<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
[_] Confidential, for Use of the Commission Only
(as Permitted by Rule 14a-6(e)(2))
LEVEL ONE COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (check the appropriate box):
[X] No Fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
___________________________________________________________________
(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>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AUGUST __, 1998
The Annual Meeting of the Shareholders of LEVEL ONE COMMUNICATIONS,
INCORPORATED ("Level One" or the "Company") will be held at the Company's
facilities at 9800 Old Placerville Road, Sacramento, California, on __________,
August __, 1998, at 9 A.M. for the following purposes:
1. To elect Directors of the Company.
2. To amend the Company's 1993 Stock Option Plan to provide for an
additional 1,800,000 shares.
3. To consider a proposal to reincorporate the Company under Delaware law.
4. To ratify the selection of Arthur Andersen LLP as the Company's
certified public accountants.
5. To consider and act upon such other matters as may properly come before
the meeting.
Only shareholders of record at the close of business on __________, 1998, are
eligible to vote in person or by proxy at the Annual Meeting or any adjournment.
Even if you plan to attend the meeting in person, the Board of Directors urges
you to date, sign, and promptly return the enclosed proxy. You are entitled to
vote in person if you attend the meeting, even if you give a proxy now. A
postage-prepaid envelope is enclosed for your convenience in returning the
signed proxy.
Your early attention to the proxy will be appreciated.
By Order of the Board of Directors
Robert S. Pepper, Ph.D.
Chairman of the Board
Sacramento, California
Dated: July __, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT FOR FISCAL YEAR 1997 AND A
PROXY STATEMENT ACCOMPANY THIS NOTICE.
<PAGE>
LEVEL ONE COMMUNICATIONS, INCORPORATED
PROXY STATEMENT
This proxy statement contains information related to the solicitation of
proxies for use at the Annual Meeting of Shareholders of LEVEL ONE
COMMUNICATIONS, INCORPORATED to be held on __________, August __, 1998, at 9
A.M. at the Company's facilities at 9800 Old Placerville Road, Sacramento.
Enclosed in this mailing is a form of proxy solicited by the Company's Board of
Directors. The solicitation cost will be borne by the Company. In addition to
solicitation by mail, the Company's officers and employees may solicit proxies
personally or by telephone or facsimile, without additional compensation. Except
as described above, the Company does not currently intend to solicit proxies
other than by mail.
This proxy statement is being sent to shareholders on or about July __, 1998.
Only shareholders of record as of the close of business on __________, 1998,
are entitled to vote at the meeting or at any adjournment. The Company's
outstanding stock on __________, 1998, consisted of ___________ shares of Common
Stock.
Shareholders are entitled to one vote per share. For the election of
directors, shareholders are entitled to one vote per share for each director
position. A shareholder may use cumulative voting for directors by notifying the
Secretary of the Company before voting begins. With cumulative voting, the
shareholder will have votes equal to the number of shares held, multiplied by
the number of director positions to be filled (seven), and may cast those votes
for a single candidate or among any or all of the candidates in such proportions
as the shareholder sees fit. If no request is made to cumulate votes, each
voting shareholder shall be deemed to cast one vote per share for each director.
If a shareholder abstains from voting on any matter, or if a broker returns a
"non-vote" proxy on any matter, those shares will be deemed present at the
meeting for purposes of determining a quorum but will not be counted for
purposes of calculating the vote. Because shareholder approval under California
law requires the affirmative vote of at least a majority of the shares needed to
constitute a quorum, an abstention or a broker non-vote may have the same effect
as a negative vote.
All shares represented by valid proxies received by the Company prior to the
meeting will be voted as specified in the proxy. Unless the shareholder
specifies otherwise, the shares will be voted FOR the election of nominees, FOR
the addition of shares to the 1993 Stock Option Plan, FOR the reincorporation
under Delaware law, and FOR the ratification of the appointment of auditors. A
shareholder may revoke a proxy any time prior to its exercise, by delivering to
the Secretary of the Company a written revocation or a duly executed proxy
bearing a later date, or by attending the meeting and voting the shares in
person.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Seven positions are to be voted upon at the Annual Meeting, for directors to
serve until the 1999 annual meeting or until their successors have been duly
elected and qualified. All seven nominees currently serve as members of the
Board of Directors.
The Company's directors are Dr. Robert S. Pepper, Chairman of the Board and
President and Chief Executive Officer of the Company; Thomas J. Connors; Dr.
Paul R. Gray; Martin Jurick; Dr. Henry Kressel; Joseph P. Landy; and Dr.
Kenneth A. Pickar. Information on each Director is set out in the section
"Directors and Officers of the Company".
Each nominee has consented to be named in this proxy statement and to serve as
a director if elected. The Company believes all nominees will be available to
serve. If any nominee becomes unable or unwilling to serve, proxies will be
voted for such other person as the Board of Directors may recommend, in place of
the unavailable nominee.
The seven nominees receiving the most affirmative votes shall be elected at
the Annual Meeting. Shares represented at the Annual Meeting and not voting
shall not be counted as affirmative votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE SLATE OF
DIRECTORS PROPOSED BY THE BOARD OF DIRECTORS.
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DIRECTORS AND OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of June
1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Robert S. Pepper, Ph.D.............. 62 President, Chief Executive Officer
and Chairman of the Board of Directors
John Kehoe.......................... 52 Senior Vice President, Chief Financial
Officer, Secretary
Daniel S. Koellen................... 40 Vice President, Quality and Reliability
David McKinnon...................... 50 Vice President, Networking
George A. Papa...................... 50 Vice President, Worldwide Sales
Michael Ricci....................... 43 Vice President, Telecom
Manuel D. Yuen...................... 57 Vice President, Operations
Michael Wodopian.................... 45 Vice President, Business Development
and Strategic Planning
Thomas J. Connors (1)(2)............ 68 Director
Paul Gray, Ph.D..................... 55 Director
Martin Jurick (2)................... 60 Director
Henry Kressel, Ph.D.(2)............. 64 Director
Joseph P. Landy (1)................. 36 Director
Kenneth A. Pickar, Ph.D............. 58 Director
</TABLE>
- -------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Dr. Pepper joined the Company in July 1986 as President, Chief Executive
Officer and a director. He became Chairman of the Board of Directors in January
1993. From 1979 until 1984, Dr. Pepper was Vice President and General Manager
of the Solid State division of RCA Corporation. Prior to joining RCA, Dr. Pepper
had spent over 15 years in the semiconductor industry, including positions as
Vice President and General Manager of the Semiconductor Division at Analog
Devices, Inc. Dr. Pepper holds B.S., M.S. and Ph.D. degrees in Electrical
Engineering from the University of California at Berkeley.
Mr. Kehoe joined the Company in October 1995 as Vice President and Chief
Financial Officer. In November 1997, Mr. Kehoe was elected Senior Vice
President. Immediately prior to joining the Company Mr. Kehoe served
3
<PAGE>
as Senior Vice President and Chief Financial Officer for Focus Surgery, Inc., a
medical device manufacturer. From 1992 to 1993 he served as Vice President,
Finance and Chief Financial Officer for Celeritek, Inc., a microwave systems
company. From 1989 to 1992 he served as Vice President, Finance and Chief
Financial Officer of Poqet Computer Corp., a computer manufacturer. Prior to
1989 he worked in various financial and CFO positions for approximately 14 years
with high technology companies, including Texas Instruments. Mr. Kehoe holds an
MBA from Fordham University and a BBA from Manhattan College.
Mr. Koellen has been responsible for the Quality and Reliability function
since he joined the Company in January 1989, serving as Manager until January
1992, then as Director until January 1993 when he was promoted to Vice President
of Quality and Reliability. From 1985 to 1989, Mr. Koellen was Lead Failure
Analysis Engineer for the Denver Aerospace Division of Martin Marietta Corp.
Prior to joining Martin Marietta, Mr. Koellen managed the surface analysis
laboratory for Mostek Corporation, a supplier of dynamic random access memory
integrated circuits. Mr. Koellen holds an M.S. in Engineering and Applied
Science from Southern Methodist University and a B.S. in Applied Mathematics,
Engineering and Physics from the University of Wisconsin.
Mr. McKinnon joined the Company in June 1998 as Vice President, Networking.
Prior to joining the Company, he had been employed for 15 years by National
Semiconductor Corporation. From 1995 to 1998, he served as Chief Technical
Officer and Chief Operating Officer for National Semiconductor Japan. From 1994
to 1995 he was National's Vice President of Technology Development, and prior to
that served from 1991 to 1994 as Vice President and General Manager of
National's Ethernet Division. In addition to serving in other management
positions at National, Mr. McKinnon held management and engineering positions
with Honeywell Corporation, Marconi Space and Defense Systems, and Ferranti,
Ltd.
Mr. Papa joined the Company in February 1997 as Vice President, Worldwide
Sales. Prior to joining the Company, he had been employed since 1991 as Vice
President of Sales for North America by Siemens Components Corporation, a
division of Siemens. Previously Mr. Papa was employed in other management and
sales positions with Siemens Components Corporation, LSI Logic Corporation,
Intel Corporation, and Tektronix. Mr. Papa holds a B.S.E.E. from Northeastern
University.
Mr. Ricci joined the Company in August 1997. Prior to joining the Company,
Mr. Ricci was Director of Wireless Communication at Advanced Micro Devices.
Prior to this role, Mr. Ricci held the position of Director, Desktop Networking,
at AMD. Mr. Ricci worked at AMD for 17 years. Prior to AMD Mr. Ricci worked at
Siliconix, Inc. in the communications area for two years.
Mr. Wodopian joined the Company in January 1998. Prior to joining Level One,
Mr. Wodopian spent over 16 years at Advanced Micro Devices, most recently as the
Director of Marketing for the Communications Products Division. Prior to that,
he spent four years at AMD's European headquarters as Director of Marketing for
Europe. During the balance of his tenure at AMD, he served in a variety of
program management and field applications roles. Prior to working at AMD, Mr.
Wodopian was responsible for microprocessor based system level designs for the
process control and aerospace industries.
Mr. Yuen was Director of Operations from the time he joined the Company in
February 1991 until January 1992, when he was promoted to Vice President of
Operations. Prior to joining the Company, Mr. Yuen spent over 20 years at
National Semiconductor Corporation, serving as Director of its Santa Clara
foundry from 1986 to 1987 and as Vice President--Military Aerospace Division
from 1987 to 1989. Mr. Yuen holds a B.S. and an M.S. in Electrical Engineering
from the University of California at Berkeley.
Mr. Connors has been a director of the Company since April 1991. Since 1980,
Mr. Connors has been the principal of TJC Investments, an independent consulting
firm that works with companies in the semiconductor and related industries.
Previously, Mr. Connors was employed by Motorola, Inc., where he last served as
Vice President and General Manager of the Semiconductor Division. Mr. Connors is
also a member of the Board of Directors of SGS-Thomson Microelectronics, Inc., a
wholly-owned subsidiary of SGS-N.V.
4
<PAGE>
Dr. Gray has been a director since April 1994. Dr. Gray is the Dean of the
College of Engineering at the University of California, Berkeley. From 1990 to
1993, he served as Chairman of the Electrical Engineering and Computer Sciences
Department, and as Vice Chairman of the Department from 1988 to 1990. He served
as a director of Microlinear Corporation from 1988 to 1991. He has published
more than 100 papers in the electrical engineering field, has served on numerous
industry committees, and holds 10 patents.
Mr. Jurick has been a director of the Company since April 1991. Since 1984,
Mr. Jurick has been a Senior Vice President of Silicon Systems, Inc. ("SSI"), a
semiconductor manufacturing company, which until 1996 was a wholly owned
subsidiary of TDK Corporation, and in 1996 became a division of Texas
Instruments Inc. Mr. Jurick also serves as a director of Microsemi Corp.
Dr. Kressel has been a director of the Company since August 1987. Since 1985,
Dr. Kressel has been a Managing Director at E.M. Warburg, Pincus & Co., Inc.
("EMW"), an investment firm, where he has been employed since 1983. Prior to
joining EMW, Dr. Kressel spent 20 years at RCA Laboratories, where he became a
Staff Vice President. Dr. Kressel is also a member of the Board of Directors of
IA Corporation, NOVA Corporation, Maxis, Inc., and Trescom International.
Mr. Landy has been a director of the Company since January 1991. Since January
1994, Mr. Landy has served as a Managing Director at E.M. Warburg, Pincus & Co.,
Inc. ("EMW"), an investment firm, where he has been employed since 1985. Prior
to joining EMW, Mr. Landy was employed by Dean Witter Realty, Inc., the real
estate investment banking affiliate of Dean Witter Reynolds, Inc., as a
financial analyst. He also serves as a director of NOVA Information Systems,
Indus International, Inc. and CN Biosciences, Inc.
Dr. Pickar has been a director of the Company since June 1998. Dr. Pickar
currently is a visiting professor at California Institute of Technology. From
1993 to 1997 he was Senior Vice President, Engineering and Technology at
AlliedSignal Aerospace. From 1983 to 1992, he was Manager of the Electronic
Systems Research Center for General Electric Corporation. Dr. Pickar also has
held management and engineering positions with Thomas Consulting Group,
Signetics Corporation, Northern Research, and Bell Laboratories.
Directors are elected by the shareholders at each annual meeting to serve
until the next annual meeting of shareholders or until their successors are duly
elected and qualified. Officers are elected to serve, subject to the discretion
of the Board of Directors, until they resign or their successors are appointed.
There are no family relationships between any directors or executive officers.
There are no agreements or other arrangements or understandings pursuant to
which any director will be selected as a director or nominee.
Non-employee, non-affiliate Directors receive $1,800 per day for each day
devoted to Company Board or committee meetings. The Company reimburses each
director for reasonable expenses of attending Board or Board committee meetings.
The 1993 Stock Option Plan, as amended, provides for an automatic initial grant
of 10,000 options to newly eligible non-employee directors and an automatic
annual stock option grant of 2,000 shares to eligible non-employee directors.
During 1997, automatic grants were adjusted for the Company's 3-for-2 stock
split, but no adjustments are planned for future years.
The Board of Directors met eight times during the fiscal year ended December
28, 1997. The Board of Directors has an Audit Committee and a Compensation
Committee. During the fiscal year ended December 28, 1997 each director attended
or participated in 75% or more of the aggregate of (i) all Board meetings during
the period in which such director served and (ii) all meetings of Board
committees on which the director served.
