SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
StarBase Corporation
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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2.Aggregate number of securities to which transaction applies:
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3.Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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4.Proposed maximum aggregate value of transaction:
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:
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2.Form, Schedule or Registration Statement No.:
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3.Filing Party:
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4.Date Filed:
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StarBase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707-8713
(714) 445-4400
----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------
To be held on January 19, 1999
----------------------------
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Meeting") of StarBase Corporation, a Delaware corporation ("StarBase" or
the "Company"), will be held in the offices of Parker Chapin Flattau & Klimpl,
LLP, 1211 Avenue of the Americas, 18th Floor, New York, N.Y. 10036 at 10:00 a.m.
on Tuesday, January 19, 1999, to consider and act on the following:
1. Amending the Company's Bylaws to provide for the
classification of the Board of Directors of the Company into
three classes, as more fully set forth in the accompanying
Proxy Statement;
2. The election of eight (8) persons named in the accompanying
Proxy Statement to serve as directors of the Company until the
next annual meeting of stockholders of the Company and until
their successors are duly elected and qualified;
3. Amending the Certificate of Incorporation and the Bylaws to
implement an advance notice procedure for the submission of
director nominations and other business to be considered at
annual meetings of stockholders;
4. Amending the Certificate of Incorporation and the Bylaws to
permit only the President, the Chairman of the Board, the
Secretary or the Board of Directors to call special meetings
of stockholders and to limit the business permitted to be
conducted at such meetings to be brought before the meetings
by or at the direction of the Board of Directors;
5. To amend the Certificate of Incorporation and the Bylaws to
provide that a member of the Board of Directors may only be
removed by the stockholders of the Company for cause by an
affirmative vote of holders of at least 66 2/3% of the voting
power of the then outstanding shares of any class or series of
capital stock of the Company entitled to vote generally in the
election of directors voting together as a single class (the
"Voting Stock");
<PAGE>
6. To amend the Bylaws to (a) fix the size of the Board of
Directors at a maximum of twelve directors, with the
authorized number of directors set at eight, and the Board of
Directors having the sole power and authority to increase or
decrease the number of directors acting by an affirmative vote
of at least a majority of the total number of authorized
directors most recently fixed by the Board of Directors, and
(b) provide that any vacancy on the Board of Directors may be
filled for the unexpired term (or for a new term in the case
of an increase in the size of the board) only by an
affirmative vote of at least a majority of the remaining
directors then in office even if less than a quorum, or by the
sole remaining director;
7. To amend the Certificate of Incorporation and the Bylaws to
eliminate stockholder action by written consent;
8. To amend the Certificate of Incorporation and the Bylaws to
require the approval of holders of 80% of the then outstanding
Voting Stock and/or the approval of 66 2/3% of the directors
of the Company for certain corporate transactions;
9. To amend the Certificate of Incorporation and the Bylaws to
require an affirmative vote of 66 2/3% of the Voting Stock in
order to amend or repeal any adopted amendments to the
Certificate of Incorporation and Bylaws proposed herein;
10. Ratifying the appointment of PricewaterhouseCoopers LLP as
independent auditors for the 1999 fiscal year; and
11. To consider and transact such other business as may properly
come before the Meeting or any adjournment thereof.
A Proxy Statement, form of proxy and the Annual Report to Stockholders
of the Company for the fiscal year ended March 31, 1998 are enclosed herewith.
Only holders of record of Common Stock, $.01 par value, of the Company at the
close of business on November 30, 1998 are entitled to receive notice of and to
attend the Meeting and any adjournments thereof. At least 10 days prior to the
Meeting, a complete list of the stockholders entitled to vote will be available
for inspection by any stockholder, for any purpose germane to the Meeting,
during ordinary business hours, at the offices of the Company. If you do not
expect to be present at the Meeting, you are requested to fill in, date and sign
the enclosed Proxy, which is solicited by the Board of Directors of the Company,
and to mail it promptly in the enclosed envelope. In the event you attend the
Meeting in person, you may, if you desire, revoke your Proxy and vote your
shares in person.
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<PAGE>
By Order of the Board of Directors
William R. Stow III
Chairman of the Board, President
and Chief Executive Officer
December 18, 1998
IMPORTANT
To ensure that your shares are voted at the Meeting, please vote, sign, date and
promptly return the enclosed Proxy in the envelope provided. Proxies may be
revoked at any time prior to the meeting by giving written notice of revocation
to the Company's Assistant Secretary, by giving a later dated Proxy, or by
attending the meeting and voting in person.
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<PAGE>
STARBASE CORPORATION
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
January 19, 1999
------------------
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of StarBase Corporation, a
Delaware corporation ("StarBase" or the "Company") to be voted at the Annual
Meeting of Stockholders (the "Meeting") to be held at 10:00 a.m. on Tuesday,
January 19, 1999, and any adjournment or adjournments thereof, for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders and in
this Proxy Statement.
The principal executive offices of the Company are located at 4 Hutton
Centre Drive, Suite 800, Santa Ana, California 92707-8713. The approximate date
on which this Proxy Statement and accompanying Proxy will first be sent or given
to stockholders is December 18, 1998.
A Proxy, in the enclosed form, which is properly executed, duly
returned to the Company and not revoked will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted in favor of the proposals and in accordance with the judgment of
the person or persons voting the Proxy on any other matter that may be brought
before the Meeting. Each such Proxy granted may be revoked at any time
thereafter by writing to the Assistant Secretary of the Company prior to the
Meeting, by execution and delivery of a subsequent proxy or by attendance and
voting in person at the Meeting, except as to any matter or matters upon which,
prior to such revocation, a vote shall have been cast pursuant to the authority
conferred by such Proxy. The cost of soliciting proxies will be borne by the
Company. Following the mailing of the proxy materials, solicitation of proxies
may be made by officers and employees of the Company, or anyone acting on their
behalf, by mail, telephone, telegram or personal interview.
