98 25,000 0.2074 $2.1250 2/6/08 $ 33,410.03 $ 84,667.57
Repriced Options 4/11/97 1,400 0.0116 $3.2500 4/11/07 $ 2,861.47 $ 7,251.53
4/11/97 5,600 0.0465 $3.2500 4/11/07 $ 11,445.88 $ 29,006.11
4/11/97 340 0.0028 $3.2500 4/11/07 $ 694.93 $ 1,761.09
4/11/97 60,410 0.5012 $3.2500 4/11/07 $ 123,472.45 $ 312,903.44
4/11/97 39,590 0.3285 $3.2500 4/11/07 $ 80,918.30 $ 205,062.86
4/11/97 6,360 0.0528 $3.2500 4/11/07 $ 12,999.25 $ 32,942.66
4/11/97 10,000 0.0830 $3.2500 4/11/07 $ 20,439.08 $ 51,796.63
4/11/97 14,000 0.1161 $3.2500 4/11/07 $ 28,614.71 $ 72,515.28
4/11/97 6,000 0.0498 $3.2500 4/11/07 $ 12,263.45 $ 31,077.98
4/11/97 3,500 0.0290 $3.2500 4/11/07 $ 7,153.68 $ 18,128.82
------- ------ -------------- -------------
Total 223,700 1.8559 $ 439,534.47 $1,113,866.61
Terrence Schmid
New Options 4/11/97 60,000 0.4978 $3.25 4/11/07 $ 122,634.45 $ 310,779.78
Repriced Options 4/11/97 15,067 0.1250 $3.25 4/11/07 $ 30,795.55 $ 78,041.98
4/11/97 69,933 0.5802 $3.25 4/11/07 $ 142,936.59 $ 362,229.37
4/11/97 15,000 0.1244 $3.25 4/11/07 $ 30.658/61 $ 77.694/94
------- ------ -------------- -------------
Total 160,000 1.3274 $ 327,025.20 $ 828,746.07
</TABLE>
- ------------
(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. The Company's 1993
Incentive Stock Plan (the "Incentive Plan") also provides for the grant of
non-qualified stock options. Incentive stock options may be granted under
the Incentive Plan at an exercise price no less than market value on the
date of grant. For so long as the Company's Common Stock is listed on the
Nasdaq National Market, the fair market value is the closing sale price for
the Common Stock.
10
<PAGE> 13
Non-qualified options may be granted at an exercise price of no less than
85% of market value on the date of grant. Options generally become
exercisable as to 20% of the shares subject to the option one year after
commencement of employment, and as to the remainder in equal monthly
installments (accrued on a monthly basis) over the succeeding 48 months. In
addition, options accelerate in full and become immediately exercisable
upon a merger, unless such options are assumed or replaced by equivalent
options by the successor corporation. Options generally terminate on the
earlier of three months after termination of the optionee's employment by
or services to the Company, or ten years after grant.
(2) On April 11, 1997, the Board of Directors authorized the exchange of all
options (including those held by the individuals listed in the above table)
with an exercise price exceeding $3.25 per share for options with an
exercise price of $3.25 per share, provided the optionee agreed to certain
adjustments to the option vesting schedule.
(3) The 5% and 10% assumed annualized rates of compound stock price
appreciation are based on the exercise prices shown in the table, are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
Common Stock prices.
(4) Mr. Martin's employment with the Company ended on June 30, 1997, and his
unvested employee stock options were cancelled on that date. Upon his
change of status to an outside director, he was granted 100,000 options
pursuant to the terms of the 1995 Director Option Plan.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at March 31, 1998 at March 31, 1998
Acquired Value -------------------------- -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Adams, John 0 $ 0.00 0 150,000 $ 0.00 $ 84,375.00
Cook, James Alan 0 $ 0.00 199,000 605,000 $ 68,750.00 $ 28,125.00
Fowler, Stephen E 0 $ 0.00 43,844 278,156 $ 34,312.50 $ 22,500.00
Hawkins, Trip 0 $ 0.00 619,834 1,140,166 $ 0.00 $112,500.00
Martin, Hugh C 156,300 $303,963.87 0 100,000 $ 0.00 $ 0.00
Richardson, Greg 0 $ 0.00 25,125 198,975 $ 687.20 $ 14,062.50
Schmid, Terrence 0 $ 0.00 0 0 0 0
GRAND TOTAL 156,300 $303,963.87 887,803 2,672,297 $103,749.70 $261,562.50
</TABLE>
OPTION REPRICING
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
The Compensation Committee (the "Committee") grants stock options in
order to directly link a significant portion of each executive's total
compensation to the long-term interests of shareholders. The Committee believes
that stock options encourage superior performance over time. In order to attract
and retain qualified employees, the Committee felt it necessary to adjust the
exercise price on previously granted options so that the new exercise price
would more closely approximate the market price, and therefore provide greater
incentive to the Company's employees. Consequently, on April 11, 1997, the
Committee exchanged all outstanding options with an exercise price greater than
$3.25 (the then prevailing market price) for options with an exercise price of
$3.25, provided the optionee agreed to adjustments in the vesting schedule. The
following table sets forth certain information concerning option repricing
activity.