The Audit Committee of the Board of Directors consists of Directors Connors
and Landy. The Audit Committee recommends the engagement of independent
auditors, consults with the independent auditors regarding the scope of annual
audits and reviews the Company's system of internal accounting controls. The
Audit Committee met once during the fiscal year ended December 28, 1997.
5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Directors
Connors, Jurick, and Kressel. The Compensation Committee reviews and approves
the compensation policies for the Company's executive officers. During 1997,
stock option grants were administered by the Compensation Committee in
conjunction with Board meetings. The Compensation Committee also met separately
from the Board one time during 1997. Mr. Connors was paid $77,400 during 1997
for consulting services rendered under an agreement with the Company.
In connection with securing a loan from Warburg Pincus Capital Company, L.P.
("WPCC") in 1992, the Company issued a warrant to WPCC to purchase 456,178
shares of its Common Stock at an exercise price of $ .68 per share. The warrant
was exercised January 16, 1997, for 433,696 shares, and the balance was
surrendered, on a net appreciation basis, in an amount equal to the exercise
price. Directors Kressel and Landy, each of whom is an affiliate of the entity
controlling WPCC, disclaim beneficial ownership, for purposes of Section 16 of
the Securities Exchange Act of 1934, and amended, and otherwise, of such Common
Stock.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's Chief
Executive Officer and the four other highest paid executive officers whose
compensation for the 1997 fiscal year was in excess of $100,000 (collectively
the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL
ANNUAL --SECURITIES OTHER
COMPENSATION (1) UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)(2) ($)(3)
- -------------------------------- ---- --------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D. 1997 325,846 583,554 585,000 2,794
President, Chief Executive 1996 296,923 185,382 135,000 6,276
Officer and Chairman of the 1995 220,000 97,172 --- 4,280
Board
John Kehoe 1997 186,056 201,859 120,000 1,617
Senior Vice President and 1996 153,182 81,508 45,000 1,800
Chief Financial Officer 1995 27,115 12,500 157,500 ---
George Papa 1997 142,697 142,350 157,500 17,116
Vice President, Worldwide
Sales
Manuel D. Yuen 1997 158,711 81,741 33,075 1,376
Vice President, Operations 1996 142,654 28,028 56,925 2,811
1995 119,674 16,846 74,250 2,443
Daniel S. Koellen 1997 135,740 61,434 9,000 1,253
Vice President, Quality & 1996 120,042 30,726 70,875 3,282
Reliability 1995 106,292 15,227 51,975 3,120
</TABLE>
6
<PAGE>
(1) Annual compensation amounts include amounts deferred at the election of the
Named Officer pursuant to the Company's 401(k) plan.
(2) Option numbers give effect to the Company's March 1998 3-for-2 stock split
(3) Other annual compensation represents the Company's 401(k) matching
contributions, and, in the case of Mr. Papa, an automobile allowance.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE 1993 STOCK OPTION PLAN
In July 1993, the Board of Directors and the shareholders approved the
Company's 1993 Stock Option Plan (the "1993 Plan"). In 1996, the shareholders
ratified amendments to the 1993 Plan, including an increase (adjusted for stock
splits) of 4,500,000 shares available for grant under the 1993 Plan. Under the
1993 Plan as amended, options to purchase up to 6,862,500 shares of Common Stock
may be granted to employees, directors and consultants of the Company or its
subsidiaries. Unless designated as an incentive stock option ("ISO") intended
to qualify under Section 422 of the Internal Revenue Code (the "Code"), each
option granted under the 1993 Plan is intended to be a nonstatutory stock
option. The 1993 Plan expires in July 2008.
Stock options play a key role in the Company's ability to recruit, reward and
retain executives, key employees and directors. Technology companies have
historically used stock options as an important part of recruitment and
retention packages. The Company competes directly with other technology
companies for experienced executives and professionals and must be able to offer
comparable packages to attract the caliber of individual that the Company
believes is necessary to provide the growth that shareholders desire.
The Company's growth is largely responsible for the need to increase shares
issuable under the 1993 Plan. Management believes that the ability to retain
management and key employees using options is vital to the Company's growth.
PROPOSED AMENDMENT TO THE 1993 PLAN
The Board of Directors has increased the shares reserved for issuance under
the 1993 Plan by an additional 1,800,000 shares, bringing the total shares
reserved for issuance under the 1993 Plan to 8,662,500.
Proposal 2 seeks shareholder approval of this amendment.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast will be required to
approve the amendment to the 1993 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential provisions of the 1993 Plan are outlined below.
ADMINISTRATION
The 1993 Plan is administered by the Compensation Committee of the Board of
Directors.
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ELIGIBILITY
The 1993 Plan provides that options may be granted to employees, including
officers and directors, employed by the Company or its majority-owned
subsidiaries, to non-employee directors of the Company and to consultants to the
Company. ISOs may be granted only to employees, including officers. The
Compensation Committee of the Board of Directors approves the participants, the
grant date and vesting terms of options, and the number of shares to be subject
to each option. Option grants are based on the duties and responsibilities of
the employee, the value of the employee's services, his or her present and
potential contributions to the success of the Company and other relevant
factors. As of June 1, 1998, there were approximately 612 employees currently
eligible to participate in the 1993 Plan.
TERMS OF OPTIONS
The terms of options granted under the 1993 Plan are determined by the
Compensation Committee. Each option is evidenced by a stock option agreement
between the Company and the optionee, and is normally subject to the following
additional terms and conditions:
(a) EXERCISE OF THE OPTION: The Company's current policy is that each Option
Agreement provides that shares covered by the option are subject to vesting over
time. Each employee's initial option grant normally vests over five (5) years
at the rate of twenty percent (20%) of the shares annually. Later grants
typically vest in fewer than five years. The Company may at any time or from
time to time accelerate the vesting of any outstanding option. The exercise
price of an option shall be paid in cash, check or other shares of Common Stock.
(b) EXERCISE PRICE: The exercise price for each option is normally 100% of
fair market value at the date of grant. No ISO may be granted at less than 100%
of the fair market value of the Common Stock on the option grant date. For a
nonstatutory option, the price shall not be less than eighty-five percent (85%)
of the fair market value on the grant date. If an option is granted to a
shareholder who, immediately prior to such grant, owns stock representing more
than ten percent (10%) of the voting power or value of all classes of stock of
the Company, the exercise price must not be less than 110% of such fair market
value.
(c) TERMINATION OF EMPLOYMENT: If the optionee's status as an employee or
consultant terminates for any reason other than death or disability, options
under the 1993 Plan may be exercised not later than three (3) months after such
termination, to the extent such option was vested on the date of termination.
(d) DISABILITY OF OPTIONEE: If an optionee becomes totally and permanently
disabled while employed by the Company, options may be exercised within twelve
(12) months after termination of employment due to such disability, but only to
the extent such options were vested on the date of termination.
(e) DEATH OF OPTIONEE: If an optionee dies while employed by the Company,
options may be exercised at any time within twelve (12) months after death, but
only to the extent the options would have been exercisable and vested at the
date of death.
(f) TERMINATION OF OPTIONS: ISOs granted under the 1993 Plan expire ten
(10) years from the date of grant and nonstatutory stock options granted under
the 1993 Plan expire ten (10) years and one (1) day from the date of grant,
unless otherwise provided in the option agreement. However, in the case of an
option granted to an employee who, at the time the option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any parent or subsidiary, the term of the option shall
not be greater than five (5) years.
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AUTOMATIC GRANTS TO NON-EMPLOYEE, NON-AFFILIATE DIRECTORS
Each non-employee director who is not a representative of shareholders owning
more than ten percent (10%) of the outstanding shares of the Company receives an
initial automatic grant of an option to purchase 10,000 shares, vesting 20%
annually, and, two years after the initial grant, an additional annual automatic
grant of an option to purchase 2,000 shares vesting four years after the date of
grant.
PERFORMANCE-BASED COMPENSATION LIMITATIONS
No employee shall be granted, in any fiscal year of the Company, options to
purchase more than 1,125,000 shares. The Company may, however, upon an
employee's initial employment, grant an option to purchase up to an additional
1,125,000 shares. The foregoing limitations, which shall be adjusted
proportionately in connection with any change in the Company's capitalization
(such as a stock split), are intended to satisfy the requirements applicable to
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization due to a stock
split or payment of a stock dividend (but only on Common Stock) or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration, appropriate adjustment shall be made in the exercise
price and in the number of shares subject to the option.
In the event of a proposed dissolution or liquidation of the Company, each
unexercised option will terminate immediately prior to the consummation of such
proposed action.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
options shall be assumed or an equivalent option shall be substituted by the
successor corporation. If no such assumption or substitution is made, the Board
shall notify the participant that the option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice and
the option will terminate upon the expiration of such period.
AMENDMENT AND TERMINATION
The Board may amend or terminate the 1993 Plan from time to time in such
respects as the Board may deem advisable; provided that any increase in the
number of shares subject to the 1993 Plan shall require shareholder approval.
The Plan will terminate on July 7, 2008, unless terminated earlier by the Board.
CERTAIN FEDERAL INCOME TAX INFORMATION
Options granted under the 1993 Plan may be either ISOs or nonstatutory
options.
An option that does not qualify as an ISO is a nonstatutory option. A
participant does not recognize taxable income at the time he or she is granted a
nonstatutory option. Upon exercise of the options, the optionee will recognize
taxable income generally measured by the excess of the then fair market value of
the shares purchased over the purchase price. Any taxable income recognized in
connection with an employee's option exercise is subject to tax withholding by
the Company. Upon optionee's resale of such shares, any difference between the
sale price and the optionee's purchase price, to the extent not recognized as
taxable income as described above, will be treated as long-term or short- term
capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired upon
exercise of a nonstatutory option.
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<PAGE>
An optionee who is granted an ISO generally will not recognize taxable income
either at the time the option is granted or upon its exercise, although the
exercise may subject the optionee to the alternative minimum tax. If an
optionee does not satisfy the holding period requirements applicable to ISOs, he
or she will recognize ordinary income at the time of sale or exchange of shares
equal to the difference between the exercise price and the lower of (i) the fair
market value of the shares at the date of the option exercise or (ii) the sale
price of the shares. A different rule for measuring ordinary income on such a
premature disposition may apply if the optionee is also an officer, director, or
10% shareholder of the Company. In such event, the Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
The foregoing is only a summary of the effect of federal income taxation upon
the optionee and the Company with respect to the grant and exercise of options
under the 1993 Plan, does not purport to be complete, and does not discuss the
tax consequences of the optionee's death or the income tax laws of any
municipality, state or foreign country in which an optionee may reside
PARTICIPATION IN THE 1993 PLAN
Option Grants in Last Fiscal Year and Year-End Option Values
The following table sets forth certain information concerning grants of stock
options to (i) each of the Named Officers, (ii) all current executive officer as
a group, (iii) all other employees as a group and (iv) all non-employee
directors as a group, during the fiscal year ended December 28, 1997. The
options listed were granted under the 1993 Plan. Except for an initial option
grant to Mr. Papa vesting pro rata over five years, the options listed vest pro
rata over four years. In accordance with the rules of the Securities and
Exchange Commission, also shown (for each of the Named Officers) is the
potential realizable value based on the assumed rates of stock price
appreciation of 5% and 10%, compounded annually, from the date the option was
granted over the full option term. These amounts represent certain assumed rates
of appreciation only and do not represent the Company's estimate of future stock
price. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------ POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE Option Term (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------ -------------- ---------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D. 337,500 13.9 10.36 4/4/07 2,199,932 5,575,498
247,500 10.2 18.75 12/18/07 2,918,464 7,392,961
John Kehoe 67,500 2.8 10.36 4/4/07 439,986 1,115,099
52,500 2.2 18.75 12/18/07 619,068 1,568,840
Manuel D. Yuen 33,075 1.4 10.36 4/4/07 215,593 546,398
Daniel S. Koellen 9,000 .4 10.36 4/4/07 58,664 148,679
George Papa 157,500 6.5 12.67 2/11/07 1,255,079 3,180,867
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
All current executive 1,017,075
officers as a group
All other employees as 1,017,075
a group
All non-employee 92,250
directors as a group
</TABLE>
(1) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
The following table provides information with respect to the Named Officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of December 28, 1997:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END (#) IN-THE-MONEY OPTIONS
ACQUIRED VALUE ------------------------------ AT FISCAL YEAR END ($)(1)
ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ----------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D. 127,500 2,950,397 312,051 866,250 4,907,108 6,008,744
John Kehoe 11,250 92,624 63,000 248,250 528,498 1,692,745
Manuel D. Yuen 84,375 2,510,218 68,230 146,644 1,047,062 1,591,577
Daniel S. Koellen 0 0 98,043 112,782 1,588,245 1,264,282
George Papa 0 0 0 157,500 0 918,750
</TABLE>
(1) Based upon the market price of $18.67 per share, which was the closing price
per share on the NASDAQ National Market System on the last day of the 1997
fiscal year, less the option exercise price payable per share.
PROPOSAL NO. 3
APPROVAL OF DELAWARE REINCORPORATION AND
THE FORM OF INDEMNIFICATION AGREEMENT
INTRODUCTION
For the reasons set forth below, the Board of Directors believes that it is
in the best interests of the Company and its shareholders to change the state of
incorporation of the Company from California to Delaware (the "Reincorporation
Proposal" or the "Proposed Reincorporation"). SHAREHOLDERS ARE URGED TO READ
CAREFULLY THE FOLLOWING SECTIONS OF THIS PROXY STATEMENT, INCLUDING THE RELATED
EXHIBITS REFERENCED BELOW AND ATTACHED HERETO, BEFORE VOTING ON THE
REINCORPORATION PROPOSAL. Throughout the Proxy Statement, the term "Level One
California" refers to the existing California corporation and the term "Level
One Delaware" refers to the new Delaware corporation, a wholly owned subsidiary
of Level One California, which is the proposed successor to Level One
California.
11
<PAGE>
The principal reasons for the proposed reincorporation are the greater
flexibility of Delaware corporate law, the substantial body of case law
interpreting that law, and the increased ability of the Company to attract and
retain qualified directors. The Company believes that its shareholders will
benefit from the well established principles of corporate governance that
Delaware law affords. Although Delaware law provides the opportunity for the
Board of Directors to adopt various mechanisms which may enhance the Board's
ability to negotiate favorable terms for the shareholders in the event of an
unsolicited takeover attempt, the proposed Delaware Certificate of Incorporation
and the Reincorporation Proposal is not being proposed in order to prevent a
nonsolicited takeover attempt, nor is it in response to any present attempt
known to the Board of Directors to acquire control of the Company, obtain
representation of the Board of Directors or take significant action that affects
the ownership or control of the Company.