VOTING SECURITIES
Stockholders of record as of the close of business on November 30, 1998
(the "Record Date") will be entitled to notice of, and to vote at, the Meeting
and any adjournments thereof. The Company has one class of voting securities
outstanding consisting of shares of Common Stock, $.01 par value ("Common
Stock"). On the Record Date, there were 22,342,992 outstanding shares of Common
Stock. A holder of Common Stock is entitled to one vote on each matter submitted
to the meeting for each share of Common Stock held by such holder as of the
Record Date.
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Proxies and Voting
Unless a contrary direction is indicated, a properly executed proxy
form will be voted "FOR" the adoption of proposals 1 through 10. The management
of StarBase is not aware of any business to be acted upon at this meeting other
than as is described in this Proxy Statement, but in the event any other
business should properly come before the meeting, the proxy holders (as
indicated on the proxy form) will vote the proxies according to their judgment
as to the best interests of the Company. Proxies submitted that are voted to
abstain with respect to any matter will be considered cast with respect to that
matter. Proxies subject to broker non-votes with respect to any matter will not
be considered cast with respect to that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of November 30, 1998 certain
information regarding the ownership of voting securities of the Company by each
stockholder known to the management of the Company to be (i) the beneficial
owner of more than 5% of the Company's outstanding Common Stock, (ii) each of
the directors and nominees for director of the Company, (iii) the executive
officers named in the Summary Compensation Table herein under "Executive
Compensation" and (iv) all named executive officers and directors as a group.
The Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares.
<TABLE>
<CAPTION>
Name (1) Number of Shares of Percentage of
- -------- Common Stock Common Stock
------------ ------------
<S> <C> <C>
William R. Stow III......................................... 794,724(2) 3.5%
Frank R. Caccamo............................................ 14,583(5) *
Donald R. Farrow............................................ 224,827(3) 1.0%
Daniel P. Ginns............................................. 218,700(4) 1.0%
Alan D. Kucheck............................................. 154,660(5) *
Phillip E. Pearce........................................... 75,000(5) *
John R. Snedegar............................................ 177,197(6) *
Barry W. Sullivan........................................... 15,624(5) *
Anders B. Vinberg........................................... 15,624(5) *
Total: All Directors and Named Executive Officers (9
persons)....................................................
1,690,939(7) 7.3%
Amerindo Advisors, Inc. (8)................................. 1,751,821 7.8%
</TABLE>
- -------------
* Less than 1%.
(1) Except as otherwise noted, the persons named in the above table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws
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<PAGE>
where applicable. Unless otherwise indicated, the address of each
person named in the above table is in care of StarBase Corporation, 4
Hutton Centre Drive, Suite 800 Santa Ana, CA 92707-8713.
(2) Includes 573,119 shares of Common Stock held by Mr. Stow as trustee of
the Stow Family Trust, of which, 568,124 shares are subject to a
Performance Escrow Agreement. Also includes an aggregate of 1,749
shares of Common Stock held by Mr. Stow in trust for his daughter and
minor son. Also includes 166,820 shares of Common Stock and 19,154
shares of Common Stock issuable upon the exercise of currently
exercisable stock options by Mr. Stow and Mrs. Stow, respectively. Mr.
Stow disclaims beneficial ownership of the shares exercisable by Mrs.
Stow.
(3) Includes 209,827 shares of Common Stock issuable upon the exercise of
stock options that are currently exercisable.
(4) Includes 50,000 shares of Common Stock issuable upon the exercise of
stock options that are currently exercisable and 5,500 shares of Common
Stock held by Mrs. Ginns. Mr. Ginns disclaims beneficial ownership of
the shares held by Mrs. Ginns.
(5) Represents shares of Common Stock issuable upon the exercise of stock
options that are currently exercisable.
(6) Includes 63,332 shares of Common Stock issuable upon the exercise of
stock options by Mr. Snedegar that are currently exercisable. Also
includes 14,944 shares held by Mr. Snedegar as trustee of the Snedegar
Revocable Living Trust; 1,667 shares held by Norexco Petroleum of which
Mr. Snedegar is President; and 83,501 shares held by Access Financial
Limited of which Mr. Snedegar is the general partner.
(7) Includes a total of 784,624 shares of Common Stock issuable upon
exercise of stock options held by all directors and named executive
officers of the Company as a group that are currently exercisable.
(8) The address for Amerindo Advisors, Inc. ("Amerindo") is One
Embarcadero, Suite 2300, San Francisco, California 94111-3162.
Beneficial ownership is expressly disclaimed for Amerindo Advisors,
Inc. (922,093 shares of common stock) and Amerindo Advisors, Inc. -
Panama (829,728 shares of common stock). Amerindo Advisors, Inc. and
Amerindo are collectively referred to as the "Advisor Entities".
Messrs. Alberto W. Vilar and Gary A. Tanaka, as the sole shareholders
and directors of the Advisor Entities, share with each other investment
and dispositive power as to all of the shares shown as owned by the
Advisor Entities, who otherwise have sole investment and dispositive
power with respect thereto, except that each client of the Advisor
Entities has the unilateral right to terminate the advisory agreement
with the Advisor Entity in question on notice which typically need not
exceed 30 days.