11
<PAGE> 14
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Market Price Length of
Number of of Stock at Exercise Price Original Option
Date of Options Time of at Time of New Exercise Term at Time of
Name Repricing Repriced Repricing Repricing Price Repricing
- --------------- --------- --------- ------------ -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
James Alan Cook 5/20/94 4,000 $9.8750 $25.7500 $9.8750 9 Years 279 Days
4/ 9/96 4,000 $8.2500 $9.8750 $8.250 7 Years 320 Days
12/14/94 12,000 $10.750 $14.5000 $10.7500 9 Years 231 Days
4/ 9/96 12,000 $8.2500 $10.7500 $8.2500 8 Years 249 Days
4/ 9/96 10,000 $8.2500 $11.0000 $8.2500 8 Years 251 Days
4/ 9/96 8,000 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 20,000 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 40,000 $8.2500 $11.5000 $8.2500 9 Years 124 Days
10/10/96 150,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 2,400 $5.5000 $8.2500 $5.5000 7 Years 136 Days
10/10/96 8,000 $5.5000 $8.2500 $5.5000 9 Years 67 Days
10/10/96 12,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 29,718 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 8,000 $5.5000 $8.2500 $5.5000 8 Years 228 Days
10/10/96 5,381 $5.5000 $8.2500 $5.5000 9 Years 181 Days
4/11/97 5,381 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 29,718 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 12,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 8,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 2,400 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 150,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 8,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 14,619 $3.2500 $5.5000 $3.2500 4 Years 182 Days
4/11/97 10,282 $3.2500 $5.5000 $3.2500 8 Years 122 Days
4/11/97 2,000 $3.2500 $5.5000 $3.2500 7 Years 249 Days
4/11/97 1,600 $3.2500 $5.5000 $3.2500 6 Years 318 Days
4/11/97 31,466 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 218,534 $3.2500 $5.0000 $3.2500 9 Years 299 Days
Stephen E. Fowler 5/20/94 2,500 $9.8750 $25.7500 $9.8750 9 Years 279 Days
4/ 9/96 2,500 $8.2500 $9.8750 $8.2500 8 Years 41 Days
12/14/94 7,500 $10.7500 $14.5000 $10.7500 9 Years 231 Days
4/ 9/96 7,500 $8.2500 $10.7500 $8.2500 8 Years 249 Days
4/ 9/96 10,000 $8.2500 $11.0000 $8.2500 8 Years 251 Days
4/ 9/96 7,000 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 10,000 $8.2500 $11.8750 $8.2500 9 Years 173 Days
10/10/96 40,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 2,500 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 7,500 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 7,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 10,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 10,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
4/11/97 40,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 2,500 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 7,500 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 7,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 10,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 10,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 50,472 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 29,528 $3.2500 $5.0000 $3.2500 9 Years 299 Days
Trip Hawkins 5/20/94 500,000 $9.8750 $25.7500 $9.8750 9 Years 232 Days
4/ 9/96 500,000 $8.2500 $9.8750 $8.2500 7 Years 273 Days
4/ 9/96 10,000 $8.2500 $11.0000 $8.2500 8 Years 251 Days
4/ 9/96 40,000 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 10,000 $8.2500 $11.8750 $8.2500 9 Years 173 Days
10/10/96 500,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 500,000 $5.5000 $8.2500 $5.5000 7 Years 89 Days
10/10/96 8,000 $5.5000 $8.2500 $5.5000 8 Years 67 Days
10/10/96 8,500 $5.5000 $8.2500 $5.5000 8 Years 354 Days
10/10/96 18,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
4/11/97 8,000 $3.2500 $5.5000 $3.2500 7 Years 249 Days
4/11/97 18,000 $3.2500 $5.5000 $3.2500 8 Years 45 Days
4/11/97 8,500 $3.2500 $5.5000 $3.2500 8 Years 171 Days
4/11/97 500,000 $3.2500 $5.5000 $3.2500 8 Years 363 Days
4/11/97 500,000 $3.2500 $5.5000 $3.2500 6 Years 271 Days
4/11/97 2,000 $3.2500 $5.5000 $3.2500 7 Years 249 Days
4/11/97 1,500 $3.2500 $5.5000 $3.2500 8 Years 171 Days
4/11/97 22,000 $3.2500 $5.5000 $3.2500 8 Years 45 Days
4/11/97 68,067 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 431,933 $3.2500 $5.0000 $3.2500 9 Years 299 Days
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Hugh C. Martin 5/20/94 75,000 $9.8750 $25.7500 $9.8750 9 Years 279 Days
4/ 9/96 75,000 $8.2500 $9.8750 $8.2500 8 Years 41 Days
12/14/94 8,000 $10.7500 $14.5000 $10.7500 9 Years 231 Days
4/ 9/96 8,000 $8.2500 $10.7500 $8.2500 8 Years 249 Days
4/ 9/96 10,000 $8.2500 $11.0000 $8.2500 8 Years 251 Days
4/ 9/96 20,000 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 60,000 $8.2500 $11.5000 $8.2500 9 Years 124 Days
10/10/96 250,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 75,000 $5.5000 $8.2500 $5.5000 7 Years 136 Days
10/10/96 6,000 $5.5000 $8.2500 $5.5000 7 Years 296 Days
10/10/96 10,000 $5.5000 $8.2500 $5.5000 8 Years 67 Days
10/10/96 18,000 $5.5000 $8.2500 $5.5000 8 Years 228 Days
10/10/96 42,000 $5.5000 $8.2500 $5.5000 8 Years 305 Days
4/11/97 75,000 $3.2500 $5.5000 $3.2500 6 Years 315 Days
4/11/97 6,000 $3.2500 $5.5000 $3.2500 7 Years 112 Days
4/11/97 42,000 $3.2500 $5.5000 $3.2500 8 Years 122 Days
4/11/97 18,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 10,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 250,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 2,000 $3.2500 $5.5000 $3.2500 7 Years 247 Days
4/11/97 18,000 $3.2500 $5.5000 $3.2500 8 Years 122 Days
4/11/97 2,000 $3.2500 $5.5000 $3.2500 8 Years 45 Days
4/11/97 35,533 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 214,467 $3.2500 $5.0000 $3.2500 9 Years 299 Days
Greg Richardson 5/20/94 6,700 $9.8750 $25.7500 $9.8750 9 Years 232 Days
4/ 9/96 6,700 $8.2500 $9.8750 $8.2500 8 Years 41 Days
4/ 9/96 7,000 $8.2500 $11.0000 $8.2500 8 Years 251 Days
4/ 9/96 3,500 $8.2500 $11.8750 $8.2500 9 Years 47 Days
4/ 9/96 10,000 $8.2500 $11.8750 $8.2500 9 Years 173 Days
10/10/96 14,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 6,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 6,360 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 5,600 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 3,500 $5.5000 $8.2500 $5.5000 9 Years 181 Days
10/10/96 10,000 $5.5000 $8.2500 $5.5000 9 Years 181 Days
4/11/97 3,500 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 6,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 5,600 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 6,360 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 10,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 14,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 1,400 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 340 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 60,410 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 39,590 $3.2500 $5.0000 $3.2500 9 Years 299 Days
Terrence Schmid 10/10/96 15,000 $5.5000 $8.7500 $5.5000 9 Years 212 Days
4/11/97 15,000 $3.2500 $5.5000 $3.2500 9 Years 182 Days
4/11/97 69,933 $3.2500 $5.0000 $3.2500 9 Years 299 Days
4/11/97 15,067 $3.2500 $5.0000 $3.2500 9 Years 299 Days
</TABLE>
COMPENSATION COMMITTEE REPORT
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
GENERAL
Since 3DO's initial public offering in May 1993, the Compensation
Committee (the "Committee") of the Board of Directors has administered the
Company's management compensation policies and plans. The Committee is a
standing committee comprised of non-employee Directors. The Compensation
Committee recommends to the full Board an annual base salary for each officer,
including the Chief Executive Officer ("CEO"), and the criteria under which cash
incentive bonuses, if any, may be paid. The Committee also has authority to
grant options under the Company's 1993 Incentive Stock Plan, and makes
recommendations to the full Board for administration of this and other equity
incentive plans.