The Reincorporation Proposal will be effected by merging Level One
California into Level One Delaware. Upon completion of the merger, Level One
California will cease to exist and Level One Delaware will continue to operate
the business of the Company under the nameLevel One Communications,
Incorporated.
Pursuant to the proposed Agreement and Plan of Merger, a copy of which is
attached hereto as Exhibit A (the "Merger Agreement"), each outstanding share of
Level One California Common Stock, no par value, will automatically be converted
into one share of Level One Delaware Common Stock, $0.001 par value, upon the
effective date of the merger. Each stock certificate representing issued and
outstanding shares of Level One California Common Stock will continue to
represent the same number of shares of Common Stock of Level One Delaware. IT
WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK
CERTIFICATES FOR STOCK CERTIFICATES OF LEVEL ONE DELAWARE. However,
shareholders may exchange their certificates if they so choose. The Common
Stock of Level One California is listed for trading on the NASDAQ National
Market, and after the merger Level One Delaware's Common Stock will continue to
be traded on the NASDAQ National Market without interruption, under the same
symbol ("LEVL") as the shares of Level One California Common Stock are currently
traded.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of Level One California is required for approval of the
Merger Agreement and the other terms of the Proposed Reincorporation. See "Vote
Required for the Reincorporation Proposal". The Proposed Reincorporation has
been approved by Level One California's Board of Directors. If approved by the
shareholders, it is anticipated that the merger will become effective as soon as
practicable (the "Effective Date") following the Annual Meeting of Shareholders,
provided, that the merger may be abandoned or the Merger Agreement may be
amended by the Board of Directors (except for the principal terms thereof, which
may not be amended without shareholder approval) either before or after
shareholder approval has been obtained and prior to the Effective Date of the
Proposed Reincorporation if, in the opinion of the Board of Directors of either
company, circumstances arise which make it inadvisable to proceed under the
original terms of the Merger Agreement. Shareholders of Level One California
will have no dissenters' rights of appraisal with respect to the merger.
The discussion set forth below is qualified in its entirety by reference to
the Form of Merger Agreement, the Form of Certificate of Incorporation of Level
One Delaware (the "Certificate of Incorporation"), the Form of Bylaws of Level
One Delaware and the Form of Indemnification Agreement, copies of which are
attached hereto as Exhibits A, B, C and D, respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE FORM OF MERGER AGREEMENT, THE FORM OF CERTIFICATE OF
INCORPORATION, THE FORM OF BYLAWS OF LEVEL ONE DELAWARE, THE FORM OF
INDEMNIFICATION AGREEMENT AND ALL PROVISIONS THEREOF.
12
<PAGE>
VOTE REQUIRED
Approval of the Reincorporation Proposal, which will also constitute
approval of (i) the Merger Agreement, (ii) the Certificate of Incorporation and
the Bylaws of Level One Delaware, (iii) the Indemnification Agreement and (iv)
the assumption of Level One California's employee benefit plans, stock option
plans, employee stock purchase plan and the 4% Convertible Subordinated Notes
due 2004 by Level One Delaware, will require the affirmative vote of the
majority of outstanding shares of the Company on the Record Date entitled to
vote on the proposal.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSED REINCORPORATION.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based and the Company believes
that shareholders will benefit from the responsiveness of Delaware corporate law
to their needs and to those of the corporation they own.
PROMINENCE, PREDICTABILITY AND FLEXIBILITY OF DELAWARE LAW. For many years
Delaware has followed a policy of encouraging incorporation in that state and,
in furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal and
business needs of corporations organized under its laws. A large number of
corporations have chosen Delaware initially as a state of incorporation or have
subsequently changed corporate domicile to Delaware in a manner similar to that
proposed by the Company. Because of Delaware's prominence as the state of
incorporation for major corporations, both the legislature and courts in
Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to corporate legal affairs.
INCREASED ABILITY TO ATTRACT AND RETAIN QUALIFIED DIRECTORS. Both
California and Delaware law permit a corporation to include a provision in its
charter document which reduces or limits the monetary liability of directors for
breaches of fiduciary duty in certain circumstances. The increasing frequency
of claims and litigation directed against directors and officers has greatly
expanded the risks facing directors and officers of corporations in exercising
their respective duties. The amount of time and money required to respond to
such claims and to defend such litigation can be substantial. The Company
desires to reduce these risks to its directors and officers and to limit
situations in which monetary damages can be recovered against directors so that
the Company may continue to attract and retain qualified directors who otherwise
might be unwilling to serve because of the risks involved. The Company believes
that, in general, Delaware law provides greater protection to directors than
California law and that Delaware case law regarding a corporation's ability to
limit director liability is more developed and provides more guidance than
California law.
CALIFORNIA PROPOSITION 211. In November 1996, Proposition 211, which would
have severely limited the ability of California companies to indemnify their
directors and officers was rejected. Although Proposition 211 was defeated,
similar initiatives or legislation containing similar provisions may be proposed
in California in the future. As a result, the Company believes that the more
favorable corporate environment afforded by Delaware will enable it to compete
more effectively with other public companies in attracting new directors.
WELL ESTABLISHED PRINCIPLES OF CORPORATE GOVERNANCE. There is substantial
judicial precedent in the Delaware courts as to the legal principles applicable
to measures that may be taken by a corporation and as to the conduct of the
Board of Directors under the business judgment rule. The Company believes that
its shareholders will benefit from the well-established principles of corporate
governance that Delaware law affords.
13
<PAGE>
NO CHANGE IN THE NAME, CURRENT BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE
PLANS OR LOCATION OF PRINCIPAL FACILITIES OF THE COMPANY
The Reincorporation Proposal will effect a change only in the legal
domicile of the Company and certain other changes of a legal nature, certain of
which are described in this Proxy Statement. The Proposed Reincorporation will
not result in any change in the name, business, management, fiscal year, assets
or liabilities (except to the extent of legal and other costs of effecting the
reincorporation) or location of the principal facilities of the Company. The
seven directors who are elected at the Annual Meeting of Shareholders will
become the directors of Level One Delaware. All employee benefit, stock option,
employee stock purchase plans and the 4% Convertible Subordinated Notes due 2004
of Level One California will be assumed and continued by Level One Delaware, and
each option or right issued pursuant to such plans will automatically be
converted into an option or right to purchase the same number of shares of Level
One Delaware Common Stock, at the same price per share, upon the same terms, and
subject to the same conditions. Shareholders should note that approval of the
Reincorporation Proposal will also constitute approval of the assumption of
these plans by Level One Delaware. Other employee benefit arrangements of Level
One California will also be continued by Level One Delaware upon the terms and
subject to the conditions currently in effect. As noted above, after the merger
the shares of Common Stock of Level One Delaware will continue to be traded,
without interruption, in the same principal market and under the same symbol
("LEVL") as the shares of Common Stock of Level One California are currently
traded.
Prior to the Effective Date of the merger, the Company will obtain any
requisite consents to such merger from parties with whom it may have contractual
arrangements. As a result, Level One California's rights and obligations under
such contractual arrangements will continue and be assumed by Level One
Delaware.
ANTITAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number
of measures through amendment of the corporate charter or bylaws or otherwise,
which measures are designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. The Reincorporation Proposal is not being
proposed in order to prevent such a change in control, nor is it in response to
any present attempt known to the Board of Directors to acquire control of the
Company or to obtain representation on the Board of Directors.
Certain effects of the Reincorporation Proposal may be considered to have
antitakeover implications. Section 203 of the Delaware General Corporation Law,
from which Level One Delaware does NOT intend to opt out, restricts certain
"business combinations" with "interested stockholders" for three years following
the date that a person becomes an interested stockholder, unless the Board of
Directors approves the business combination. See "Significant Differences
Between the Corporation Laws of California and Delaware-- Shareholder Approval
of Certain Business Combinations." Likewise, the elimination of the right of
shareholders controlling at least ten percent of the voting shares to call a
special meeting of the shareholders could be seen as promoting an antitakeover
effect by allowing shareholder action only at a meeting properly called by the
Board of Directors or an annual meeting. The elimination of the ability of a
majority of shareholders to act by written consent also could be viewed as
having an antitakeover effect in that it can make it more difficult for
shareholders to coordinate action outside a duly called annual or special
meeting. It should be noted that a classified board of directors can also be
established under California law in certain circumstances, although there are
current plans to establish a classified bond. For a detailed discussion of all
of the changes which will be implemented as part of the Proposed
Reincorporation, see "The Charters and Bylaws of Level One California and Level
One Delaware" and "Restatement of Indemnification Agreements." For a discussion
of these and other differences between the laws of California and Delaware, see
"Significant Differences Between the Corporation Laws of California and
Delaware."
The Board of Directors believes that unsolicited takeover attempts may be
unfair or disadvantageous to the Company and its shareholders because: (i) a
non-negotiated takeover bid may be timed to take advantage of temporarily
depressed stock prices; (ii) a non-negotiated takeover bid may be designed to
foreclose or minimize the possibility of more favorable competing bids or
alternative transactions; (iii) a non-negotiated takeover bid may
14
<PAGE>
involve the acquisition of only a controlling interest in the corporation's
stock, without affording all shareholders the opportunity to receive the same
economic benefits; and (iv) certain of the Company's contractual arrangements
provide that they may not be assigned pursuant to a transaction which results in
a "change of control" of the Company without the prior written consent of the
licensor or other contracting party.
By contrast, in a transaction in which an acquiror must negotiate with an
independent board of directors, the board can and should take account of the
underlying and long-term values of the Company's business, technology and other
assets, the possibilities for alternative transactions on more favorable terms,
possible advantages from a tax-free reorganization or favorable accounting
treatment, anticipated favorable developments in the Company's business not yet
reflected in the stock price and equality of treatment of all shareholders.
Despite the belief of the Board of Directors as to the benefits to
shareholders of the Reincorporation Proposal, it may be disadvantageous to the
extent that it has the effect of discouraging a future takeover attempt which is
not approved by the Board of Directors, but which a majority of the shareholders
may deem to be in their best interests or in which shareholders may receive a
substantial premium for their shares over the then current market value or over
their cost basis in such shares. As a result of such effects of the
Reincorporation Proposal, shareholders who might wish to participate in a tender
offer may not have an opportunity to do so. In addition, to the extent that
such provisions enable the Board of Directors to resist a takeover or a change
in control of the Company, they could make it more difficult to change the
existing Board of Directors and management.
THE CHARTERS AND BYLAWS OF LEVEL ONE CALIFORNIA AND LEVEL ONE DELAWARE
The provisions of the Level One Delaware Certificate of Incorporation and
Bylaws are similar to those of the Level One California Articles of
Incorporation and Bylaws in many respects. However, the Reincorporation
Proposal includes the implementation of certain provisions in the Level One
Delaware Certificate of Incorporation and Bylaws which alter the rights of
shareholders and the powers of management. Certain of these provisions have
antitakeover implications as described in this Proxy Statement. Approval by
shareholders of the Proposed Reincorporation will constitute an approval of the
inclusion in the Level One Delaware Certificate of Incorporation and Bylaws of
each of the provisions described below. In addition, Level One Delaware could
implement certain other changes by amendment of its Certificate of Incorporation
or Bylaws. For a discussion of such changes, see "Significant Differences
Between the Corporation Laws of California and Delaware." This discussion of
the Certificate of Incorporation and Bylaws of Level One Delaware is qualified
by reference to Exhibits B and C hereto, respectively.
The Articles of Incorporation of Level One California currently authorize
the Company to issue up to 236,250,000 million shares of Common Stock, no par
value, and 10million shares of Preferred Stock, no par value. In the event that
the reincorporation merger proposed herein is effected, the Certificate of
Incorporation of Level One Delaware will continue to provide that such company
will have 236,250,000 million authorized shares of Common Stock, $0.001 par
value, and 10 million shares of Preferred Stock, $0.001 par value. In each
case, the rights, privileges and preferences of the shares of Preferred Stock
may be determined by the Board in its discretion from time to time.
MONETARY LIABILITY OF DIRECTORS AND OFFICERS. The Articles of
Incorporation of Level One California and the Certificate of Incorporation of
Level One Delaware both provide for the elimination of personal monetary
liability of directors and officers to the fullest extent permissible under law.
The provision eliminating monetary liability of directors and officers set forth
in the Level One Delaware Certificate of Incorporation is potentially more
expansive than the corresponding provision in the Level One California Articles
of Incorporation, in that (1) the former incorporates future amendments to
Delaware law with respect to the elimination of such liability, and (2) the
former indemnifies employees and other agents of Level One Delaware, in addition
to directors and officers. Level One Delaware proposes to enter into new
indemnification arrangements with all directors after the Proposed
Reincorporation. For a more detailed explanation of the new indemnification
arrangements after the Proposed Reincorporation, see "Delaware Form of
Indemnification Agreement" and
15
<PAGE>
"Significant Differences Between the Corporation Laws of California and
Delaware--Indemnification and Limitation of Liability."
SIZE OF THE BOARD OF DIRECTORS. The Bylaws of Level One Delaware provide
for a Board of Directors consisting of seven members, until changed by a
majority of directors then in office. The Bylaws of Level One California
provide for a Board of Directors consisting of a minimum of five and a maximum
of nine members. Under California law, although changes in the number of
directors, in general, must be approved by a majority of the outstanding shares,
the Board of Directors may fix the exact number of directors within the stated
range set forth in the bylaws. Delaware law permits the board of directors
acting alone, to change the authorized number of directors by amendment to the
bylaws, unless the directors are not authorized to amend the bylaws or the
number of directors is fixed in the certificate of incorporation (in which case
a change in the number of directors may be made only by amendment to the
certificate of incorporation following approval of such change by the
stockholders). The Level One Delaware Certificate of Incorporation provides
that the number of directors will be as specified in the Bylaws and authorizes
the Board of Directors to adopt, alter, amend or repeal the Bylaws. Following
the Proposed Reincorporation, the Board of Directors of Level One Delaware could
amend the Bylaws to change the size of the Board of Directors from seven
directors without further stockholder approval.