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<PAGE>
ACTIONS TO BE TAKEN AT THE MEETING
------------------------------------------
PROPOSAL 1
AMENDMENT TO THE COMPANY'S BYLAWS TO
PROVIDE FOR THE CLASSIFICATION OF THE
BOARD OF DIRECTORS
------------------------------------------
Classification of the Board of Directors
The Board of Directors of the Company at a meeting held on November 6,
1998 adopted a resolution approving a proposal to amend, subject to stockholder
approval, Section 1 of Article III of the Bylaws of the Company to provide for
the division of the Board of Directors into three classes of directors serving
staggered three-year terms with each class being as nearly equal in number as
possible. As a result, approximately one-third of the Board of Directors would
be elected each year. Initially, members of all three classes will be first
elected at the Meeting. Directors then elected to the first class would serve
until the Annual Meeting of Stockholders to be held in 1999, and until their
respective successors are elected and qualified. Directors initially elected to
the second and third classes would serve until the Annual Meetings to be held in
2000 and 2001, respectively, and until their respective successors are elected
and qualified. Commencing with the election of directors to the first class in
1999, each class of directors elected at an Annual Meeting would be elected to
three-year terms.
Analysis of Proposal 1
The Board of Directors believes that the amendment to create a
classified board is in the best interests of the Company and its stockholders.
Board classification will help lend continuity and stability to the management
of the Company and will assure continuity and stability in the Board's
leadership and policies. Following the adoption of the classified board
structure, at any given time approximately two-thirds of the members of the
Board of Directors will have had prior experience as directors of the Company.
The Board believes that this will facilitate long-range planning, strategy and
policy, because it will enhance the likelihood of continuity and stability in
the composition of the Board and its policies. The Board of Directors believes
that this, in turn, will permit the Board to more effectively represent the
interests of all stockholders.
With a classified Board of Directors, it will generally take a
stockholder two Annual Meetings of Stockholders (rather than one) to elect a
majority of the Board of Directors. As a result, a classified board may
discourage proxy contests for the election of directors or purchases of a
substantial block of stock by potential acquirors because its provisions could
operate to prevent obtaining control of the Board in a relatively short period
of time. Although this could provide the Board with more time to evaluate any
takeover or control proposal and thus enable it to better protect the interests
of the Company and the remaining stockholders in the event someone obtains
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<PAGE>
voting control of a majority of the Company's stock, this is not the reason why
the Board is recommending Board classification. Classification is recommended
because the Board believes it will enhance the quality and stability of the
Board and will provide better opportunity for review of the Board member
performance.
As a result of classification's possible effect of discouraging some
takeover bids or block purchases of stock by potential acquirors, stockholders
may be deprived of opportunities to sell some or all of their shares in a tender
offer which might involve a purchase price higher than the then current market
price or a bidding contest between competing bidders. Moreover, to the extent
classification discourages open market purchases of the Company's stock,
stockholders may be deprived of temporary increases in the market price of the
Company's stock. Classification will also make it more difficult for
stockholders to change the Company's Board at a time when stockholders consider
it desirable, unless stockholders show cause and obtain the requisite
stockholder vote. Consequently, the proposed amendment will tend to perpetuate
present management.
The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of the proposal is in the best interest of the Company and its stockholders.
The information concerning the current nominees for election as
directors at the Meeting and the classes to which they would be elected is set
forth under the caption "Proposal 2 Election of Directors." If the proposal to
adopt a classified board is not approved and implemented, all directors elected
at the Meeting will serve for a one-year term, and until their successors are
duly elected and qualified.
Propose Resolutions
"RESOLVED, that Section 1, Article III of the By-laws be amended as
follows:
Section 1 Number, Classification, and Term of Office. The business,
property, and affairs of the corporation shall be managed by or under the
direction of a Board of Directors consisting of no less than one and no more
than twelve; provided, however, that the Board, by resolution adopted by vote of
a majority of the then authorized number of directors, may increase or decrease
the number of directors. The Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Such classes shall be as
nearly equal in number as the then total number of directors constituting the
entire Board permits. At the January 19, 1999 annual meeting of stockholders,
Class I, Class II and Class III directors shall be elected for initial terms
expiring at the next succeeding annual meeting, the second succeeding annual and
the third succeeding annual meeting, respectively, and until their respective
successors are elected and qualified. At each annual meeting of stockholders
after January 19, 1999, the directors chosen to succeed those in the class whose
terms then expire shall be elected by the stockholders for terms expiring at the
third succeeding annual meeting after their election and until their respective
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<PAGE>
successors are elected and qualified. Newly created directorships or any
decrease in directorships resulting from increases and decreases in the number
of directors shall be so apportioned among the classes as to make all the
classes as nearly equal in number as possible; provided, that when the Board
increases the number of directors and fills the vacancies created thereby such
director will hold office for the term expiring at the annual meeting of
stockholders for the term of the class to which they have been elected expires."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 1.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 1
------------------------------------
PROPOSAL 2
ELECTION OF DIRECTORS
------------------------------------
The Board of Directors of the Company has nominated eight directors for
election to hold office until the next Annual Meeting and until their successors
are elected and qualified. Unless otherwise indicated, the shares represented by
all proxies received by the Board of Directors will be voted at the Meeting in
accordance with their terms and, in the absence of contrary instructions, for
the election of all nominees as directors.
The Board of Directors has no reason to expect that any of the nominees
will be unable to stand for election at the date of the Meeting. In the event
that a vacancy among the original nominees occurs prior to the Meeting, the
Proxies will be voted for a substitute nominee or nominees named by the Board of
Directors and for the remaining nominees. Directors are elected by a plurality
of the votes cast. No proxy may be voted for more than eight nominees.
The following table sets forth information about each named executive
officer, director and nominee for director of the Company.