The Compensation Committee believes that the compensation of the
Company's executive officers should be significantly influenced by the Company's
performance and that a substantial portion of executives' incentives
13
<PAGE> 16
should come from equity. The Compensation Committee also understands the need
for changing compensation strategies in a rapidly evolving and highly
competitive industry. In addition, in the last fiscal year the Company's stock
price has varied significantly despite what the Compensation Committee believes
to be a positive overall performance by the Company's executive staff. The
Company achieved significant gains in the last fiscal year, including building
the organization and infrastructure necessary to become a profitable
entertainment software publisher after exiting the hardware business; shipment
of several hit titles, including Heroes of Might and Magic II, Uprising, Might
and Magic VI, Meridian 59 Renaissance, High Heat Baseball, and Army Men; and
procuring licenses to develop software for the Sony PlayStation and Nintendo 64
platforms. Thus, at a time when executive performance has been excellent, and
the Company has accomplished key milestones, the incentive value of the
executives' equity compensation declined.
COMPENSATION VEHICLES
In fiscal 1998, the Company's cash- and equity-based compensation
program focused on attracting and retaining key employees to work in a rapidly
developing public company. Consistent with this long-term orientation and in an
effort to align compensation incentives with stockholder goals, the Company's
compensation packages have included salaries competitive with comparable
positions in the technology industry and significant stock option grants.
Cash Compensation. Before making compensation recommendations to the
Board with respect to new officers during the past fiscal year, the Committee
reviewed base salaries proposed by the CEO, and evaluated each new officer's
experience and proposed responsibilities and the salaries of similarly situated
executives, including a comparison to base salaries for comparable positions at
other companies. In determining its recommendations for adjustments to officers'
base salaries for fiscal 1999, the Committee focused primarily on each officer's
contributions towards the Company's success in moving toward its long-term goals
during the 1998 fiscal year, the accomplishment of goals set by the officer and
approved by the Board for that year, and the Committee's assessment of the
quality of services rendered by the officer. The Committee recognized the
achievement of a number of goals by the Company in fiscal 1998, including
completion of the sale of the Company's former systems division; the successful
transition of the Company into the software publishing business; shipment of
several hit titles; obtaining software development licenses from Sony and
Nintendo for their game console platforms; and the favorable settlement of a
lawsuit with Cirrus Logic. The Committee's recommendation for the CEO's salary
in fiscal 1998 was based primarily on compensation for CEOs of comparable
companies. In recommending the CEO's fiscal 1998 base salary, the Committee used
the same criteria it applied to other officers. The Board or the Committee may
award cash bonuses for exceptional contributions to the Company's success. Cash
bonuses were awarded to two executives in fiscal 1998.
Stock Option Program. The Company grants options as an incentive to
employees, including all executive officers, who are expected to contribute
materially to the Company's future success. The Committee believes stock options
encourage the achievement of superior results over time and align employee and
stockholder interests. The option program incorporates five-year vesting periods
to encourage the Company's executives to continue in the Company's employ. In
fiscal 1998, the Company continued its policy of granting stock options to most
employees, and in certain instances granted additional stock options to
employees, including the Company's executive officers, who had made exceptional
contributions to the Company's development. See "Option Grants in Last Fiscal
Year," above.
The Committee recommends initial stock option grants for all officers in
connection with commencement of each officer's employment. These stock option
grants are based primarily on the scope of the officer's responsibilities at the
Company, the cash compensation which the officer had received in his prior
employment and the cash compensation proposed to be paid by the Company. With
the Committee's approval, additional options are granted in some cases in light
of the individual's achievement of specific goals set jointly by the officer and
the CEO, and the individual's level of vested and unvested options.
IRS Code Section 162(m). Section 162(m) of the Internal Revenue Code of
1986, as amended, limits the deductibility by public companies of certain
executive compensation in excess of $1 million per executive per year,
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but excludes from the calculation of such $1 million limit certain elements of
compensation, including performance-based compensation, provided that certain
requirements are met. None of the Company's executive officers' cash
compensation approached the $1 million limit in fiscal year 1998. The principal
non-cash compensation of the Company's executives is through the grant of stock
options. The provisions of Section 162(m) merit consideration, however, because,
under certain circumstances, the difference between the fair market value and
the exercise price of options granted in the present time period, measured at
the time of exercise, could be included in the calculation under Section 162(m)
of the executive officers' compensation in the time period in which the exercise
occurs. This result can be avoided if the plans under which such options are
granted comply with certain requirements at the time of grant, including
administration by a committee consisting solely of two or more non-employee
directors, and stockholder approval of the terms of the plan, including approval
of an annual limit stated in the plan on the number of shares with respect to
which options may be granted to any employee. The Company's 1993 Incentive Stock
Plan is designed and administered to meet such requirements.