If the Reincorporation Proposal is approved, the seven directors of Level
One California who are elected at the Annual Meeting of Shareholders will
continue as the seven directors of Level One Delaware after the Proposed
Reincorporation is consummated and until their successors have been duly elected
and qualified.
CUMULATIVE VOTING FOR DIRECTORS. Under California law, if any shareholder
has given notice of an intention to cumulate votes for the election of
directors, any other shareholder of the corporation is also entitled to cumulate
his or her votes at such election. Cumulative voting provides that each share of
stock normally having one vote is entitled to a number of votes equal to the
number of directors to be elected. A shareholder may then cast all such votes
for a single candidate or may allocate them among as many candidates as the
shareholder may choose. In the absence of cumulative voting, the holders of the
majority of the shares present or represented at a meeting in which directors
are to be elected would have the power to elect all the directors to be elected
at such meeting, and no person could be elected without the support of holders
of the majority of shares present or represented at such meeting. Elimination
of cumulative voting could make it more difficult for a minority shareholder
adverse to a majority of the shareholders to obtain representation on the
Company's Board of Directors. California corporations whose stock is listed on a
national stock exchange can also eliminate cumulative voting with shareholder
approval. The Company qualifies as such a listed company but has not sought
shareholder approval to eliminate cumulative voting. Under Delaware law,
cumulative voting in the election of directors is not mandatory, but is a
permitted option. The Level One Delaware Certificate of Incorporation does NOT
provide for cumulative voting rights on any matter.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS. Under California law, a
special meeting of shareholders may be called by the Board of Directors, the
Chairman of the Board, the President, the holders of shares entitled to cast not
less than ten percent of the votes at such meeting, or such additional persons
as are authorized by the Articles of Incorporation or the Bylaws. Level One
California's Bylaws permit a special meeting of shareholders to be called by the
Board of Directors, the President, or one or more shareholders holding not less
than ten percent of the voting power of the Company. Under Delaware law, a
special meeting of stockholders may be called by the Board of Directors or any
other person authorized to do so in the Certificate of Incorporation or the
Bylaws. The Bylaws of Level One Delaware currently authorize only the Board of
Directors, the Chairman of the Board, or the President to call a special meeting
of stockholders. Therefore, after the Proposed Reincorporation, no stockholder
(regardless of percentage holding) will be entitled to call special meetings.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under California law, any
vacancy on the board of directors other than one created by removal of a
director may be filled by a majority of the Board then remaining, even if less
than a quorum. A vacancy created by removal of a director may be filled by the
board only if so authorized by a corporation's articles of incorporation or by a
bylaw approved by the corporation's
16
<PAGE>
shareholders. Level One California's Articles of Incorporation and Bylaws do not
permit directors to fill vacancies created by removal of a director, although
vacancies for any other reason may be filled by a majority of the directors then
remaining, even if less than a quorum. Under Delaware law, vacancies and newly
created directorships may be filled by a majority of the directors then in
office (even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the certificate of incorporation or bylaws (or unless the
certificate of incorporation directs that a particular class of stock is to
elect such director(s), in which case a majority of the directors elected by
such class, or a sole remaining director so elected, shall fill such vacancy or
newly created directorship). The Bylaws of Level One Delaware provide that all
vacancies in the board of directors may be filled by a majority of the remaining
directors, even if less than a quorum, or by a sole remaining director;
provided, that whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
NOMINATIONS OF DIRECTOR CANDIDATES AND INTRODUCTION OF BUSINESS AT
SHAREHOLDER MEETINGS. The Bylaws of Level One Delaware establish an advance
notice procedure with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors
(the "Nomination Procedure") and with regard to certain matters to be brought
before an annual meeting or special meeting of stockholders (the "Business
Procedure").
The Nomination Procedure provides that only persons nominated by or at the
direction of the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting, will be
eligible for election as directors. The Nomination Procedure and Business
Procedure provide that at an annual or special meeting, and subject to any other
applicable requirements, only such business may be conducted and nominees may be
elected as have been brought before the meeting by or at the direction of the
Board of Directors or by a stockholder who has given timely written notice to
the Secretary of the Company of such stockholder's intention to bring such
business or election of nominee before the meeting. In all cases, to be timely,
such stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than one hundred twenty
calendar days in advance of the date of the Company's proxy statement released
to stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty days from the date contemplated at the time of the previous
year's proxy statement, notice by the stockholder to be timely must be so
received a reasonable time before the solicitation is made.
To be in proper form, the Nomination Procedure and Business Procedure
provide that a stockholder's notice to the Secretary of the Company must
contain:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be
17
<PAGE>
nominated, or the matter been proposed, or intended to be proposed by the
board of directors; and
(v) if applicable, the consent of each nominee to serve as director of
the Company if so elected.
By requiring advance notice of nominations by stockholders, the Nomination
Procedure affords the Board of Directors an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications.
By requiring advance notice of proposed business, the Business Procedure
provides the Board with an opportunity to inform stockholders of any business
proposed to be conducted at a meeting and the Board's position on any such
proposal, enabling stockholders to better determine whether they desire to
attend the meeting or grant a proxy to the Board of Directors as to the
disposition of such business. Although the Level One Delaware Bylaws do not
give the Board any power to approve or disapprove stockholder nominations for
the election of directors or any other business desired by stockholders to be
conducted at a meeting, the Level One Delaware Bylaws may have the effect of
precluding a nomination for the election of directors or of precluding any other
business at a particular meeting if the proper procedures are not followed. In
addition, the procedures may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
business or such attempt might be beneficial to the Company and its
stockholders.
ACTION BY WRITTEN CONSENT OF THE SHAREHOLDERS. Any action by the
stockholders must be taken at a duly called annual or special meeting, according
to the Bylaws of Level One Delaware. Thus, although the Bylaws of Level One
California allow shareholder action by written consent, shareholder action by
written consent will no longer be authorized after the Proposed Reincorporation.
Since action by written consent to elect directors under California law requires
unanimous consent of the shareholders, elimination of the ability to take action
by written consent of the shareholders under Delaware law is not likely to make
it more difficult to remove directors than is currently the case for Level One
California.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The corporation laws of California and Delaware differ in many respects.
Although all the differences are not set forth in this Proxy Statement, certain
provisions, which could materially affect the rights of shareholders, are
discussed below.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. In recent years, a
number of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant shareholders, more difficult. Under Section
203 of the Delaware General Corporation Law, certain "business combinations"
with "interested stockholders" of Delaware corporations are subject to a three-
year moratorium unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, fifteen
percent or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner, individually or
with or through certain other persons or entities, of fifteen percent or more of
such voting stock at any time within the previous three years, or is an
affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned
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subsidiary equal in aggregate market value to ten percent or more of the
aggregate market value of either the corporation's consolidated assets or all of
its outstanding stock; the issuance or transfer by the corporation or a direct
or indirect majority-owned subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for certain transfers in a
conversion or exchange or a pro rata distribution or certain other transactions,
none of which increase the interested stockholder's proportionate ownership of
any class or series of the corporation's or such subsidiary's stock or of the
corporation's voting stock); or receipt by the interested stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
The three-year moratorium imposed on business combinations of Section 203
does not apply if: (i) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested stockholder; (ii) upon consummation of the transaction that made him
or her an interested stockholder, the interested stockholder owns at least
eighty-five percent of the corporation's voting stock outstanding at the time
the transaction commenced (excluding from the eighty-five percent calculation
shares owned by directors who are also officers of the target corporation and
shares held by employee stock plans that do not give employee participants the
right to decide confidentially whether to accept a tender or exchange offer); or
(iii) on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is also approved
at a stockholder meeting by sixty-six and two-thirds percent of the outstanding
voting stock not owned by the interested stockholder.
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is (i) listed on a national securities exchange, (ii)
quoted on an interdealer quotation system of a registered national securities
association or (iii) held of record by more than 2,000 stockholders. Although a
Delaware corporation to which Section 203 applies may elect not to be governed
by Section 203, Level One Delaware does not intend to so elect and thus will be
governed by Section 203.
Section 203 will encourage any potential acquiror to negotiate with the
Company's Board of Directors. Section 203 also might have the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for Level One
Delaware in which all stockholders would not be treated equally. Shareholders
should note, however, that the application of Section 203 to Level One Delaware
will confer upon the Board the power to reject a proposed business combination
in certain circumstances, even though a potential acquiror may be offering a
substantial premium for Level One Delaware's shares over the then current market
price. Section 203 would also discourage certain potential acquirors unwilling
to comply with its provisions. See "Shareholder Voting" herein.
REMOVAL OF DIRECTORS. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director of a corporation with a
classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. Under Delaware law, a director
that does not have a classified board of directors or cumulative voting may be
removed with or without cause with the approval of a majority of the outstanding
shares entitled to vote. The Certificate of Incorporation of Level One Delaware
does not provide for cumulative voting or a classified board of directors.
Consequently, a director of Level One Delaware may be removed from office with
or without cause, with the approval of a majority of the outstanding shares
entitled to vote at a meeting properly called for that purpose.
INDEMNIFICATION AND LIMITATION OF LIABILITY. California and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their articles of incorporation eliminating
the liability of a director to the corporation or its shareholders for monetary
damages for breach of the director's fiduciary duty of care. There are
nonetheless certain differences between the laws of the two states respecting
indemnification and
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limitation of liability. In general, Delaware law is somewhat broader in
allowing corporations to indemnify and limit the liability of corporate agents,
which, among other things, support Delaware corporations in attracting and
retaining outside directors.
California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a director
in which a director has a material financial interest; or (g) liability for
improper distributions, loans or guarantees.
Delaware law does not permit the elimination of monetary liability for (a)
breaches of the director's duty of loyalty to the corporation or its
shareholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (d) transactions in which the
director received an improper personal benefit.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made without court approval in respect of amounts paid or expenses
incurred in settling or otherwise disposing of a threatened or pending action or
amounts incurred in defending a pending action which is settled or otherwise
disposed of without court approval.
Indemnification is permitted by California law only for acts taken in good
faith and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party), or the court handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits as opposed to Delaware law which
requires indemnification where there has been a successful defense, whether on
the merits or otherwise.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in, or (in contrast to California law) not opposed to, the best interests
of the corporation. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged liable
for negligence or misconduct in the performance of his duty to the corporation.
Each of California and Delaware law allow for the entering of
indemnification agreements which may provide for indemnification arrangements
beyond those specifically authorized by applicable statute as long as they are
not contrary to the policies underlying such statute. In this connection, the
Company entered into indemnification agreements with its officers and directors
providing for indemnification in line with California law, including certain
procedures for such indemnification as well as for the advancement of expenses
(other than actual amounts paid in settlement) in connection with the
investigation, defense, settlement or appeal of any proceeding subject to such
indemnification agreement. Such advances are repayable by the officer or
director to the extent the
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subject conduct is later determined not to be indemnifiable. Similar
indemnification agreements are allowed under Delaware law and the broader
indemnification allowed in Delaware could also result in the greater allowance
of expenses advancement.
After the Proposed Reincorporation, the Company proposes to adopt the
indemnification agreement in the form attached hereto as Exhibit D.
INSPECTION OF SHAREHOLDER LIST. Both California and Delaware law allow any
shareholder to inspect the shareholder list for a purpose reasonably related to
such person's interest as a shareholder. California law provides, in addition,
for an absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of five percent or more of the corporation's voting
shares, or shareholders holding an aggregate of one percent or more of such
shares who have filed a Schedule 14B with the Securities and Exchange Commission
in connection with a contested election of directors. The latter provision has
not been amended in response to the elimination of Schedule 14B under the
revised proxy rules. Under California law, such absolute inspection rights also
apply to a corporation formed under the laws of any other state if its principal
executive offices are in California or if it customarily holds meetings of its
board in California. Delaware law also provides for inspection rights as to a
list of stockholders entitled to vote at a meeting within a ten-day period
preceding a stockholders' meeting for any purpose germane to the meeting.
However, Delaware law contains no provisions comparable to the absolute right of
inspection provided by California law to certain shareholders.
DIVIDENDS AND REPURCHASES OF SHARES. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus exist under
Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares, other than repurchases of its shares issued under employee stock plans
contemplated by Section 408 of the California Corporations Code) unless either
(i) the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or (ii)
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
To date, the Company has not paid any cash dividends on its outstanding
shares and does not anticipate doing so for the foreseeable future.
SHAREHOLDER VOTING. Both California and Delaware law generally require
that a majority of the shareholders of both acquiring and target corporations
approve statutory mergers. Delaware law does not require a stockholder vote of
the surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (a) the merger agreement does not amend
the existing certificate of incorporation, (b) each share of the stock of the
surviving corporation outstanding immediately before the effective date of the
merger is an identical outstanding or treasury share after the merger and (c)
either no shares of common stock of the surviving
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corporation and no shares, securities or obligations convertible into such stock
are to be issued or delivered under the plan of merger, or the authorized
unissued shares or the treasury shares of common stock of the surviving
corporation to be issued or delivered under the plan of merger plus those
initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed twenty
percent (20%) of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger. California
law contains a similar exception to its voting requirements for reorganizations
where shareholders or the corporation itself, or both, immediately prior to the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity.
Both California law and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. As a result, shareholder approval of such
transactions may be easier to obtain under Delaware law for companies which have
more than one class of shares outstanding.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than fifty percent (50%) but less than ninety percent (90%) of
such common stock or its affiliate unless all of the holders of such common
stock consent to the transaction. This provision of California law may have the
effect of making a "cash-out" merger by a majority shareholder more difficult to
accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 does provide similar protection
against coercive two-tiered bids for a corporation in which the stockholders are
not treated equally. See "Significant Differences Between the Corporation Laws
of California and Delaware--Shareholder Approval of Certain Business
Combinations."
California law provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing person of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that does not
have shares held of record by at least 100 persons, or to a transaction that has
been qualified under California state securities laws. Furthermore, if a tender
of shares or vote is sought pursuant to an interested party's proposal and a
later proposal is made by another party at least ten days prior to the date of
acceptance of the interested party proposal, the shareholders must be informed
of the later offer and be afforded a reasonable opportunity to withdraw any
vote, consent or proxy, or to withdraw any tendered shares. Delaware law has no
comparable provision.