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<PAGE>
<TABLE>
<CAPTION>
Year First
Elected or Present Position
Name Age Class Appointed with the Company
- ---- --- ----- --------- ----------------
<S> <C> <C> <C> <C>
William R. Stow III (1)(4)(5)(6).......... 54 III 1991 Chief Executive Officer,
President and Chairman of
the Board of Directors
Frank R. Caccamo.......................... 59 I 1998 Director
Donald R. Farrow.......................... 53 I 1997 Vice Chairman, Director
Daniel P. Ginns (1)(4)(5)(6).............. 48 II 1997 Director
Alan D. Kucheck........................... 47 ---- ---- Vice President, Engineering
Phillip E. Pearce (1)(2)(5)(6)............ 69 II 1996 Director
John R. Snedegar (2)(3)(6)................ 49 III 1991 Director
Barry W. Sullivan......................... 57 I 1998 Director
Anders B. Vinberg......................... 49 II 1998 Director
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Nominating Committee.
(3) Member of the Audit Committee.
(4) Member of the Stock Option Committee.
(5) Member of the Financing Committee.
(6) Member of the Mergers and Acquisitions Committee.
Nominees for Director
The nominees for election as a director are William R. Stow III, Frank
R. Caccamo, Donald R. Farrow, Daniel P. Ginns, Phillip E. Pearce, John R.
Snedegar, Barry W. Sullivan and Anders B. Vinberg.
Executive officers of the Company are appointed by the Board of
Directors to serve until their removal by the Board of Directors or resignation.
The following biographical information has been furnished by the
nominees.
William R. Stow III founded the company in September 1991. Mr. Stow has
served as Chief Executive Officer of the Company since September 1991 (exclusive
of the period from August 1996 to January 1997) and has served as President of
the Company since July 1998. This is a position he also held from September 1991
to August 1996, exclusive of the period from April 1994 through July 1995. Mr.
Stow has served as a Director of the Company since September 1991, Co-Chairman
of the Board from October 1994 to August 1996 and Chairman of the Board since
August 1996.
Frank R. Caccamo has served as a Director of the Company since November
1998. Mr. Caccamo is the Vice President and Chief Information Officer of The
Reynolds and Reynolds
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<PAGE>
Company, a position he has held since January 1997. Prior to joining Reynolds,
Mr. Caccamo was Vice President of Information Systems at Procter & Gamble from
1990 to January 1997. Mr. Caccamo is a director of the Agency Services Division
of the Cincinnati Community Chest, the Cincinnati Community Chest, the
Cincinnati Eye Bank for Sight Restoration, and the Health Alliance Information
Systems and Technology Governance Board.
Donald R. Farrow has served as the Vice Chairman of the Company since
July 1998. Mr. Farrow had served as President of the Company from January 1997
to July 1998 and as Chief Operating Officer and Director of the Company from
February 1997 to July 1998. Mr. Farrow had been Vice President, Sales and
Marketing since August 1996; Vice President, Sales since May 1996; and a
consultant to the Company since March 1996. Prior to that, Mr. Farrow held
executive positions with Symantec, Vice President Sales; Novell, Director
Western Area; CommVision, Vice President Sales and Marketing; Menlo Corporation,
President; and VisiCorp, Director Western Area.
Daniel P. Ginns has served as a Director of the Company since January
1997. Since October 1996, Mr. Ginns has been Chairman of the Board and Chief
Executive Officer of Datametrics Corporation, a reporting company which designs,
develops and manufactures printers and computers. From 1989 to 1996, Mr. Ginns
was President of Belmont Capital, Inc., a management and financial advisory
firm.
Phillip E. Pearce has served as a Director of the Company since January
1996. Mr. Pearce is the owner of Phil Pearce & Associates since 1986. Prior to
that, he was Senior Vice President and a member of the Board of Directors of
E.F. Hutton & Co., from 1971 through 1983, a member of the Board of Governors of
the New York Stock Exchange, and Chairman of the Board of governors of the NASD.
Mr. Pearce is a member of the Board of two other reporting companies, RX Medical
Services Corporation and Xybernaut Corporation.
John R. Snedegar has served as a Director of the Company since December
1991. Since May 1990, Mr. Snedegar has served as President, Director and Chief
Executive Officer of United Digital Network Inc., a diversified
telecommunications provider based in Irving, Texas. From March 1981 to May 1992,
Mr. Snedegar served as President and Chief Executive Officer of AmeriTel
Management, Inc., currently known as WCT Communications, Inc. Mr. Snedegar is
also a member of the Board of Micro General Corporation, a full service
communications service provider, Star Communications, Inc., an international
long distance wholesale provider, TechWave Inc., an electronic commerce software
company, and TeleHub Communications Corporation, a long distance technology
company.
Barry W. Sullivan has served as a Director of the Company since
September 1998. Mr. Sullivan has served the Electronic Data Corporation (EDS)
from 1971 through 1998, most recently as Corporate Vice President in charge of
managing their Internet, New Media and Electronic Business. Mr. Sullivan has
been a member of (1) the Stanford University Computer Industry Project
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<PAGE>
from 1992 to 1997 and (2) the New Marketing Imperatives Roundtable. He has
served on the Board and as Chairman of the Information Technology Association of
America (ITAA) since 1993, Cybex Technologies, Inc., and on the Board of
CommerceNet, a not-for-profit market and business development organization from
1996 to 1998. Because of his technology information background, he also is a
frequent speaker at universities and seminars.
Anders B. Vinberg has served as a Director of the Company since
September 1998. Mr. Vinberg has served since December 1986 as Senior Vice
President of Research and Development at Computer Associates International,
Inc., a world leader in mission-critical business software and a leading
provider of high-end software Configuration Management tools.