SUMMARY
The Committee believes that the Company's compensation policy as
practiced to date by the Committee and the Board has been successful in
attracting and retaining qualified employees and in tying compensation directly
to corporate performance relative to corporate goals. The Company's compensation
policy will evolve over time as the Company attempts to achieve the many
short-term goals it faces while maintaining its focus on building long-term
stockholder value through growth of its software publishing business.
Respectfully submitted,
William A. Hall
Hugh C. Martin
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CORPORATE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
return on the Company's Common Stock from June 1993 through June 1998, for the
Company, the Nasdaq National Market Index and the Hambrecht & Quist Technology
Index. The graph is presented pursuant to SEC rules. The Company believes that
while total stockholder return can be an important indicator of corporate
performance, the stock prices of companies like 3DO are subject to a number of
market-related factors other than company performance, such as competitive
announcements, mergers and acquisitions in the industry, the general state of
the economy, and the prices of technology stocks. The Company's Compensation
Committee considers many factors in determining compensation, including
financial and strategic results and the other factors discussed in the
Compensation Committee Report.
[PERFORMANCE GRAPH]
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PROPOSAL TWO
APPROVAL OF AMENDMENTS TO 1993 INCENTIVE STOCK PLAN
The stockholders are being requested to approve an increase in the
number of shares reserved for issuance under the Incentive Plan as set forth
below. Prior to July 1998, the Board of Directors had authorized, and the
stockholders had approved, the reservation of 17,529,626 shares of Common Stock
for issuance under the Incentive Plan, including shares added to the Incentive
Plan in January 1998, pursuant to the Incentive Plan's "evergreen" provision, as
discussed below. In recognition of the company's need to attract and retain
qualified employees in a highly competitive environment, in July 1998, the Board
of Directors increased the number of shares of Common Stock reserved thereunder
by an additional aggregate of 2,000,000 shares.
In 1994 the Company's stockholders approved an "evergreen" provision of
the Incentive Plan, which provides that each year the number of shares reserved
for issuance under the Incentive Plan shall increase by a number of shares equal
to 2% of the Company's fully diluted outstanding shares on January 1 of that
year. As a result of this stockholder approval, shares added to the Incentive
Plan pursuant to the evergreen provision are intended to qualify as shares which
can be issued pursuant to Rule 16b-3 under the Securities Exchange Act of 1934.
Of the 2,546,489 shares submitted for approval under this Proposal Two, 546,489
were added to the Incentive Plan as a result of the evergreen provisions and
will qualify for issuance under Rule 16b-3 without regard to the stockholder
action on this Proposal. The 546,489 shares added to the Incentive Plan through
the evergreen provisions are being submitted to the stockholders at this time in
order to ensure that stock options granted pursuant to the Incentive Plan to
acquire these shares will qualify as incentive stock options as described below.
If the stockholders do not approve this Proposal Two, then these 546,489 shares
will continue to be issuable under the Plan, but options to acquire these shares
will be nonstatutory options.
The essential features of the Incentive Plan, as amended to date, are as
follows:
General. The Incentive Plan provides for the granting to employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), and for the granting of nonstatutory stock
options to employees and consultants of the Company. At June 30, 1998, 2,013,161
shares had been issued upon exercise of options granted under the Incentive
Plan, 1,072,000 shares had been issued as stock purchase rights, options to
purchase 8,316,790 shares were outstanding under the Incentive Plan, and
6,149,852 shares remained available for future grant under the Incentive Plan.
The Incentive Plan will terminate by its own terms in 2003.
Administration; Eligibility. The Board may appoint a committee of the
Board to administer the Incentive Plan, and any references to the Board in this
description of the Incentive Plan shall include such committee. The Incentive
Plan is currently administered by the Compensation Committee of the Board of
Directors, which selects the participants and determines the terms of options,
including the exercise price, number of shares and exercisability of each
option. The Board may appoint a committee of the Board to administer the plan
and any references to the Board in this description of the Incentive Plan shall
include such committee. Employees of, and consultants to, the Company and its
subsidiaries are eligible to participate in the Incentive Plan. As of June 30,
1998, approximately 260 persons were eligible to participate in the Incentive
Plan.
Exercisability. The Board determines at the time of grant the
exercisability of options. The current form of option agreement under the
Incentive Plan provides that options are not exercisable except to the extent
vested. Options granted to employees typically vest in monthly increments over a
five-year period, with deferred but accumulated vesting during the first year of
employment. The maximum term of options granted under the Incentive Plan is ten
years.
Exercise Price. The Incentive Plan requires that the exercise price of
incentive stock options must be at least equal to the fair market value of such
shares on the date of grant, and the exercise price of nonqualified stock
options must be at least 85% of the fair market value of such shares on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting rights of the Company's outstanding capital stock, the
exercise price of any option must be at least equal to 110% of fair market value
on the date of grant. The
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purchase price is paid in the manner determined by the Board or its committee,
and the form of consideration may vary for each option. Fair market value equals
the closing price of the Company's Common Stock as reported on the Nasdaq
National Market on the date of grant. At July 22,1998, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market was $3.25.
Performance-Based Compensation Limitations. No employee shall be granted
in any fiscal year of the Company options and stock appreciation rights to
acquire in the aggregate more than 500,000 shares of Common Stock. The foregoing
limitation, which shall adjust proportionately in connection with any change in
the Company's capitalization, is intended to satisfy the requirements applicable
to options and SARs intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Internal Revenue Code. In the event
that the Committee determines that such limitation is not required to qualify
options and SARs as performance-based compensation, the Committee may modify or
eliminate such limitation.
Termination of Employment. If the participant's employment or consulting
relationship terminates for any reason other than death or disability, the
participant's options may be exercised no later than three months after such
termination and only to the extent the option was exercisable on the date of
termination. To the extent that the optionee was not entitled to exercise the
option at the date of termination, or if the optionee does not exercise such
option within the specified time, the option terminates.