INTERESTED DIRECTOR TRANSACTIONS. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, (a) either the shareholders or the
board of directors must approve any such contract or transaction after full
disclosure of the material facts, and, in the case of board approval, the
contract or transaction must also be "just and reasonable" (in California) or
"fair" (in Delaware) to the corporation or (b) the contract or transaction must
have been just and reasonable or fair as to the corporation at the time it was
approved. In the latter case, California law explicitly places the burden of
proof on the interested director. Under California law, if shareholder approval
is sought, the interested director is not entitled to vote his shares at a
shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without
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counting the vote of any interested directors (except that interested directors
may be counted for purposes of establishing a quorum). Under Delaware law, if
board approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even if the disinterested directors are
less than a quorum). Therefore, certain transactions that the Board of Directors
of Level One California might not be able to approve because of the number of
interested directors, could be approved by a majority of the disinterested
directors of Level One Delaware, although less than a majority of a quorum.
SHAREHOLDER DERIVATIVE SUITS. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a stockholder may bring a derivative action
on behalf of the corporation only if the stockholder was a stockholder of the
corporation at the time of the transaction in question or if his or her stock
thereafter devolved upon him or her by operation of law. California law also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
APPRAISAL RIGHTS. Under both California and Delaware law, a shareholder of
a corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under Delaware law, such fair market value is determined exclusive
of any element of value arising from the accomplishment or expectation of the
merger or consolidation, and such appraisal rights are not available (a) with
respect to the sale, lease or exchange of all or substantially all of the assets
of a corporation, (b) with respect to a merger or consolidation by a corporation
the shares of which are either listed on a national securities exchange or are
held of record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation that are
either listed on a national securities exchange or held of record by more than
2,000 holders, plus cash in lieu of fractional shares of such corporations or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
under certain provisions of Delaware law.
The limitations on the availability of appraisal rights under California
law are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have such appraisal rights unless the
holders of at least five percent (5%) of the class of outstanding shares claim
the right or the corporation or any law restricts the transfer of such shares.
Appraisal rights are also unavailable if the shareholders of a corporation or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity (as will be the case in the Reincorporation Proposal).
Appraisal or dissenters' rights are, therefore, not available to shareholders of
Level One California with respect to the Reincorporation Proposal. California
law generally affords appraisal rights in sale of asset reorganizations.
DISSOLUTION. Under California law, shareholders holding fifty percent
(50%) or more of the total voting power may authorize a corporation's
dissolution, with or without the approval of the corporation's board of
directors, and this right may not be modified by the Articles of Incorporation.
Under Delaware law, unless the board of directors approves the proposal to
dissolve, the dissolution must be approved by all the stockholders entitled to
vote thereon. Only if the dissolution is initially approved by the board of
directors may it be approved by a simple majority of the outstanding shares of
the corporation's stock entitled to vote. In the event of such a board-initiated
dissolution, Delaware law allows a Delaware corporation to include in its
certificate of incorporation a supermajority (greater than a simple majority)
voting requirement in connection with dissolutions. Level One Delaware's
Certificate of Incorporation contains no such supermajority voting requirement,
however, and a majority of the outstanding shares entitled to vote, voting at a
meeting at which a quorum is present, would be sufficient to approve a
dissolution of Level One Delaware that had previously been approved by its Board
of Directors.
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APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE
CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e., corporations not organized under California law) are
placed in a special category if they have characteristics of ownership and
operation which indicate that they have significant contacts with California. So
long as a Delaware or other foreign corporation is in this special category, and
it does not qualify for one of the statutory exemptions, it is subject to a
number of key provisions of the California General Corporation Law applicable to
corporations incorporated in California.
Exemptions from Section 2115 are provided for corporations whose shares are
listed on a major national securities exchange or are traded in the Nasdaq
National Market and which have 800 or more shareholders as of the record date of
its most recent annual meeting of shareholders. The Common Stock of Level One
Delaware will continue to be traded on the Nasdaq National Market and to be
owned by more than ___ holders, and, accordingly, Level One Delaware will be
exempt from Section 2115.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Level One California Common Stock who receive
Level One Delaware Common Stock in exchange for their Level One California
Common Stock as a result of the Proposed Reincorporation. The discussion does
not address all of the tax consequences of the Proposed Reincorporation that may
be relevant to particular Level One California shareholders, such as dealers in
securities, or those Level One California shareholders who acquired their shares
upon the exercise of stock options, nor does it address the tax consequences to
holders of options or warrants to acquire Level One California Common Stock.
Furthermore, no foreign, state, or local tax considerations are addressed
herein. IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES, EACH SHAREHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE PROPOSED REINCORPORATION, INCLUDING THE APPLICABILITY OF
FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications and exceptions described herein,
and assuming the Proposed Reincorporation qualifies as a reorganization within
the meaning of Section 368(a) of the Code, the following tax consequences
generally should result:
(a) No gain or loss should be recognized by holders of Level One
California Common Stock upon receipt of Level One Delaware Common Stock
pursuant to the Proposed Reincorporation;
(b) The aggregate tax basis of the Level One Delaware Common Stock
received by each shareholder in the Proposed Reincorporation should be
equal to the aggregate tax basis of the Level One California Common Stock
surrendered in exchange therefor; and
(c) The holding period of the Level One Delaware Common Stock received
by each shareholder of Level One California should include the period for
which such shareholder held the Level One California Common Stock
surrendered in exchange therefor, provided that such Level One California
Common Stock was held by the shareholder as a capital asset at the time of
Proposed Reincorporation.
(d) The Company should not recognize gain or loss for federal income
tax purposes as a result of the Proposed Reincorporation, and Level One
Delaware should succeed, without adjustment, to the federal income tax
attributes of Level One California.
The Company has not requested a ruling from the Internal Revenue Service
(the "IRS") with respect to the federal income tax consequences of the Proposed
Reincorporation under the Code. The Company will, however,
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receive an opinion from legal counsel substantially to the effect that the
Proposed Reincorporation will qualify as a reorganization within the meaning of
Section 368(a) of the Code (the "Tax Opinion"). The Tax Opinion will neither
bind the IRS nor preclude it from asserting a contrary position. In addition,
the Tax Opinion will be subject to certain assumptions and qualifications and
will be based upon the truth and accuracy of representations made by Level One
Delaware and Level One California.
A successful IRS challenge to the reorganization status of the Proposed
Reincorporation would result in a shareholder recognizing gain or loss with
respect to each share of Level One California Common Stock exchanged in the
Proposed Reincorporation equal to the difference between the shareholder's basis
in such share and the fair market value, as of the time of the Proposed
Reincorporation, of the Level One Delaware Common Stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the shares of Level
One Delaware Common Stock received in the exchange would equal their fair market
value on such date, and the shareholder's holding period for such shares would
not include the period during which the shareholder held Level One California
Common Stock.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has reappointed Arthur Andersen LLP as the Company's
independent certified public accountants. Arthur Andersen LLP has served as the
Company's certified public accountants since the fall of 1990.
Although not required to do so by California law, the Company has requested
shareholder ratification of the appointment of the Company's auditors at each
annual meeting. Ratification requires the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock represented and entitled to
vote at the Annual Meeting. Shares represented at the Annual Meeting and not
voting shall not be counted as affirmative votes. In the event the necessary
vote is not obtained, the matter will be returned to the Board of Directors for
consideration of alternatives.
Representatives of Arthur Andersen LLP are expected to be in attendance at the
Annual Meeting, with the opportunity to make a statement if they so desire and
to be available to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors reviews and approves the
compensation policies for the Company's executive officers. These policies are
intended to link executive officer compensation to both Company and individual
performance through base salary, bonuses and long-term compensation. During
1997, the benefits for executives were generally similar to those offered to all
Company employees, including participation in the Company's 401(k) plan and
employee stock purchase plan. Executives were not eligible for participation in
the Company's profit sharing plan, but participated in an executive bonus
program based on the Company's achieving revenue and profitability targets.
The goals of the Company's executive compensation policies are:
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* To align the interests of management and shareholders to build
shareholder value by encouraging consistent, long-term Company growth.
* To attract and retain key executive officers essential to the Company's
long-term success.
* To reward executive officers for long-term corporate success through
stock ownership.
* To link compensation to the Company's achievement of annual and long-term
goals.
* To emphasize and reward performance at the individual and corporate
level.
Base salary, bonus and long-term compensation amounts are established
following evaluation of compensation surveys for the technology industry and
other published data on executive compensation on companies competitive with
Level One. These comparisons include, but are not limited to, the group of
companies whose cumulative stock performance is shown in the "Performance Graph"
section.
BASE SALARY
The base salary for each executive officer is determined on the basis of
individual performance, the functions performed by the executive officer and the
scope of the executive officer's ongoing responsibilities, and the salary for
comparable positions shown in the comparative data described above. The weight
given to each factor varies by individual. Base salary is set near or above the
midpoint of the salary levels for comparable positions surveyed.
Each executive officer's base salary is reviewed annually to ensure
appropriateness, and increases to base salary are made to reflect competitive
market increases and individual factors. Company performance does not play a
significant role in the determination of base salary.
CASH BONUS
Executive officers earned cash bonuses for the 1997 fiscal year pursuant to
the Company's executive bonus plan. Under the plan, executive officers earned a
bonus based on the Company's revenue and profit performance against targets
established at the start of the year. Bonus amounts for participants other than
Dr. Pepper were based on individual performance as assessed by Dr. Pepper. Dr.
Pepper's bonus is described under the heading "Chief Executive Officer
Compensation" below.
LONG-TERM INCENTIVES
Long-term incentives are provided through stock option grants. Option grants
are intended to motivate the executive officers to manage the Company for long-
term performance. The size of each option grant is based upon the compensation
surveys described above, an assessment of the option grants of comparable
companies, and each officer's expected individual contribution.
Each option allows the executive officer to acquire Company stock in the
future at a fixed price per share. The Company grants options with exercise
prices equal to the market price of the shares on the grant date. The option's
value increases only if the market price of the Company's shares increases,
aligning a substantial part of the executive officer's compensation package with
the return realized by the shareholders. Options granted to executive officers
during 1997 were not immediately exercisable.
In 1996, the Board adopted, and the shareholders approved, amendments to the
1993 Plan intended to exclude stock option income from the $1 million
deductibility limitations of Internal Revenue Code Section 162(m).
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CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
In setting the compensation payable to the Chief Executive Officer, Robert S.
Pepper, Ph.D., the goal is to provide compensation competitive with other
companies in the industry while at the same time making a significant percentage
of his compensation subject to consistent, positive, long-term Company
performance. For 1997, Dr. Pepper's base salary was increased by approximately
10% over the base salary paid in 1996, based on a review of CEO salaries of
other companies with growth and revenue profiles similar to those of Level One.
In general, the factors utilized in determining Dr. Pepper's compensation were
similar to those applied to the other executive officers in the manner described
in the preceding paragraphs. In addition to the factors in the executive bonus
plan, Dr. Pepper's bonus for 1997 was based on achievement of specified
objectives related to Company operations, as established by the Compensation
Committee. As a result of Dr. Pepper's performance against these goals, his
bonus for 1997 was $583,554. The long-term component of Dr. Pepper's
compensation consisted of stock option grants aggregating 585,000 shares.
COMPENSATION COMMITTEE MEMBERS:
Thomas J. Connors
Martin Jurick
Henry Kressel, Ph.D.
PERFORMANCE GRAPH
Set forth below is a graph indicating cumulative monthly total return
(assuming reinvestment of dividends) for the fiscal year ended December 28, 1997
on $100 invested alternatively in the Company's Common Stock, the index for
NASDAQ United States issuers prepared by the Center for Research in Security
Prices, and a "peer group" of companies engaged in semiconductor manufacture
for the communications industry selected by the Company. The index level for all
series was set to $100 on August 19, 1993, the date of the Company's initial
public offering of its Common Stock. Each line represents a monthly index level
derived from compounded daily returns including all dividends.
The companies selected for the peer group were Analog Devices, Inc., Cirrus
Logic, Inc., Exar Corp., Microchip Technology, Inc., Sierra Semiconductor Corp.,
Dallas Semiconductor Corp., Linear Technology Corp., and Maxim Integrated
Products, Inc. In 1996 Brooktree Corp. was acquired by Rockwell International,
Inc., and in 1997 Zilog, Inc. ceased public trading of it shares; as a result,
the Company deleted Brooktree and Zilog from the peer group calculations. The
returns of each issuer in the peer group are reweighted daily, using the stock
market capitalization for the prior day.
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Performance Graph for
Level One Communications, Incorporated
<TABLE>
<CAPTION>
12/31/93 12/30/94 12/29/95 12/27/96 12/26/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Level One Communications, Incorporated 127.2 81.6 94.7 185.5 219.1
Nasdaq Stock Market (US Companies) 106.7 104.3 147.5 181.6 214.3
Self-Determined Peer Group 115.0 143.0 226.5 266.5 311.1
</TABLE>
27
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1998, by (i) each person
(or group of affiliated persons) known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each Named Officer, and (iv) the Company's directors and executive
officers as a group. Except as indicated in the footnotes to this table, the
persons named herein, based on information provided by such persons, have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
DIRECTORS, NAMED OFFICERS AND 5% SHAREHOLDERS OWNED
- --------------------------------------------- -----------------------------------
NUMBER PERCENT (1)
----------------- ----------------
<S> <C> <C>
Kopp Investment Advisors, Inc. (2) 3,271,476 10.5%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
Robert S. Pepper, Ph.D. (3) 599,424 1.9%
Thomas J. Connors (4) 91,687 *
Paul Gray (5) 51,750 *
Martin Jurick (6) 36,000 *
Henry Kressel, Ph.D. (7) 28,189 *
Joseph P. Landy (8) 48,552 *
Kenneth A. Pickar, Ph.D. 0 *
John Kehoe (9) 86,625 *
Daniel S. Koellen (10) 159,919 *
George Papa (11) 35,440 *
Manuel D. Yuen (12) 103,912 *
All Named Officers and Directors as a group (11 persons) 1,241,498 4.0%
</TABLE>
(1) Percent ownership is based on 31,093,477 shares of Common Stock outstanding
as of June 1, 1998, plus shares issuable pursuant to options or warrants held by
the person or class in question that are exercisable within 60 days after June
1, 1998.
(2) Includes 3,151,476 shares over which Kopp Investment Advisors, Inc.
exercises investment discretion, but for which it is not the record holder;
22,500 shares which Kopp Investment Advisors, Inc., owns directly; and 97,500
shares owned by LeRoy C. Kopp.
(3) Includes 418,676 shares issuable under stock options held by Dr. Pepper
exercisable within 60 days of June 1, 1998.