Required Vote
The eight nominees receiving the highest number of votes will be
elected as directors. Abstentions (including instructions to withhold authority
to vote for one or more nominees) and broker non-votes will be counted for
purposes of determining a quorum but will not be counted as votes cast in the
election of directors. There is no provision for cumulative voting in the
election of directors.
Board Compensation
Prior to January 1998, directors who are not employees of the Company
were not compensated, except for reimbursement of travel expenses. Starting in
January 1998, directors who are not employees receive $1,000 per month in
addition to reimbursement of travel expenses. In addition, directors receive
non-qualified stock option grants for shares of the Company's Common Stock. All
options awarded to non-employee directors have an exercise price per share at
least equal to the market price of the Common Stock on the date of grant. The
options have a 10-year term.
In addition, Mr. Pearce performed certain consulting services for which
he was compensated $600 during fiscal 1998.
Board of Directors
The Board of Directors is responsible for the management of the
Company. During fiscal 1998, the Board of Directors held eight meetings and took
action by unanimous written consent on one occasion. Each incumbent director
attended at least 94% of the aggregate of the total number of meetings of the
Board and of the committees on which he served during fiscal 1998.
Committees of the Board
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The Board of Directors had established six standing committees: (i)
Compensation, (ii) Nominating, (iii) Audit, (iii) Stock Options, (iv) Financing,
and (vi) Mergers and Acquisitions Committee.
The principal function of the Compensation Committee was to review and
establish compensation for executive officers and to consider incentive
compensation alternatives for the Company's employees. This committee was
comprised of Messrs. Ginns, Pearce and Stow. All functions of the Compensation
Committee were completed by the Board of Directors in a regularly scheduled
meeting during the fiscal year ended March 31, 1998.
The principal function of the Nominating Committee was to select and
recommend to the Board of Directors appropriate candidates for executive
officers. The Nominating Committee was comprised of Messrs. Snedegar and Pearce.
The functions of the Nominating Committee were completed by the Board of
Directors in a regularly scheduled meeting during the fiscal year ended March
31, 1998.
The functions of the Audit Committee included the nomination of
independent auditors for appointment by the Board; meeting with the independent
auditors to review and approve the scope of their audit engagement; meeting with
the Company's financial management and the independent auditors to review
matters relating to internal accounting controls, the Company's accounting
practices and procedures and other matters relating to the financial condition
of the Company; and to report to the Board periodically with respect to such
matters. The Audit Committee consisted of Messrs. Sexton (former Director) and
Snedegar. All functions of the Audit Committee were completed by the Board of
Directors in a regularly scheduled meeting during the fiscal year ended March
31, 1998.
The principal function of the Stock Option Committee was to recommend
guidelines for the granting of stock options and to administer the Company's
1996 Stock Option Plan. This committee was comprised of Messrs. Sexton (former
Director), Ginns and Stow. The Stock Option Committee did not meet formally
during the fiscal year ended March 31, 1998 but acted by unanimous written
consent on one occasion.
The principal function of the Financing Committee was to review
investment proposals and give recommendations to the Board. This committee was
comprised of Messrs. Pearce, Ginns and Stow. All functions of the Financing
Committee were completed by the Board of Directors in a regularly scheduled
meeting during the fiscal year ended March 31, 1998.
The principal function of the Mergers and Acquisitions Committee was to
investigate potential opportunities for merger and/or acquisition activity. This
committee was comprised of Messrs. Pearce, Ginns, Snedegar and Stow. The Mergers
and Acquisition Committee met once during the fiscal year ended March 31, 1998.
-13-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. To the Company's knowledge, based solely upon a
review of copies of such reports furnished to the Company during the one-year
period ended March 31, 1998, and written representations from its Directors and
Executive Officers, there were no late or delinquent filings except the
following: one Form 4 for Messrs. Ginns and Sexton (former Director); one Form 3
for Mr. McManes; and a Form 5 for Mr. Norman, all of which reports have been
filed as of the current date.
EXECUTIVE COMPENSATION
Summary Information
The following table sets forth certain summary information regarding
compensation paid or accrued by the Company to, or on behalf of, the Company's
Chief Executive Officer and the other most highly compensated executive officers
of the Company (the "Named Executive Officers"), for services rendered in all
capacities to the Company during the fiscal years ended March 31, 1996, 1997,
1998. Except as otherwise noted, no Named Executive Officer received any
restricted stock award, stock appreciation right or payment under any long-term
incentive plan. No other officer of the Company received annual salary and bonus
exceeding $100,000 during the relevant periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
----------------
Securities
Underlying All Other
Name and Annual Compensation Options (1) Compensation
----------------------------- ----------------
Principal Position Year Salary Bonus (Shares) (5)
- ------------------ --------- -------------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
William R. Stow III (2)............. 1998 $150,000 $ - 0 - 249,790 $ - 0 -
Chief Executive Officer, 1997 $137,818 $ - 0 - 175,000 $ - 0 -
Chairman of the Board and 1996 $115,000 $ - 0 - ---- $ - 0 -
Director
Donald R. Farrow (3)................ 1998 $150,000 $ - 0 - 297,447 $ - 0 -
President and Director 1997 $101,031 $ - 0 - 231,250 $62,942
1996 ---- ---- ----- $ - 0 -
-14-
<PAGE>
Alan D. Kucheck (4)................. 1998 $120,833 $ - 0 - 245,075 $ - 0 -
Vice President, Engineering 1997 $110,000 $ - 0 - 65,667 $ - 0 -
1996 $110,000 $6,358 110,000 $ - 0 -
</TABLE>
- ------------
(1) Amounts represent stock options granted and/or repriced for the period
shown.