Death or Disability. If a participant becomes permanently and totally
disabled during continuous status as an employee or consultant, then the
participant's option may be exercised within twelve months after the date of
such disability to the extent the option was exercisable at the time of
disability. If a participant dies during continuous status as an employee or
consultant after the grant of an option, then the participant's option may be
exercised at any time within twelve months following the date of death, but only
to the extent the right to exercise had accrued at the date of death. The Board
may vary each of the foregoing time periods.
Effect of Change in Control. Pursuant to the Incentive Plan, in the
event of certain mergers of the Company with other entities, transfers of voting
control of the Company's capital stock or sales of all or substantially all of
the Company's assets, the Company will request that the acquiring entity assume
the Company's rights and obligations under the Incentive Plan or provide similar
options in substitution therefor. If the acquiring entity chooses not to assume
such rights and obligations or provide substitute options, then the Board must
cause all outstanding options (together with shares purchased upon exercise
thereof) to become fully vested prior to the event causing such acceleration and
all unexercised options will terminate upon completion of such event.
Nontransferability. An option is non-transferable by the participant
other than by will or the laws of descent and distribution, and is exercisable
during the participant's lifetime only by the participant, or, in the event of
death of the participant, by a person who acquires the right to exercise the
option by bequest or inheritance.
Amendment and Termination. The Board may amend the Incentive Plan from
time to time or may terminate it without approval of the stockholders. However,
the approval of the holders of a majority of the Company's capital stock voted
at a duly held stockholders meeting, or the approval of the holders of a
majority of the outstanding shares of the Company entitled to vote pursuant to a
stockholders' written consent, is required for any amendment that increases the
number of shares available under the Incentive Plan or materially changes the
standards of eligibility. No such action by the Board of Directors or
stockholders may alter or impair any options or stock previously granted under
the Incentive Plan without the consent of the optionee. In any event, the
Incentive Plan shall terminate on February 28, 2003.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief summary of the federal income tax consequences
of transactions under the Incentive Plan based on federal securities and income
tax laws in effect on July 22, 1998. This summary is not intended to be
exhaustive and does not discuss the tax consequences of a participant's death or
provisions of the income tax laws of any municipality, state or foreign country
in which an optionee may reside.
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Options granted under the Incentive Plan may be either incentive stock
options ("ISOs"), as defined in Section 422 of the Code, or nonstatutory stock
options ("NSOs").
Incentive Stock Options. No taxable income is recognized by the optionee
upon the grant or exercise of an ISO unless the optionee is subject to
alternative minimum tax. Upon the sale or exchange of the shares issued on
exercise of an ISO more than two years after grant of the option and one year
after exercising the option, any gain or loss will be treated as long-term
capital gain or loss. If these holding periods are not satisfied, then generally
the optionee will recognize ordinary income in the year of disposition in an
amount equal to the lesser of the fair market value of the shares at exercise or
the amount realized on such disposition over the exercise price of such shares.
The Company is entitled to a corresponding tax deduction. Any further gain or
loss realized will be taxed as short-term or long-term capital gain or loss
depending on the holding period of such shares. Different rules may apply in the
case of an optionee who is also an executive officer, director or more than 10%
stockholder.
Nonstatutory Stock Options. Except as noted below, with respect to NSOs,
(i) no income is recognized by the optionee at the time the option is granted;
(ii) generally, at exercise, ordinary income is recognized by the optionee in an
amount equal to the excess of the fair market value of the shares on the date of
exercise and the option exercise price paid for the shares, and the Company is
entitled to a tax deduction in the same amount; and (iii) at disposition, any
gain or loss is treated as capital gain or loss. In the case of an optionee who
is also an employee, any income recognized upon exercise of a Nonstatutory Stock
Option will constitute wages for which withholding will be required. However,
different rules may apply if shares are purchased by an optionee who is also an
executive officer, director or more than 10% stockholder.
Stock Purchase Rights. The Incentive Plan permits the Company to grant
stock purchase rights to purchase Common Stock of the Company either alone, in
addition to, or in tandem with other awards under the Incentive Plan or cash
awards made outside the Incentive Plan. Upon the granting of a stock purchase
right under the Incentive Plan, the offeree will be advised in writing of the
terms, conditions and restrictions related to the offer, including the number of
shares of Common Stock that the offeree will be entitled to purchase, the price
to be paid and the time within which the offeree must accept such offer (which
will in no event exceed 30 days from the date upon which the administrator made
the determination to grant the stock purchase right). The offer will be accepted
by execution of a restricted stock purchase agreement between the Company and
the offeree.
Unless the administrator of the Incentive Plan determines otherwise, the
restricted stock purchase agreement will grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with the Company for any reason (including
death or permanent and total disability). The purchase price for shares
repurchased pursuant to the restricted stock purchase agreement will be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option will lapse
at such rate as the administrator may determine. Upon exercise of a stock
purchase right, the purchaser will have rights equivalent to those of a
stockholder of the Company.
Special Rules Applicable to Corporate Insiders and Restricted Stock
Purchasers. Generally, individuals subject to Section 16(b) of the Exchange Act
("Insiders") and individuals who purchase restricted stock may have their
recognition of compensation income and the beginning of their capital gains
holding period deferred for up to six (6) months after option exercise (for
Insiders), or until the restrictions lapse for restricted stock purchasers (the
"Deferral Date"). The excess of the fair market value of the stock determined as
of the Deferral Date over the purchase price will be taxed as ordinary income,
and the tax holding period for any subsequent gain or loss will begin on the
Deferral Date. However, an Insider or restricted stock purchaser who so elects
under Code Section 83(b) on a timely basis may instead be taxed on the
difference between the excess of the fair market value on the date of transfer
over the purchase price, with the tax holding period beginning on such date.
Similar rules apply for alternative minimum tax purposes with respect to the
exercise of an ISO by an Insider.