29
<PAGE>
(4) Includes 64,687 shares issuable under stock options held by Mr. Connors
exercisable within 60 days of June 1, 1998.
(5) Includes 51,750 shares issuable under stock options held by Dr. Gray
exercisable within 60 days of June 1, 1998.
(6) Includes 13,500 shares issuable under stock options held by Mr. Jurick
exercisable within 60 days of June 1, 1998.
(7) Includes 1,489 shares held of record by WPCC. Dr. Kressel is a managing
director of a WPCC affiliate, and disclaims beneficial ownership of such shares.
(8) Includes 1,489 shares held of record by WPCC. Mr. Landy is a managing
director of a WPCC affiliate, and disclaims beneficial ownership of such shares.
(9) Includes 86,625 shares issuable under stock options held by Mr. Kehoe
exercisable within 60 days of June 1, 1998.
(10) Includes 134,887 shares issuable under stock options held by Mr. Koellen
exercisable within 60 days of June 1, 1998.
(11) Includes 31,500 shares issuable under stock options held by Mr. Papa
exercisable within 60 days of June 1, 1998.
(12) Includes 73,855 shares issuable under stock options held by Mr. Yuen
exercisable within 60 days of June 1, 1998.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent beneficial
owners are required by SEC regulation to furnish the Company with copies of all
reports they file under Section 16(a).
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the fiscal year ended December 28, 1997.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal which a shareholder wishes to have presented at the 1999 Annual
Meeting and included in the Company's proxy statement for such meeting must be
received by the Company, at its principal office, 9750 Goethe Road, Sacramento,
California 95827, Attn.: Mr. John Kehoe, no later than December 31, 1998. Such
proposals may be included in next year's proxy statement if they comply with
certain SEC regulations.
30
<PAGE>
OTHER MATTERS
The Company does not know of any matter other than those discussed in the
proxy statement contemplated for action at the Annual Meeting. Should any other
matter be properly brought before the Meeting, the holders of the proxies herein
solicited will vote thereon in their discretion.
By Order of the Board of Directors
Robert S. Pepper, Ph.D.
Chairman of the Board
Sacramento, California
Dated: July __, 1998
31
<PAGE>
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF MERGER
OF LEVEL ONE COMMUNICATIONS, INCORPORATED,
A DELAWARE CORPORATION
AND
LEVEL ONE COMMUNICATIONS, INCORPORATED
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of , 1998, (the
"Agreement") is between Level One Communications, Incorporated, a Delaware
corporation ("Level One-Delaware") and Level One Communications, Incorporated, a
California corporation ("Level One-California"). Level One-Delaware and Level
One-California are sometimes referred to herein as the "Constituent
Corporations."
R E C I T A L S
A. Level One-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 246,250,000
shares, 236,250,000 of which are designated "Common Stock," $.001 par value and
10,000,000 of which are designated "Preferred Stock", $.001 par value. As of the
date of this Agreement of Merger, 1,000 shares of Common Stock were issued and
outstanding, all of which were held by Level One-California. No shares of
Preferred were outstanding.
B. Level One-California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 246,250,000
shares, 236,250,000 of which are designated "Common Stock", no par value and
10,000,000 of which are designated "Preferred Stock", no par value. As of the
date of this Agreement of Merger ___________ shares of Common Stock were issued
and outstanding. No shares of Preferred Stock were issued and outstanding.
C. The Board of Directors of Level One-California has determined that, for
the purpose of effecting the reincorporation of Level One-California in the
State of Delaware, it is advisable and in the best interests of Level One-
California that Level One-California merge with and into Level One-Delaware upon
the terms and conditions herein provided.
D. The respective Boards of Directors of Level One-Delaware and Level One-
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Level One-Delaware and Level One-California hereby agree, subject
to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
------
Delaware General Corporation Law and the California General Corporation Law,
Level One-California shall be
<PAGE>
merged with and into Level One-Delaware (the "Merger"), the separate existence
of Level One-California shall cease and Level One- Delaware shall be, and is
herein sometimes referred as, the "Surviving Corporation", and the name of the
Surviving Corporation shall be Level One Communications, Incorporated.
1.2 Filing and Effectiveness. The Merger shall become effective when the
------------------------
following actions shall have been completed:
(a) This Agreement and Merger shall have been adopted and approved by the
stockholders of each Constituent Corporation in accordance with the requirements
of the Delaware General Corporation Law and the California General Corporation
Law;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Agreement and Plan of Merger meeting the requirements of
the Delaware General Corporation Law shall have been filed with the Secretary of
State of the State of Delaware; and
(d) The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Level One-California shall cease and Level One-Delaware,
as the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and Level One-California's Board of Directors, (iii) shall succeed, without
other transfer, to all of the assets, rights, powers and property of Level One-
California in the manner more fully set forth in Section 259 of the Delaware
General Corporation Law, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Level One-Delaware as constituted immediately
prior to the Effective Date of the Merger, and (v) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of Level One-
California in the same manner as if Level One-Delaware had itself incurred them,
all as more fully provided under the applicable provisions of the Delaware
General Corporation Law and the California Corporations Code.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of Level
----------------------------
One-Delaware as in effect immediately prior to the Effective Date of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.2 Bylaws. The Bylaws of Level One-Delaware as in effect immediately prior
------
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2
<PAGE>
2.3 Directors and Officers. The directors and officers of Level One-
----------------------
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Level One-California Common Shares. Upon the Effective Date of the
----------------------------------
Merger, each share of Level One-California Common Stock, no par value, issued
and outstanding immediately prior thereto shall by virtue of the Merger and
without any action by the Constituent Corporations, the holder of such shares or
any other person, be converted into and exchanged for one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation. No fractional share interests of Surviving Corporation Common Stock
shall be issued. In lieu thereof, any fractional share interests to which a
holder would otherwise be entitled shall be aggregated.
3.2 Level One-California Options, Stock Purchase Rights and Convertible
-------------------------------------------------------------------
Securities.
----------
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Level One-California under, and continue,
the option plans, including without limitation, all stock option plans,
employee purchase plans, director's stock option plans, all other employee
benefit plans, warrants, and the 4% Convertible Subordinated Notes due
2004. Each outstanding and unexercised option, other right to purchase, or
security convertible into Level One-California Common Stock (a "Right")
shall become, subject to the provisions in paragraph (c) hereof, an option,
right to purchase or a security convertible into the Surviving
Corporation's Common Stock on the basis of one share of the Surviving
Corporation's Common Stock for each one share of Level One-California
Common Stock issuable pursuant to any such Right, on the same terms and
conditions and at an exercise price equal to the exercise price applicable
to any such Level One-California Right at the Effective Date of the Merger.
This paragraph 3.2(a) shall not apply to Level One-California Common Stock
which is subject to paragraph 3.1.
(b) A number of shares of the Surviving Corporation's Common Stock
shall be reserved for issuance upon the exercise of options, warrants,
stock purchase rights and convertible securities, including the 4%
Convertible Subordinated Notes due 2004, equal to the number of shares of
Level One-California Common Stock so reserved immediately prior to the
Effective Date of the Merger.
(c) The assumed Rights shall not entitle any holder thereof to a
fractional share upon exercise or conversion. In addition, no "additional
benefits" (within the meaning of Section 424(a)(2) of the Internal Revenue
Code of 1986, as amended) shall be accorded to the optionees pursuant to
the assumption of their options.
3.3 Level One-Delaware Common Stock. Upon the Effective Date of the Merger,
-------------------------------
each share of Common Stock, $.001 par value, of Level One-Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by Level One-Delaware, the holder of such shares or any other person,
be cancelled and returned to the
3
<PAGE>
status of authorized but unissued shares.
3.4 Exchange of Certificates. After the Effective Date of the merger, each
------------------------
holder of an outstanding certificate representing shares of Level One-California
Common Stock may be asked to surrender the same for cancellation to
______________ (the "Exchange Agent"), and each such holder shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of shares of the Surviving Corporation's Common Stock, as the case may
be, into which the surrendered shares were converted as herein provided. Until
so surrendered, each outstanding certificate theretofore representing shares of
Level One-California Common Stock shall be deemed for all purposes to represent
the number of shares of the Surviving Corporation's Common Stock, into which
such shares of Level One-California Common Stock, were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Level One-California so
converted and given in exchange therefore, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
If any certificate for shares of the Surviving Corporation's stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not payable.
IV. GENERAL
4.1 Covenants of Level One-Delaware. Level One-Delaware covenants and
-------------------------------
agrees that it will, on or before the Effective Date of the Merger.
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law.
(b) File any and all documents with the California Franchise Tax Board
necessary for the assumption by Level One-Delaware of all of the franchise
tax liabilities of Level One-California.
4
<PAGE>
(c) Take such other actions as may be required by the California
General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by Level
------------------
One- Delaware or by its successors or assigns, there shall be executed an
delivered on behalf of Level One-California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
actions as shall be appropriate or necessary in order to vest or perfect in or
conform of record or otherwise by Level One-Delaware the title to and possession
of all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Level One-California and otherwise to carry out the
purposes of this Agreement, and the officers and directors of Level One-Delaware
are fully authorized in the name and on behalf of Level One-California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger, this
-----------
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Level One-California or Level
One- Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of Level One-California or by the sole stockholder of Level One-
Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
---------
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the stockholders of either Constituent Corporation
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger, or (3) alter or change
any of the terms and conditions of this Agreement if such alternation or change
would adversely affect the holders of any class or series of capital stock of
any Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation
-----------------
in the State of Delaware is 1209 Orange Street, Wilmington, County of New
Castle, DE 19801 and The Corporation Trust Company is the registered agent of
the Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
---------
principal place of business of the Surviving Corporation at 9750 Goethe Road,
Sacramento, California 95827 and copies thereof will be furnished to any
stockholder of either Constituent Corporation, upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted and enforced in accordance with the governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 FIRPTA Notification.
-------------------
(a) On the Effective Date of the Merger, Level One-California shall
deliver to
5
<PAGE>
Level One-Delaware, as agent for the shareholders of Level One-
California, a properly executed statement (the "Statement") substantially
in the form attached hereto as Exhibit A. Level One-Delaware shall retain
the Statement for a period of not less than seven years and shall, upon
request, provide a copy thereof to any person that was a shareholder of
Level One-California immediately prior to the Merger. In consequence of
the approval of the Merger by the shareholders of Level One-California,
(i) such shareholders shall be considered to have requested that
Statement be delivered to Level One-Delaware as their agent and (ii)
Level One-Delaware shall be considered to have received a copy of the
Statement at the request of the Level One-California shareholders for
purposes of satisfying Level One-Delaware's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
(b) Level One-California shall deliver to the Internal Revenue Service
a notice regarding the Statement in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
4.9 Counterparts. In order to facilitate the filing and recording of this
------------
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of Level One-Delaware and Level One-
California is hereby executed on behalf of each of such two corporations and
attested by their respective officers thereunto duly authorized.
Level One Communications, Incorporated
a Delaware corporation
By:___________________________________
Robert S. Pepper
President, Chief Executive Officer and
Chairman
ATTEST:
_______________________________
John Kehoe, Secretary
Level One Communications, Incorporated
a California corporation
By:___________________________________
Robert S. Pepper
President, Chief Executive Officer and
Chairman
ATTEST:
_______________________________
John Kehoe, Secretary
6
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF INCORPORATION
OF
LEVEL ONE COMMUNICATIONS, INCORPORATED
ARTICLE I
The name of the corporation is Level One Communications, Incorporated (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Corporation is authorized
to issue is 246,250,000 shares. The number of shares of Common Stock authorized
is 236,250,000. The number of shares of Preferred authorized is 10,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issuance of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
-1-
<PAGE>
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at
the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or
other dividends in addition to dividends at the rate so determined, and if
so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if
redeemable, the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if
any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund
of a similar nature or otherwise, and the terms and conditions of such
obligation;
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of
Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred
Stock; and
(i) such other restrictions, preferences, powers, qualifications,
special or relative rights and privileges thereof as the board of directors
of the corporation, acting in accordance with this Certificate of
Incorporation, may deem advisable and are not inconsistent with law and
the provisions of this Certificate of Incorporation.
ARTICLE V
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
-2-
<PAGE>
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the General
-----------------------
Corporation Law of the State of Delaware as the same exists or as may hereafter
be amended, a director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE VIII
1. Number of Directors. The number of directors of the corporation which
-------------------
constitutes the whole Board of Directors of the corporation shall be designated
in the Bylaws of the corporation.
2. Election of Directors. Elections of directors shall not be by written
---------------------
ballot unless the Bylaws of the corporation shall so provide.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Bylaws of the corporation, and no action shall be taken by the stockholders by
written consent.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
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ARTICLE XIII
The name and mailing address of the incorporator are as follows:
John Kehoe
Level One Communications, Incorporated
9750 Goethe Road
Sacramento, CA 95827
The undersigned incorporator hereby acknowledges that the above Certificate of
Incorporation of Level One Communications, Incorporated is his act and deed and
that the facts stated therein are true.
Dated: , 1998
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John Kehoe, Incorporator
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EXHIBIT C
FORM OF
BYLAWS
OF
LEVEL ONE COMMUNICATIONS, INCORPORATED
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the certificate of
incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate offices
at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the State
of Delaware designated by the board of directors. In the absence of any such
designation, stockholders' meetings shall be held at the principal executive
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at a
time designated by the board of directors. In the absence of such designation,
the annual meeting of stockholders shall be held on the (30th of July) in each
year at 3:00 p.m. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted. The annual meeting of stockholders shall be held
each year on a date and at a time designated
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2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the board of
directors, or by the chairman of the board, or by the president. No other person
or persons are permitted to call a special meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and, (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or, (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting may be
made by the board of directors or proxy committee appointed by the board of
directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice to
the secretary of the corporation in proper written form of their intent to make
such nomination or nominations or to propose such business. To be timely, such
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders provided, however, that in the event no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than thirty (30) days from the date contemplated at the time of the previous
year's proxy statement, notice by the stockholder to be timely must be so
received a reasonable time before the solicitation is made. To be in proper
form, a stockholder's notice to the secretary shall set forth:
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(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person or
persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either personally
or by first-class mail or by telegraphic or other written communication. Notices
not personally delivered shall be sent charges prepaid and shall be addressed to
the stockholder at the address of that stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as
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otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting in accordance with Section 2.7
of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a majority
of the stock having voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by express provision of the laws of the State of Delaware or of the
certificate of incorporation or these bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of the
question.