(2) Options granted during fiscal year 1998 include options to purchase
156,666 shares of the Company's Common Stock, originally granted in prior
years, that were repriced.
(3) Options granted during fiscal year 1998 include options to purchase
206,250 shares of the Company's Common Stock, originally granted in prior
years, that were repriced.
(4) Options granted during fiscal year 1998 include options to purchase
175,667 shares of the Company's common stock, originally granted in prior
years, that were repriced. Fiscal year 1998 repriced options include the
options listed for fiscal year 1996 to purchase 59,000 shares of the
Company's common stock that had been granted prior to 1996 and were
repriced in fiscal year 1996.
(5) Amounts listed as All Other Compensation represent commissions earned or
consulting fees.
Stock Options
The following table sets forth information concerning stock option grants
made during the fiscal year ended March 31, 1998 under the Company's Stock
Option Plan to Named Executive Officers. No stock appreciation rights were
granted to such individuals during the fiscal year.
Option/SAR Grants In Year Ended March 31, 1998
Individual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/SARS Exercise
Options/ SARS Granted to or Base Expiration
Name Granted Employees Price Date
(# of Shares) (1) In Fiscal Year (2) ($/Sh) (3)
- --------------------------- ------------------- --------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
William R. Stow III 6,666 * $1.75 January 30, 2005
150,000 4 1.25 August 7, 2006
15,000 * 0.84 May 7, 2007
25,000 1 1.52 September 24, 2007
53,124 1 1.63 January 22, 2008
Donald R. Farrow 125,000 3 1.25 May 3, 2006
31,250 1 1.25 November 8, 2006
50,000 1 1.25 February 12, 2007
20,625 1 0.84 May 7, 2007
-15-
<PAGE>
25,000 1 1.52 September 24, 2007
45,572 1 1.63 January 22, 2008
Alan D. Kucheck 59,000 2 1.25 April 21, 2003
6,000 * 1.25 August 11, 2005
45,000 1 1.25 December 7, 2005
65,667 2 1.25 November 8, 2006
17,567 * 0.84 May 7, 2007
51,841 1 1.63 January 22, 2008
-------------
</TABLE>
*Less than 1%.
(1) Options granted to purchase common stock. Generally, twenty-five
percent of the shares granted vest one year from the date of grant with
the remaining shares vesting equally over the following thirty-six
months. All of the options shown have a maximum term of ten years,
subject to earlier termination following the optionee's cessation of
service with the Company.
(2) The Company granted options to purchase a total of 2,045,827 shares of
Common Stock to employees during the year ended March 31, 1998 (in
addition 1,715,580 options to purchase shares of the Company's Common
Stock were granted in prior years and were repriced) .
(3) The exercise price may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date.
Option Repricing
The following table provides information relating to the repricing of
certain options held by the executive officers of the Company named in the
Summary compensation table that occurred during the fiscal year ended March 31,
1998. The only previous repricing of any options granted by the Company to any
executive officer was done in August and September, 1995.
Option/SAR Repricings
<TABLE>
<CAPTION>
Number of Length of
Securities Exercise Original Option
Underlying Price of Stock Term
Options at Time of New Remaining at
Repriced or Repricing or Exercise Date of
Amended Amendment Price Repricing or
Name Date (#) ($/Share) ($/Sh) Amendment
- --------------------------- ----------- -------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
William R. Stow III 5/7/1997 150,000 3.07 1.25 9.2 yrs.
8/5/1997 6,666 5.69 1.75 7.7 yrs.
-16-
<PAGE>
Donald R. Farrow 5/7/1997 31,250 2.60 1.25 9.5 yrs.
5/7/1997 50,000 1.74 1.25 9.7 yrs.
5/7/1997 125,000 3.50 1.25 9.0 yrs.
Alan D. Kucheck 5/7/1997 59,000 2.21 1.25 6.0 yrs.
5/7/1997 6,000 2.21 1.25 8.3 yrs.
5/7/1997 45,000 2.32 1.25 8.5 yrs.
5/7/1997 65,667 2.60 1.25 9.5 yrs.
</TABLE>
-17-
<PAGE>
Report of Repricing of Options
In May and August 1997 the Board of Directors reviewed the grant prices
of stock options to determine if the options were still effective as long-term
incentives to encourage commitment to the Company. Because the exercise price of
most stock options had been above the market price of the Company's stock for
some time, the Board of Directors decided to reprice certain outstanding stock
options. As a result of the review, the Board of Directors offered to option
holders an opportunity to terminate their existing options in exchange for the
grant of new options at the current market price of the Company's Common Stock.
All other terms of the stock option grants remained the same.
Option Exercises, Holdings and Fiscal Year-End Values
The following table sets forth information concerning the number of
shares covered by both exercisable and unexercisable options held by each of the
Named Executive Officers as of March 31, 1998. No options were exercised during
the fiscal year ended March 31, 1998 by any of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND OPTION VALUES AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Value Options at in-the-Money Options at
Exercise Realized March 31, 1998 (# of March 31, 1998 (1)
shares)
------------------------------ ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
William R. Stow III -- -- 109,789 165,001 $195,502 $309,121
Donald R. Farrow -- -- 140,622 181,825 259,537 347,419
Alan D. Kucheck -- -- 110,075 135,000 216,710 253,284
</TABLE>
- ------------
(1) Calculated based on the closing price of the Company's Common Stock as
reported on the NASDAQ SmallCap on March 31, 1998 of $3.21875 per share,
less the applicable exercise price.