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INCENTIVE PLAN BENEFITS
The Company cannot now determine the exact number of options or stock
purchase rights to be granted in the future to the executive officers named
under Executive Officer Compensation -- Summary Compensation Table, all current
executive officers as a group or all employees (including current officers who
are not executive officers) as a group. See "Executive Officer Compensation --
Option Grants in Last Fiscal Year and Aggregate Option Exercises in Last Fiscal
Year" for the number of stock options granted to the executive officers named in
the Summary Compensation Table in the fiscal year ended March 31, 1998. In the
fiscal year ended March 31, 1998, options to purchase 3,817,700 shares of the
Common Stock of the Company (including shares granted for the repricing of stock
options) were granted to all current executive officers as a group, options to
purchase 906,120 shares of Common Stock of the Company (including shares granted
for the repricing of stock options) were granted to all current non-executive
officers as a group, and options to purchase 7,945,910 shares of Common Stock of
the Company were granted to all employees (including current officers who are
not executive officers). Options to purchase 1,760,000 shares of the Common
Stock of the Company (including shares granted for the repricing of stock
options) were granted to Trip Hawkins, who is a nominee for director and holds
more than 5% of the options outstanding. Options to purchase 673,000 shares of
the Common Stock of the Company (including shares granted for the repricing of
stock options) were granted to Hugh Martin, who is a nominee for director.
Options to purchase 704,000 shares of the Common Stock of the Company (including
shares granted for the repricing of stock options) were granted to James Alan
Cook, who holds more than 5% of the options outstanding. No options in the
Incentive Plan were granted to current directors who are not executive officers
of the Company.
REQUIRED VOTE
Approval of the amendment to the Incentive Plan requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented and voting, in person or by proxy, at the Annual Meeting. Votes cast
against the proposal are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Votes cast against the
proposal are also counted for purposes of determining the total number of votes
required to pass the proposal and whether such votes have been obtained.
While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the counting of votes with respect to a
proposal such as the approval of this amendment to the Incentive Plan, the
Company believes that abstentions should be counted for purposes of determining
both the presence or absence of a quorum for the transaction of business and the
total number of shares present or represented and entitled to vote on the
proposal. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions on this proposal in this manner. The Delaware
Supreme Court has held that, while broker non-votes may be counted as present or
represented for purposes of determining the presence or absence of a quorum for
the transaction of business, broker non-votes may not be counted for purposes of
determining the number of shares entitled to vote with respect to the particular
proposal for which authorization to vote was withheld. Accordingly, broker
non-votes with respect to this proposal will not be considered shares entitled
to vote and, accordingly, will not be counted in determining whether this
proposal passes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE AMENDMENT TO THE INCENTIVE PLAN.
PROPOSAL THREE
APPROVAL OF AMENDMENTS TO 1994 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being requested to approve an increase in the
number of shares reserved for issuance under the 1994 Employee Stock Purchase
Plan (the "1994 Plan") as set forth below. In September 1994, the stockholders
had approved the reservation of 1,000,000 shares of Common Stock for issuance
under the 1994 Plan. In recognition of the Company's need to attract and retain
qualified employees in a highly competitive environment, and as the result of
recent accounting changes more fully describe below, in July 1998, the Board of
Directors
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increased the number of shares of Common Stock reserved thereunder by an
additional aggregate of 1,500,000 shares.
RECENT ACCOUNTING CHANGES
A recent interpretation of generally accepted accounting principles
requires the Company to record a charge to earnings if certain conditions apply
to an employee stock purchase plan that qualifies under Section 423 of the
Internal Revenue Code. This interpretation was announced in September 1997 in
the consensus issued by the Emerging Issues Task Force entitled Accounting for
Increased Share Authorizations in an IRS Section 423 Employee Stock Purchase
Plan under APB Opinion No. 25, Accounting for Stock Issued to Employees (Issue
No. 97-12) ("EITF 97-12"). Generally, if (i) at the beginning of an offering
period, the shares reserved for issuance under an employee stock purchase plan
are insufficient to cover all shares issuable throughout the offering period,
(ii) stockholders subsequently approve additional shares allocable to an
offering period which commenced prior to the stockholder approval date, and
(iii) the fair market value of the stock subject to the plan on the subsequent
stockholder approval date is higher than the fair market value on the date when
the offering period commenced, then the Company will be required to record a
charge to earnings to reflect the theoretical compensatory element of the
difference in fair market value.
Under prior practice, the Company typically would seek stockholder
approval for additional shares when the shares remaining under the 1994 Plan
appeared insufficient for a 12-month time frame. However, the 1994 Plan provides
for 24-month offering periods consisting of four six-month purchase periods, and
a new offering period begins every six months (see discussion below regarding
Purchase Plan Offering Periods and Purchase Periods). Applied to this structure,
the treatment specified by EITF 97-12 requires that, in order to avoid a
potential earnings charge, the number of shares reserved for issuance under the
1994 Plan must never be permitted to decline below a level required to maintain
at least 24 months of projected purchases.
Two variables that may affect the amount of an earnings charge required
under EITF 97-12 are substantial hiring of new personnel, which affect new
enrollments to the plan, and volatility over time in the market value of the
Company's Common Stock. In order to minimize the possibility or extent of such
charges in the future, the Board of Directors has approved an increase in the
number of shares reserved for issuance under the plan which it believes will be
sufficient to cover the needs of the Plan for at least the next twenty-four
months, thus avoiding a charge to earnings.
SUMMARY OF THE ESPP
The essential features of the ESPP are summarized below. This summary
does not purport to be complete and is subject to, and qualified by, reference
to all provisions of the ESPP.
Purpose. The purpose of the ESPP is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company through accumulated
payroll deductions.
Administration. The ESPP may be administered by the Board of Directors
or a committee appointed by the Board. All questions of interpretation or
application of the ESPP are determined by the Board or its committee, whose
decisions are final and binding upon all participants. Members of the Board who
are eligible employees are permitted to participate in the ESPP but may not vote
on any matter affecting the administration thereof or the grant of any option
pursuant thereto. No director who is eligible to participate in the ESPP may be
a member of the committee appointed to administer it. Members of the Board
receive no additional compensation for their services in connection with the
administration of the ESPP.