If a quorum is initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or these
bylaws, each stockholder shall be entitled to one vote for each share of capital
stock held by such stockholder, and stockholders shall not be entitled to
cumulate their votes in the election of directors or with respect to any matter
submitted to a vote of the stockholders.
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2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any meeting
or to vote thereat, the board of directors may fix, in advance, a record date
which shall not precede the date upon which the resolution fixing the record
date is adopted by the board of directors and which shall not be more than sixty
(60) days nor less than ten (10) days before the date of any such meeting; and
in such event only stockholders of record on the date so fixed are entitled to
notice and to vote, notwithstanding any transfer of any shares on the books of
the corporation after the record date.
If the board of directors does not so fix a record date, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given; or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting unless the
board of directors fixes a new record date for the adjourned meeting, but the
board of directors shall fix a new record date if the meeting is adjourned for
more than thirty (30) days from the date set for the original meeting.
The record date for any other purpose shall be as provided in Section 8.1 of
these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall have
the right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. A proxy shall
be deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney- in-fact. The
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revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.13 ORGANIZATION
The president or, in the absence of the president, the chairman of the board or,
in the absence of the president and the chairman of the board, one of the
corporation's vice presidents, shall call the meeting of the stockholders to
order and shall act as chairman of the meeting. In the absence of the president,
the chairman of the board, and all the vice presidents, the stockholders shall
appoint a chairman for such meeting. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such matters as the regulation of the manner of voting and the conduct
of business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders but, in the absence of the secretary at any meeting
of the stockholders, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and any
limitations in the certificate of incorporation and these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
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3.2 NUMBER OF DIRECTORS
The board of directors shall consist of seven members. The board of directors
may increase or decrease the number of directors constituting the board of
directors upon the approval of a majority of the directors then in office. The
number of directors so determined shall be the authorized number of directors of
the corporation. No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of office
expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman of
the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
All vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining director
provided that whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within or
outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear
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one another; and all such directors shall be deemed to be present in person at
the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if the
times of such meetings are fixed by the board of directors. If any regular
meeting day shall fall on a legal holiday, then the meeting shall be held the
next succeeding full business day.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be
called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone to each director or sent by first-class mail or telegram,
charges prepaid, addressed to each director at that director's address as it is
shown on the records of the corporation. If the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a quorum for
the transaction of business, except to adjourn as provided in Section 3.10 of
these bylaws. Every act or decision done or made by a majority of the directors
present at a duly held meeting at which a quorum is present shall be regarded as
the act of the board of directors, subject to the provisions of the certificate
of incorporation and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or (ii) who attends the meeting
without protesting, prior thereto or
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at its commencement, the lack of notice to such directors. All such waivers,
consents, and approvals shall be filed with the corporate records or made part
of the minutes of the meeting. A waiver of notice need not specify the purpose
of any regular or special meeting of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum, may
adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than twenty-four (24) hours. If the
meeting is adjourned for more than twenty-four (24) hours, notice of the time
and place of the adjourned meeting shall be given before the adjourned meeting
takes place, in the manner specified in Section 3.7 of these bylaws, to the
directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may be
taken without a meeting, provided that all members of the board individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any, for
their services and such reimbursement of expenses as may be fixed or determined
by resolution of the board of directors. This Section 3.13 shall not be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or otherwise
assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
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deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have and may exercise all
the powers and authority of the board, but no such committee shall have the
power of authority to:
(a) amend the certificate of incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation);
(b) adopt an agreement of merger or consolidation under Sections 251 or 252
of the General Corporation Law of Delaware;
(c) recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets;
(d) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution; or
(e) amend the bylaws of the corporation; and, unless the board resolution
establishing the committee, the bylaws or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
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4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president or chief executive officer,
a secretary, and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or more
vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to appoint,
such other officers as the business of the corporation may require, each of whom
shall hold
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office for such period, have such authority, and perform such duties as are
provided in these bylaws or as the board of directors may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the board of
directors at any regular or special meeting of the board or, except in the case
of an officer chosen by the board of directors, by any officer upon whom such
power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in these bylaws for
regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the board
of directors or as may be prescribed by these bylaws. If there is no president,
then the chairman of the board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
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5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not ranked, a vice
president designated by the board of directors, shall perform all the duties of
the president and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office
of the corporation or such other place as the board of directors may direct, a
book of minutes of all meetings and actions of directors, committees of
directors and stockholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office
of the corporation or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the
stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The chief financial officer shall deposit all money and other valuables in the
name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they
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request it, an account of all of his transactions as chief financial officer
and of the financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by the
General Corporation Law of Delaware as the same now exists or may hereafter be
amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorneys' fees) incurred by a
director or officer of the corporation entitled to indemnification hereunder in
defending any action, suit or proceeding referred to in this Section 6.1 in
advance of its final disposition provided, however, that payment of expenses
incurred by a director or officer of the corporation in advance of the final
disposition of such action, suit or proceeding shall be made only upon receipt
of an undertaking by the director or officer to repay all amounts advanced if it
should ultimately be determined that the director or officer is not entitled to
be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be exclusive of any
other rights which such person may have or hereafter acquire under any statute,
any provision of the corporation's Certificate of Incorporation, these bylaws,
any agreement, any vote of the stockholders or disinterested directors or
otherwise. Any repeal or modification of the foregoing provisions of this
Article shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, to indemnify any person (other than directors and
officers) against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding, in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was an employee or agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) shall mean any person (i) who is or was an employee
or agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such place
or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the corporation's
stock ledger, a list of its stockholders, and its other books and records and to
make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power
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of attorney or such other writing that authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in Delaware or at its
principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any special
meeting of the stockholders when called for by vote of the stockholders, a full
and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president, the chief
financial officer, the secretary or any assistant secretary of this corporation,
or any other person authorized by the board of directors or the president or a
vice president, is authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of the stock of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered to date,
certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any other lawful action, the board
of directors may fix, in advance, a record date which shall not be more than
sixty (60) days before any such action. In that case, only stockholders of
record at the close of business on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the
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books of the corporation after the record date so fixed, except as otherwise
provided in the General Corporation Law of Delaware.
If the board of directors does not so fix a record date, then the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation, the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
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Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly paid and
subject to call for the remainder of the consideration to be paid therefor. Upon
the face or back of each stock certificate issued to represent any such partly
paid shares, or upon the books and records of the corporation in the case of
uncertificated partly paid shares, the total amount of the consideration to be
paid therefor and the amount paid thereon shall be stated. Upon the declaration
of any dividend on fully paid shares, the corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more
than one series of any class, then the powers, the designations, the preferences
and the relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate that the corporation shall issue to
represent such class or series of stock provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements there may be set forth on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, the designations, the preferences
and the relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
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8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares shall be
issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign--who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the book of
bylaws with the original bylaws, in the appropriate place. If any bylaw is
repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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EXHIBIT D
FORM OF
LEVEL ONE COMMUNICATIONS, INCORPORATED
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is effective as of
________1998 by and between Level One Communications, Incorporated, a Delaware
corporation (the "Company"), and Indemnitee ("Indemnitee").
WHEREAS, effective as of the date hereof, Level One Communications,
Incorporated, a California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement to provide indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. CERTAIN DEFINITIONS.
<PAGE>
(a) "Change in Control" shall mean, and shall be deemed to have occurred
if, on or after the date of this Agreement, (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) or group acting in concert, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any threatened,
pending or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to Level One
Communications, Incorporated, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
Level One Communications, Incorporated (or any of its wholly owned subsidiaries)
is a party which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
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(d) "Covered Event" shall mean any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment of Expenses to Indemnitee
pursuant to Section 3 in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer, employee,
agent or fiduciary of the Company which imposes duties on, or involves services
by, such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
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(k) "Voting Securities" shall mean any securities of the Company that vote
generally in the election of directors.
2. INDEMNIFICATION.
(a) Indemnification of Expenses. Subject to the provisions of Section 2(b)
---------------------------
below, the Company shall indemnify Indemnitee for Expenses to the fullest extent
permitted by law if Indemnitee was or is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, any Claim (whether by reason of or arising in part out of a
Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the foregoing,
-------------------------------------
in the event any Reviewing Party shall have determined (in a written opinion, in
any case in which Independent Legal Counsel is the Reviewing Party) that
Indemnitee is not entitled to be indemnified hereunder under applicable law, (i)
the Company shall have no further obligation under Section 2(a) to make any
payments to Indemnitee not made prior to such determination by such Reviewing
Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all Expenses theretofore paid
to Indemnitee to which Indemnitee is not entitled hereunder under applicable
law; provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee is entitled to be indemnified hereunder under applicable law,
any determination made by any Reviewing Party that Indemnitee is not entitled to
be indemnified hereunder under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expenses
theretofore paid in indemnifying Indemnitee until a final judicial determination
is made with respect thereto (as to which all rights of appeal therefrom have
been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for
any Expenses shall be unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If any
--------------------------------------------------------------
Reviewing Party determines that Indemnitee substantively is not entitled to be
indemnified hereunder in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has not been
-----------------------------------------------
a Change in Control, any Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were
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directors immediately prior to such Change in Control), any Reviewing Party
with respect to all matters thereafter arising concerning the rights of
Indemnitee to indemnification of Expenses under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as now
or hereafter in effect, or under any other applicable law, if desired by
Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company
agrees to abide by such opinion. The Company agrees to pay the reasonable fees
of the Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the employment of separate
counsel by one or more Indemnitees has been previously authorized by the
Company in writing, or (ii) an Indemnitee shall have provided to the Company a
written statement that such Indemnitee has reasonably concluded that there may
be a conflict of interest between such Indemnitee and the other Indemnitees
with respect to the matters arising under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other provision of
-----------------------------
this Agreement other than Section 10 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any Claim, Indemnitee
shall be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
3. EXPENSE ADVANCES.
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense Advances
-------------------
hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured
and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree that
--------------------------------------------
for the purposes of any Expense Advance for which Indemnitee has made written
demand to the Company in accordance with this Agreement, all Expenses included
in such Expense Advance that are certified by affidavit of Indemnitee's counsel
as being reasonable shall be presumed conclusively to be reasonable.
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4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES.
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
--------------------------------
precedent to Indemnitee's right to be indemnified or Indemnitee's right to
receive Expense Advances under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement, the
--------------------------------
termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement under applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder under applicable law, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company of a
------------------
notice of a Claim pursuant to Section 4(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt
notice of the commencement of such Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Claim in accordance
with the terms of such policies.
6
<PAGE>
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense Advances
--------------
provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
7
<PAGE>
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in
certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. LIABILITY INSURANCE. To the extent the Company maintains liability insurance
applicable to directors, officers, employees, agents or fiduciaries, Indemnitee
shall be covered by such policies in such a manner as to provide Indemnitee the
same rights and benefits as are provided to the most favorably insured of the
Company's directors, if Indemnitee is a director; or of the Company's officers,
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
10. EXCEPTIONS. Notwithstanding any other provision of this Agreement, the
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense Advances to
----------------------------
Indemnitee with respect to Claims arising out of acts, omissions or transactions
for which Indemnitee is prohibited from receiving indemnification under
applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense Advances
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
8
<PAGE>
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred
------------------
by the Indemnitee with respect to any action instituted (i) by Indemnitee to
enforce or interpret this Agreement, if a court having jurisdiction over such
action determines as provided in Section 13 that each of the material assertions
made by the Indemnitee as a basis for such action was not made in good faith or
was frivolous, or (ii) by or in the name of the Company to enforce or interpret
this Agreement, if a court having jurisdiction over such action determines as
provided in Section 13 that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses and
--------------------------
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
11. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns (including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all of
the business or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION. In
the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of
9
<PAGE>
this Agreement, Indemnitee shall be entitled to be indemnified for all
Expenses incurred by Indemnitee in defense of such action (including without
limitation costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action a court having jurisdiction over such action makes a final judicial
determination (as to which all rights of appeal therefrom have been exhausted
or lapsed) that each of the material defenses asserted by Indemnitee in such
action was made in bad faith or was frivolous; provided, however, that until
such final judicial determination is made, Indemnitee shall be entitled under
Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. NOTICE. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and signed for by the party addressed, on the date of such delivery, or
(ii) if mailed by domestic certified or registered mail with postage prepaid, on
the third business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
16. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the State of Delaware for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. SEVERABILITY. The provisions of this Agreement shall be severable in the
event that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) are held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including without
limitation each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
18. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities,
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between
10
<PAGE>
Delaware residents entered into and to be performed entirely in the State of
Delaware without regard to principles of conflicts of laws.
19. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver.
21. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
22. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
LEVEL ONE COMMUNICATIONS, INCORPORATED
_______________________________
By: Robert S. Pepper
Chairman and CEO
AGREED TO AND ACCEPTED
INDEMNITEE:
_____________________________
11
<PAGE>
EXHIBIT E
LEVEL ONE COMMUNICATIONS, INCORPORATED
1993 STOCK OPTION PLAN
Amended and Restated as of December 21, 1995
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
* to attract and retain the best available personnel for positions of
substantial responsibility
* to provide additional incentive to Employees, Consultants and certain
Outside Directors, and
* to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. The
Plan also provides for automatic grants of Nonstatutory Stock Options to certain
Outside Directors.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under state corporate and securities
laws and the Code.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in accordance with
---------
Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Level One Communications, Incorporated, a California
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services and who is compensated for
such services. The term "Consultant" shall not include Directors who are paid
only a director's fee by the Company or who are not compensated by the Company
for their services as Directors.
(i) "Continuous Status" means that the employment, directorship or
-----------------
consulting relationship with the Company, any Parent, or Subsidiary, is not
interrupted or terminated. Continuous Status as an Employee or Consultant shall
not be interrupted by transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor.
<PAGE>
Continuous Status as an Employee, Outside Director or Consultant shall not be
considered interrupted by any leave of absence approved by the Company. A leave
of absence approved by the Company shall include sick leave, military leave, or
any other personal leave approved by an authorized representative of the
Company. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in Section
----------
22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors, employed
--------
by the Company or any Parent or Subsidiary of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(n) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify as
-------------------------
an Incentive Stock Option.
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<PAGE>
(q) "Grant Summary" means a written notice evidencing certain terms and
-------------
conditions of an individual Option grant. The Grant Summary is part of the
Option Agreement.