Employment Agreements
There are no employment agreements between the Company and any executive
officer.
-18-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee participate in all
deliberations concerning executive compensation. The Compensation Committee
consists of William R. Stow III, Phillip E. Pearce and Daniel P. Ginns. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
Overview and Philosophy
Other than Mr. Stow, the President and Chief Executive Officer of the
Company, the Compensation Committee of the Board of Directors is composed
entirely of non-employee directors and is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee,
pursuant to authority delegated by the Board of Directors, determines the
compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.
The objectives of the Company's executive compensation program are to:
* Support the achievement of desired Company performance
* Provide compensation that will attract and retain
superior talent and reward performance
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the technology and software
industries, as well as with a broader group of companies of comparable size and
complexity.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of base
salary, long-term incentive compensation in the form of stock options, specific
performance-based bonuses and various benefits, including medical and pension
plans generally available to employees of the Company.
Base Salary
Base salary levels for the Company's executive officers are competitively
set relative to companies in the software industry. In determining salaries, the
Committee also takes into account individual experience and performance and
specific issues particular to the Company.
-19-
<PAGE>
Stock Option Program
The stock option program is the Company's long-term incentive plan for
providing an incentive to officers, directors, employees and others.
The 1996 Stock Option Plan authorizes the Compensation Committee to award
officers, directors, employees and others stock options. Options granted under
such Plans may be granted containing terms determined by the Committee,
including exercise period and price; provided, however, that each Plan requires
that exercise price may not be less than the fair market value of the Common
Stock on the date of the grant and the exercise period may not exceed ten years,
subject to further limitations.
In addition, the Company issues non-qualified stock options outside the
1996 Stock Option Plan. These are issued to a broad-based group in which most of
the options are granted to non-officer employees.
Benefits
The Company provides to executive officers, medical and pension benefits
that are generally available to Company employees.
Bonus
The Company may provide to certain executive officers bonuses based on
performance.
Chief Executive Officer Compensation
See Summary Compensation Table.
William R. Stow III
Daniel P. Ginns
Phillip E. Pearce
Members of the Compensation Committee
-20-
<PAGE>
CERTAIN TRANSACTIONS
In fiscal 1995, the Board of Directors authorized the Company to loan
William Stow III, then President and CEO of StarBase, the sum of $126,000. At
March 31, 1998, the principal and accrued interest amounts were $76,153 and
$13,294, respectively. The loan is evidenced by a promissory note and is secured
by shares of the Company's common stock, which are owned by Mr. Stow. The note
is payable on November 4, 1998 and bears interest at a rate of 6.34% per annum,
payable at maturity. At the November 19, 1998 Board of Directors meeting, the
Board of Directors extended the maturity of the loan with the same terms to
November 4, 2000.
-21-
<PAGE>
THE ANTI-TAKEOVER PROPOSALS
Proposals 1 and 3 through 9 in this Proxy Statement are proposals to
amend the Company's Certificate of Incorporation, as amended to date (the
"Certificate of Incorporation"), and Bylaws, as amended to date (the "Bylaws"),
which amendments, as discussed below, may have certain anti-takeover effects.
The following section discusses the general consequences to stockholders of the
Company of these proposals and should be read in conjunction with the individual
discussions with respect to each proposal.
The Board of Directors has evaluated the potential vulnerability of the
Company's stockholders to the threat of unfair or coercive takeover tactics and,
although the Board of Directors is not currently aware of any such threat, has
considered the range of possible responses to any such threat. The Board has
unanimously approved, and recommends to the Company's stockholders for their
approval, the amendments to the Certificate of Incorporation and Bylaws
described in Proposals 1 and 3 through 9 set forth below. Proposals 1 and 3
through 9 are referred to collectively as the "Anti-Takeover Amendments."
Approval of the Anti-Takeover Amendments requires the affirmative vote of
holders of a majority of the outstanding Common Stock.
THE ANTI-TAKEOVER AMENDMENTS
The Anti-Takeover Amendments involve related amendments to the
Certificate of Incorporation and Bylaws designed to assist the Company's
stockholders in obtaining fair and equitable treatment in the event of a
threatened takeover of the Company. The Anti-Takeover Amendments, if approved,
will: (i) provide for an advance notice procedure for the submission by
stockholders of director nominations and other business to be considered at any
annual meetings of stockholders; (ii) permit only the President, the Chairman of
the Board, the Secretary or the Board of Directors to call special meetings of
stockholders and to limit the business permitted to be conducted at such
meetings to that brought before the meetings by or at the discretion of the
Board of Directors; (iii) provide that a member of the Board of Directors may
only be removed by the stockholders of the Company for cause by an affirmative
vote of holders of at least 66 2/3% of the voting power of the then outstanding
Voting Stock; (iv) fix the size of the Board of Directors at a maximum of twelve
directors, with the authorized number of directors set at eight, and give the
Board of Directors the sole power and authority to increase or decrease the
number of directors acting by an affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the Board of
Directors; (v) provide that any vacancy on the Board of Directors may be filled
for the unexpired term (or for a new term in the case of an increase in the size
of the board) only by an affirmative vote of at least a majority of the
remaining directors then in office even if less than a quorum, or by the sole
remaining director; (vi) eliminate stockholder action by written consent; (vii)
require the approval of holders of 80% of the then outstanding Voting Stock
and/or the approval of 2/3 of the directors of the Company for certain corporate
transactions; and (viii) require an affirmative vote of 66 2/3% of the Voting
Stock in order to amend or repeal any adopted amendments to the Certificate of
Incorporation and Bylaws proposed herein.