Eligibility and Participation. Any person who is employed by the Company
or a designated subsidiary of the Company for 20 hours per week and more than
five months in a calendar year is eligible to participate in the ESPP, provided
that the employee is employed on the first day of an Offering Period. Eligible
employees become participants in the ESPP by delivering to the Company a
subscription agreement authorizing payroll deductions
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fourteen days prior to the applicable enrollment date. An employee who becomes
eligible to participate in the ESPP after the commencement of an Offering Period
may not participate in the ESPP until the commencement of the next Offering
Period.
Participation in an Offering. Each offering of Common Stock under the
ESPP ("Offering") extends for a period of two years ("Offering Period") and
consists of four six-month periods ("Purchase Periods") within each such
Offering Period. The administrator may change the length of Offering and
Purchase Periods. To participate in the Purchase Plan, each eligible employee
must authorize payroll deductions pursuant to the ESPP. Such payroll deductions
must be at least 1%, and may not exceed 20%, of a participant's base salary,
wages, bonuses, overtime, shift premiums and commissions received during a
Purchase Period. Once an employee becomes a participant in the ESPP, the
employee will automatically participate in each successive Offering Period until
such time as the employee withdraws from the ESPP or the employee's employment
terminates. Eligible employees may participate in only one Offering at a time.
Purchase Price. The purchase price per share at which shares will be
sold under the ESPP is the lower of 85% of the fair market value of the Common
Stock on the first day of each offering period or 85% of the fair market value
of the Common Stock on the exercise date.
The purchase price of the shares is accumulated by payroll deductions
during the Purchase Period. A participant may at any time discontinue his or her
participation in the ESPP or may decrease the rate of the payroll deductions.
Payroll deductions shall commence on the first payday in the Offering Period,
and shall continue at the same rate until the end of the Offering Period and for
consecutive Offering Periods unless sooner terminated as provided in the ESPP.
All payroll deductions are credited to the participant's account under the ESPP
and are deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
Purchase of Stock. At the beginning of each Offering Period, by
executing a subscription agreement to participate in the ESPP, each participant
is in effect granted an option to purchase shares of Common Stock on each
Exercise Date. The maximum number of shares placed under option to a participant
in an Offering Period is that number determined by dividing the amount of the
participant's totally payroll deductions to be accumulated during the Offering
Period by the applicable purchase price, and subject to the further limitation
that the maximum number of shares a participant may purchase during each
Purchase Period shall be determined at the beginning of the Offering Period by
dividing $12,500 by the fair market value of a share of Common Stock on the
first day of the Offering Period. Unless a participant withdraws from the ESPP,
such participant's option for the purchase of shares will be exercised
automatically at the end of each Purchase Period for the maximum number of
shares at the applicable price.
Notwithstanding the foregoing, no employee will be permitted to
subscribe for shares under the ESPP if, immediately after the grant of the
option, the employee would own 5% or more of the voting power or value of all
classes of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the ESPP or pursuant to any other
options), nor shall any employee be granted an option which would permit the
employee to buy more than $25,000 worth of stock (determined at the fair market
value of the shares at the time the option is granted) pursuant to all Company
stock purchase plans in any calendar year.
Withdrawal. A participant's interest in a given offering may be
terminated in whole, but not in part, by signing a delivering to the Company a
notice of withdrawal from the ESPP. Any withdrawal by the participant of
accumulated payroll deductions for a given Offering Period automatically
terminates the participant's interest in that Offering Period. The failure to
maintain continuous status as an employee of the Company for at least 20 hours
per week during an Offering Period will be deemed to be a withdrawal from that
Offering Period. The ESPP also provides that participants will be deemed to have
withdrawn from an offering during certain leaves of absence. Generally, a
participant's withdrawal from an Offering Period does not have any effect upon
such participant's eligibility to participate in subsequent Offering Periods.
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Termination of Employment. Termination of a participant's employment for
any reason, including retirement or death, cancels his or her participation in
the ESPP immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant or, in the case of
death, to the person or persons entitled thereto as specified by the employee in
the subscription agreement.
Capital Changes. In the event any change is made in the Company's
capitalization, such as a stock split or stock dividend, which results in an
increase or decrease in the number of outstanding shares of Common Stock without
receipt of consideration by the Company, appropriate adjustments will be made in
the shares subject to purchase under the ESPP and in the purchase price per
share, subject to any action by stockholders of the Company.
Nonassignability. No rights or accumulated payroll deductions of a
participant under the ESPP may be pledged, assigned or transferred for any
reason except by will, the laws of descent and distribution, or to a designated
beneficiary as provided under the ESPP, and any such attempt may be treated by
the Company as an election to withdraw from the ESPP.
Amendment and Termination of the ESPP. The Board may at any time amend
or terminate the ESPP, except that such termination shall not affect options
previously granted, provided that an Offering Period may be terminated if the
Board determines that such termination is in the best interests of the Company
and its stockholders. No amendment may be made to the ESPP without prior
approval of the stockholders of the Company if such amendment would constitute
an amendment for which stockholder approval is required under the federal
securities laws or the Code. In any event, the ESPP will terminate in the year
2004.
CERTAIN FEDERAL INCOME TAX INFORMATION
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Section 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
sale or other disposition of the shares purchased under the ESPP. Upon such sale
or disposition, the participant will generally be subject to tax in an amount
which depends upon how long the participant holds the shares. If the shares are
sold or disposed of more than two years from the first day of the Offering
Period and one year from the exercise date, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price or (b) an amount equal to 15% of the fair market value of the shares as of
the first day of the Offering 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 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 of ordinary income recognized upon a sale or disposition of
shares prior to the expiration of the holding periods described above.
The foregoing summary of the federal income tax consequences of ESPP
transactions is based upon federal income tax laws in effect on the date of this
Proxy Statement. This summary does not purport to be complete, and does not
describe foreign, state or local tax consequences.