(r) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding options
-----------------------
are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(w) "Optionee" means an Employee, Consultant or Outside Director who holds
--------
an outstanding option.
(x) "Outside Director" means a member of the Board who is not an Employee.
----------------
(y) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(z) "Plan" means this Level One Communications, Incorporated, 1993 Stock
----
Option Plan, amended and restated as of December 21, 1995.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
----------
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(bb) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of
-------------
1934, as amended.
(cc) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 12 of the Plan.
(dd) "Subsidiary" means a "subsidiary corporation," whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the
-------------------------
Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan (including Shares for which Options have been granted and are
outstanding as of December 21, 1995) is 3,050,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised in
full, or is surrendered pursuant to an Option Exchange Program, the unpurchased
Shares which were subject thereto shall become available for future grant or
sale under the Plan (unless the Plan has terminated); provided, however, that
Shares that have actually been issued under the Plan upon
3
<PAGE>
exercise of an Option shall not be returned to the Plan and shall not become
available for future distribution under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to Directors, Officers
who are not Directors, and Employees who are neither Directors nor Officers.
(a) Administration with Respect to Employees who are Directors and
--------------------------------------------------------------
Officers Subject to Section 16(b). With respect to Option grants made to
---------------------------------
Employees who are also Officers or Directors subject to Section 16(b) of the
Exchange Act, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in a manner complying with the rules under Rule 16b-
3 relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a committee designated by the Board to
administer the Plan, which committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary grants
and awards of equity securities are to be made. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of
the Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however caused),
and remove all members of the Committee and thereafter directly administer
the Plan, all to the extent permitted by the rules under Rule 16b-3 relating
to the disinterested administration of employee benefit plans under which
Section 16(b) exempt discretionary grants and awards of equity securities
are to be made.
(ii) Administration with Respect to Other Persons. With respect to
--------------------------------------------
Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy Applicable Laws. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and
---------------------------
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
4
<PAGE>
(ii) to select the Consultants and Employees to whom Options may be
granted except with respect to automatic option grants made to certain Outside
Directors;
(iii) to determine whether and to what extent Options are granted to
Employees and Consultants hereunder;
(iv) to determine the number of shares of Common Stock to be covered by
each Option granted to Employees and Consultants hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted to Employees and Consultants hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator, in its sole discretion, shall determine.
(vii) to reduce the exercise price of any Option granted to Employees
and Consultants to the then current Fair Market Value if the Fair Market Value
of the Common Stock covered by such Option shall have declined since the date
the Option was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
(x) to modify or amend each Option (subject to Sections 10(b) and 15(c)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously granted by the
Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to Options
granted to Employees and Consultants; and
(xiv) to make all other determinations deemed necessary or advisable for
administering the Plan.
(c) Administration with Respect to Outside Directors. With respect to
------------------------------------------------
Options granted to certain Outside Directors pursuant to Section 10(b) hereof,
the Administrator shall exercise no discretion and such awards shall be
administered solely according to their terms.
5
<PAGE>
(d) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Options and
any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Employees and
-----------
Consultants. Nonstatutory Stock Options may also be granted to Outside
Directors who are neither Employees nor affiliated with Shareholders who
beneficially own 10% or more of the outstanding Shares of the Company.
Incentive Stock Options may be granted only to Employees. If otherwise
eligible, an Employee, Consultant or Outside Director as specified in this
Section who has been granted an Option may be granted additional Options.
6. Limitations.
-----------
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any right
with respect to continuing the Optionee's employment or consulting relationship
with the Company, nor shall they interfere in any way with the Optionee's right
or the Company's right to terminate such employment or consulting relationship
at any time, with or without cause.
(c) The following limitations shall apply to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 shares.
(ii) In connection with his or her initial employment, an Employee may
be granted Options to purchase up to an additional 500,000 shares which shall
not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
(iv) If an Option is cancelled in the same fiscal year of the Company in
which it was granted (other than in connection with a transaction described in
Section 12), the cancelled Option will be counted against the limits set forth
in subsections (i) and (ii) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan, as amended and
------------
restated as of December 21, 1995, shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 19 of the Plan. It
6
<PAGE>
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Grant
--------------
Summary. Unless the Administrator determines otherwise, the term of each
Nonstatutory Stock Option granted under the Plan shall be ten (10) years from
the date such Option is granted. With respect to Options granted to certain
Outside Directors pursuant to Section 10(b) hereof, the term shall be as stated
in Section 10(b). In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Grant Summary. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Grant Summary.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be determined by the Administrator, but in no case shall be less
than 85% of the Fair Market Value per Share on the date of grant. With respect
to Options granted to certain Outside Directors pursuant to Section 10(b)
hereof, the per share exercise price shall be determined pursuant to Section
10(b).
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
---------------------------------
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised. In so doing, the Administrator may specify that an Option may not
be exercised until the completion of a service period. However, with respect to
Options granted to certain Outside Directors pursuant to Section 10(b), the
terms and conditions of the grant shall be pursuant to Section 10(b) and the
Administrator shall have no discretion to set the terms of such Options.
(c) Form of Consideration. The Administrator shall determine the acceptable
---------------------
form of consideration for exercising an Option, including the method of payment
as may be permitted under Sections 408 and 409 of the California General
Corporation Law. In the case of an
7
<PAGE>
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
However, with respect to Options granted to certain Outside
Directors pursuant to Section 10(b) hereof, the consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist entirely of:
(i) cash,
(ii) check,
(iii) other Shares of Common Stock which (i) either have been owned
by the Optionee for more than six (6) months on the date of
surrender or were not acquired, directly or indirectly, from
the Company, and (ii) have a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares
as to which said Option shall be exercised,
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker,
if applicable, shall require to effect an exercise of the
Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price, or
(v) any combination of such methods of payment.
8
<PAGE>
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder, except for Options granted to certain Outside Directors in accordance
with Section 10(b) below, shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share or for less
than one hundred (100) shares.
An option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Automatic Option Grants to Certain Outside Directors. All grants of
----------------------------------------------------
Options to Outside Directors under this Plan shall be automatic and non-
discretionary and shall be made strictly in accordance with the following
provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of shares to be
covered by Options granted to Outside Directors; provided, however, that nothing
in this Plan shall be construed to prevent an Outside Director from declining to
receive an Option under this Plan.
(ii) On December 31 of each year (beginning with December 31, 1996),
each person who is then an Outside Director (including any person who first
becomes an Outside Director as of such date), who is not a representative of
shareholders owning more than ten percent (10%) of the outstanding shares of the
Company, and who is vested as with respect to at least 4,000 shares of Optioned
Stock granted (A) pursuant to Section 10(b)(iii) or (B) pursuant to a grant of
Optioned Stock to Outside Directors made prior to December 21, 1995, shall
automatically receive an Option to purchase 2,000 Shares.
(iii) Each Outside Director who is not a representative of shareholders
owning more than ten percent (10%) of the outstanding shares of the Company and
who first
9
<PAGE>
becomes an Outside Director after December 31, 1995, shall automatically receive
an Option to purchase 10,000 shares on the date such person becomes an Outside
Director.
(iv) The terms of an Option granted pursuant to this Section 10(b)
shall be as follows:
(1) The term of the Option shall be ten (10) years;
(2) except as provided in Section 10(c), 10(d) and 10(e) of this
Plan, the Option shall be exercisable only while the Outside Director remains a
Director;
(3) the exercise price per share of Common Stock shall be 100% of
the Fair Market Value on the date of grant of the Option;
(4) for Options granted pursuant to Section 10(b)(ii), the Options
shall become exercisable on December 31 of the fourth calendar year after the
date of grant; provided, however, that in no event shall any Option be
exercisable prior to obtaining shareholder approval of the Plan.
(5) for Options granted pursuant to Section 10(b)(iii), the Option
shall become exercisable in installments cumulatively with twenty percent (20%)
of the Optioned Stock becoming exercisable on December 31 of the calendar year
after the date of grant and with an additional twenty percent (20%) of the
Optioned Stock becoming exercisable each calendar year thereafter until one
hundred percent (100%) of the Optioned Stock shall be exercisable; provided,
however, that in no event shall any Option be exercisable prior to obtaining
shareholder approval of the Plan.
(v) The provisions set forth in this Section 10(b) shall not be
amended more than once every six months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act of 1974 as amended, or the
rules or regulations promulgated thereunder.
(c) Termination of Status as Employee, Outside Director or Consultant. Upon
-----------------------------------------------------------------
termination of an Optionee's Continuous Status as an Employee, Outside Director
or Consultant, other than as provided for in Section 10(d) and 10(e), the
Optionee may exercise his or her Option, but only within such period of time as
is specified in the Grant Summary, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Grant Summary). In
the absence of a specified time in the Grant Summary, the Option shall remain
exercisable for ninety (90) days following the Optionee's termination unless
otherwise determined by the Administrator with respect to Options granted to
Employees or Consultants. In the case of an Incentive Stock Option, such period
of time for exercise shall not exceed three (3) months from the date of
termination. If, on the date of termination, the Optionee is not entitled to
exercise the Optionee's entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
10
<PAGE>
Notwithstanding the above, in the event of an Optionee's change in status
from Consultant to Employee or Employee to Consultant, an Optionee's Continuous
Status as an Employee or Consultant shall not automatically terminate solely as
a result of such change in status. However, in such event, an Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option
three months and one day following such change of status.
(d) Disability of Optionee. In the event an Optionee terminates his or her
----------------------
Continuous Status as a result of the Optionee's Disability or the Disability
occurs within a ninety (90) day period after termination of Continuous Status,
the Optionee may exercise his or her Option at any time within twelve (12)
months from the date of such Disability, but only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Grant Summary). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(e) Death of Optionee. In the event that an Optionee's Continuous Status
-----------------
terminates due to the death of the Optionee or the Optionee's death occurs
within the ninety (90) day period after termination of the Optionee's Continuous
Status, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Grant Summary), by the Optionee's estate
or by a person who acquired the right to exercise the option by bequest or
inheritance, but only to the extent that the Optionee was entitled to exercise
the Option at the date of death. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(f) Buyout Provisions. The Administrator may at any time offer to buyout
-----------------
for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made. However, no such offer shall be
made by the Administrator to an Optionee granted an Option pursuant to Section
10(b).
(g) Rule 16b-3. Options granted to individuals subject to Section 16 of the
----------
Exchange Act ("Insiders") must comply with the applicable provisions of Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
11. Non-Transferability of Options. An Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11
<PAGE>
12. Adjustments upon Changes in Capitalization, Dissolution, Merger, or Asset
-------------------------------------------------------------------------
Sale.
- ----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number of price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
--------------------------
liquidation of the Company, the Administrator shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction, but in
no case shall the Administrator notify each Optionee less than ten days before
the proposed transaction. The Optionee shall have the right to exercise his or
her Option until ten (10) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, except for Shares purchased pursuant
to Section 10(b), the Administrator may provide that any Company repurchase
option applicable to any Shares purchased upon exercise of an Option shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
--------------------
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding option shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option is exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets
12
<PAGE>
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all purposes,
-------------
the date on which the Administrator makes the determination granting such
Option, or such other later date as is determined by the Administrator except as
provided in Section 10(b) for grants made to certain Outside Directors. Notice
of the determination shall be provided to each Optionee within a reasonable time
after the date of such grant.
14. Withholding Taxes. In accordance with any applicable administrative
-----------------
guidelines it establishes, except with respect to grants made pursuant to
Section 10(b), the Administrator may allow a purchaser to pay the amount of
taxes required by law to be withheld as a result of a lapse of restrictions in
connection with Shares purchased pursuant to an Option, by withholding from any
payment of Common Stock due as a result of such purchase or lapse of
restrictions, or by permitting the purchaser to deliver to the Company, Shares
having a Fair Market Value, as determined by the Administrator, equal to the
amount of such required withholding taxes.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The company shall obtain shareholder approval of
--------------------
any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
shareholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
----------------
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, Applicable Laws, and the requirements of
any stock exchange or quotation system upon which the Shares may then be listed
or quoted, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercise such Option to represent and
warrant at the time of any
13
<PAGE>
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Liability of the Company.
------------------------
(a) Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
--------------------------------
Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject to approval
--------------------
by the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law.
14
<PAGE>
DETACH HERE
LEVEL ONE COMMUNICATIONS, INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST __, 1998
P The undersigned security holder hereby appoints Robert Pepper, John Kehoe,
and Joseph P. Landy, and each of them, proxies, each with full power of
R substitution to vote all stock of the undersigned at the annual meeting of
stockholders of LEVEL ONE COMMUNICATIONS, INCORPORATED to be held on August
O __, 1998, at 9:00 A.M., at 9800 Old Placerville Road, Sacramento, California,
and at any adjournment thereof, in the manner indicated and in their
X discretion on any other business which may properly come before said meeting,
all in accordance with and as more fully described in the Notice and
Y accompanying Proxy Statement for said meeting, receipt of which is hereby
acknowledged.
The securities represented by this proxy will be voted as specified on
the reverse side, but if no direction is indicated, the shares represented
will be voted FOR the election of Directors nominated by management, FOR the
increase in shares under the 1993 Share Option Plan, FOR the reincorporation
under Delaware law and FOR the ratification of management's selection of
Arthur Andersen LLP as Independent Public Accountants. This proxy is
solicited by, and on behalf of, the Board of Directors and may be revoked
prior to its exercise.
--------------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
--------------
<PAGE>
DETACH HERE
[X] Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF THE ELECTION OF THE NOMINEES LISTED
BELOW AS DIRECTORS, AND FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY.
1. To elect Directors.
NOMINEES: Robert S. Pepper, Thomas J. Connors, Paul R. Gray,
Martin Jurick, Henry Kressel, Joseph P. Landy, Kenneth Pickar
FOR WITHHELD
[ ] [ ]
[ ] ___________________________________________________
For all nominees except as noted above
2. To increase the number of shares reserved for issuance under the 1993 Stock
Option Plan by 2,000,000 shares.
3. To approve the reincorporation of the corporation from California to Delaware
and the related form of indemnification agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To ratify the selection of Arthur Andersen LLP as independent certified
public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, upon such other matters as may properly come before
the meeting.
MARK HERE MARK HERE
[ ] FOR ADDRESS [ ] IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as name appears hereon. When signing as attorney, executor,
or in another representative capacity, please state title. If a corporation,
please sign in full corporate name by President or other authorized person.