23
<PAGE> 26
PLAN BENEFITS
The following table sets forth certain information concerning the
purchase of common stock under the Purchase Plan by each executive officer named
under "Executive Compensation - Summary Compensation Table;" all current
executive officers, as a group; all current directors who are not executive
officers, as a group; each nominee for election as a director; each associate of
any such directors, executive officers or nominees; each other person who
purchased 5% of the Purchase Plan shares issued in the last fiscal year; and all
employees, including all current officers who are not executive officers, as a
group. The purchases of stock under the Purchase Plan are made at the discretion
of participants, subject to the limitations described above. Accordingly, future
purchases under the Purchase Plan are not determinable.
<TABLE>
<CAPTION>
DISTRIBUTION PERIOD
-------------------------------------------
2/18/97 THROUGH 8/18/97 THROUGH
8/15/97 2/17/98
-------------------- --------------------
PURCHASE NUMBER PURCHASE NUMBER
NAME OF INDIVIDUAL OR NUMBER IN GROUP PRICE(1) OF SHARES PRICE (1) OF SHARES
- ---------------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
John Adams ............................. 0 0 0 0
James Alan Cook ........................ $2.9750 443 $2.1781 685
Stephen E. Fowler ...................... $2.9750 1,565 $2.1781 4,987
Trip Hawkins ........................... 0 0 0 0
Hugh C. Martin ......................... 0 0 0 0
Greg Richardson ........................ 0 0 0 0
Terrence Schmid ........................ 0 0 0 0
All current executive officers, as a
group (5)............................... $2.9750 2,008 $2.1781 5,672
All current directors who are not
executive officers, as a group (3) ..... 0 0 0 0
William J. Budge, Jr ................... $2.9750 3,040 $2.1781 4,575
Nicholas Earl .......................... $2.9750 2,511 $2.1781 3,937
Helmut Kobler .......................... $2.9750 3,614 $2.1781 5,611
David S. Maynard ....................... $2.9750 3,279 $2.1781 4,911
All employees, including all current
officers who are not executive officers,
as a group.............................. $2.9750 35,514 $2.1781 84,402
</TABLE>
(1) Purchase price depends on the specific purchase period (as defined in the
Purchase Plan) in which an individual is enrolled.
VOTE REQUIRED
Approval of the amendment to the Purchase Plan requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented and voting, in person or by proxy, at the Annual Meeting. Votes cast
against the proposal are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Votes cast against the
proposal are also counted for purposes of determining the total number of votes
required to pass the proposal and whether such votes have been obtained.
While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the counting of votes with respect to a
proposal such as the approval of this amendment to the Incentive Plan, the
Company believes that abstentions should be counted for purposes of determining
both the presence or absence of a quorum for the transaction of business and the
total number of shares present or represented and entitled to vote on the
proposal. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions on this proposal in this manner. The Delaware
Supreme Court has held that, while broker non-votes may be counted as present or
represented for purposes of determining the presence or absence of a quorum for
the transaction of
24
<PAGE> 27
business, broker non-votes may not be counted for purposes of determining the
number of shares entitled to vote with respect to the particular proposal for
which authorization to vote was withheld. Accordingly, broker non-votes with
respect to this proposal will not be considered shares entitled to vote and,
accordingly, will not be counted in determining whether this proposal passes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL FOUR
CONFIRMATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP to audit the
financial statements of the Company for the year ending March 31, 1999, and
recommends that the stockholders confirm the selection. In the event of a
negative vote, the Board will reconsider its selection.
KPMG Peat Marwick LLP has audited the Company's financial statements
since its inception. Representatives of KPMG Peat Marwick LLP are expected to be
present at the meeting, will have the opportunity to make a statement if they so
desire, and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
CONFIRMATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
25
<PAGE> 28
3DO LOGO HERE
<PAGE> 29
THE 3DO COMPANY
PROXY FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of The 3DO Company, a Delaware corporation
(the "Company"), hereby appoints Trip Hawkins and James Alan Cook, and each of
them, with full power of substitution to represent the undersigned and to vote
all of the shares of the stock of the Company which the undersigned is entitled
to vote, at the Annual Meeting of Stockholders of the Company to be held on
September 16, 1998, at 3:00 p.m., local time, at the Summerfield Suites Hotel,
400 Concourse Drive, Belmont, California (the "Meeting"), and at any adjournment
thereof, and to vote all shares the undersigned would be entitled to vote if
personally present at the Meeting on the matters listed on the reverse side.
Whether or not you plan to attend the Meeting in person, you are urged
to sign and promptly mail this proxy in the enclosed return envelope so that
your shares may be represented at the Meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR BOTH NOMINEES AND FOR
PROPOSALS 2 THROUGH 4. In their discretion, the proxy holders are authorized to
vote upon such other business as may properly come before the Meeting, or any
adjournment thereof, to the extent authorized by Rule 14a-4(c) promulgated by
the Securities and Exchange Commission.
See Reverse Continued and to be signed See Reverse
Side on reverse side Side
<PAGE> 30
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH NOMINEES AND FOR PROPOSALS 2
THROUGH 4.
1. To elect two directors for a term of three years.
Nominees: W. M. (Trip) Hawkins III and Hugh C. Martin
[ ] FOR BOTH NOMINEES.
[ ] WITHHELD FROM BOTH NOMINEES.
[ ] FOR ALL NOMINEES EXCEPT AS NOTED ABOVE ________________________.
2. To approve an increase in the number of shares of Common Stock reserved for
issuance under the 1993 Incentive Stock Plan by 2,546,489 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an increase in the number of shares of Common Stock reserved for
issuance under the 1994 Employee Stock Purchase Plan by 1,500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the appointment of KPMG Peat Marwick LLP as independent auditors
for the fiscal year ending March 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The undersigned hereby acknowledges receipt of (a) the Notice of 1998 Annual
Meeting of Stockholders of the Company, (b) the accompanying Proxy Statement,
and (c) the 1998 Annual Report of the Company.
Please sign exactly as your name appears on your stock certificate. If shares
are held in the names of two or more persons (including husband and wife, as
joint tenants or otherwise), all persons must sign. If shares are held by a
corporation, the proxy should be signed by the President or Vice President and
the Secretary or Assistant Secretary. Fiduciaries who execute the proxy should
give their full title.
Signature:
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