-22-
<PAGE>
The Anti-Takeover Amendments are not in response to any effort, of
which the Company is aware, to accumulate Common Stock or to obtain control of
the Company. The Board has observed the relatively common use of certain
coercive takeover tactics in recent years, including the accumulation of
substantial common stock positions as a prelude to a threatened takeover or
corporate restructuring, proxy fights and partial tender offers and the related
use of "two-tiered" pricing. In addition, persons who do not intend to gain
control of companies use the threat of takeover bids to force the companies to
repurchase their shares at a premium or temporarily drive up the market price of
their stock. The Board believes that the use of these tactics can place undue
pressure on a corporation's board of directors and stockholders to act hastily
and on incomplete information and, therefore, can be highly disruptive to a
corporation as well as divert valuable corporate resources and result in unfair
differences in treatment of stockholders who act immediately in response to
announcements of takeover activity and those who choose to act later, if at all.
The Anti-Takeover Amendments are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Board.
While the Anti-Takeover Amendments, individually and collectively, give
added protection to the Company's stockholders and may help the Company obtain
the best price in a potential transaction, they may also have the effect of
making more difficult and discouraging a merger, tender offer or proxy contest,
even if such transaction or event may be favorable to the interests of some or
all of the Company's stockholders. The Anti-Takeover Amendments also may delay
the assumption of control by a holder of a large block of Common Stock and the
removal of incumbent management, even if such removal might be beneficial to
some or all of the stockholders. Furthermore, the Anti-Takeover Amendments may
have the effect of deterring or frustrating certain types of future takeover
attempts that may not be approved by the incumbent Board, but that the holders
of a majority of the shares of Common Stock may deem to be in their best
interests or in which some or all of the stockholders may receive a substantial
premium over prevailing market prices for their stock. By discouraging takeover
attempts, the Anti-Takeover Amendments also could have the incidental effect of
inhibiting (i) certain changes in management (some or all of the members of
which might be replaced in the course of a change of control) and (ii) the
temporary fluctuations in the market price of Common Stock that often result
from actual or rumored takeover attempts.
The Board recognizes that a takeover might in some circumstances be
beneficial to some or all of the Company's stockholders but, nevertheless,
believes that the stockholders as a whole will benefit from the adoption of the
Anti-Takeover Amendments. The Board further believes that it is preferable to
act on the proposed Anti-Takeover Amendments when they can be considered
carefully rather than hastily during an unsolicited bid for control. Under
Delaware law, each of the proposed Anti-Takeover Amendments described in
Proposals 1 and 3 through 9 requires the affirmative vote of the holders of a
majority of the Company's outstanding shares of Common Stock. All of the
proposals are permitted under applicable Delaware law.
If stockholders approve any or all of the Anti-Takeover Amendments, the
Company will file with the Secretary of State of the State of Delaware an
amendment to the Certificate of Incorporation
-23-
<PAGE>
that reflects the amendments which have been approved containing the provisions
as set forth under each proposal. The approved amendments to the Certificate of
Incorporation will become effective upon the filing with the Secretary of State
of the State of Delaware of a certificate with respect to such amendment, and
the approved amendments to the Bylaws will become effective immediately upon
such approval. Each of the Anti-Takeover Amendments adopted by the Company's
stockholders at the Meeting will become effective regardless of whether any of
the other Anti-Takeover Amendments to be acted upon at the Meeting is adopted.
Stockholders are urged to read carefully the following descriptions and
discussions of each of the proposed Anti-Takeover Amendments before voting on
the Anti-Takeover Amendments.
OTHER ANTI-TAKEOVER DEVICES
Existing Anti-Takeover Provisions of the Certificate of Incorporation and Bylaws
In addition to the proposed Anti-Takeover Amendments, an existing
provision of the Certificate of Incorporation may be deemed to be an
anti-takeover device which could be utilized as a method of discouraging,
delaying or preventing a change in control of the Company or diluting the public
ownership of the Company, even if such transaction or occurrence may be
favorable to the interests of some or all of the Company's stockholders. The
Certificate of Incorporation currently authorizes the Board to issue 10,000,000
shares of preferred stock having such rights, preferences and privileges as
designated from time to time by the Board (the "Preferred Stock") without
stockholder approval. Accordingly, the Board is empowered to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of Common
Stock. As of the current date, the Board has authorized the issuance of
1,200,000 shares of Class D Preferred Stock; 3,000,000 shares of Class E
Preferred Stock; 550,000 shares of Class F Preferred Stock; 4,000 shares of
Class G Preferred Stock; and 4,000 shares of Class H Preferred Stock, each in
connection with a private placement of the Company's securities.
Under certain circumstances, the Company could use the Preferred Stock
or currently authorized but unissued shares of Common Stock to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of the Company or to dilute the public ownership of the Company and
thereby to protect the continuity of the Company's management. The Company could
also privately place any such shares with purchasers who might favor the Board
or management in opposing a hostile takeover bid or adopt a stockholder rights
plan, commonly referred to as a "poison pill". The Company has no present
knowledge of any such takeover efforts.
Other than existence of (i) the authority to issue classes of Preferred
Stock, and (ii) authorized but unissued Common Stock, the Certificate of
Incorporation and Bylaws do not currently contain any other anti-takeover
provisions, and no such other provisions are currently contemplated, other than
the proposals contained herein.
-24-
<PAGE>
While Delaware General Corporation Law ("Delaware GCL") Section 214
provides that a corporation's certificate of incorporation may provide for
cumulative voting, such voting is not provided for under the Certificate of
Incorporation. Therefore, the holders of a majority of the shares of Common
Stock can elect all of the directors being elected at any annual meeting of
stockholders.
Section 203 of the Delaware GCL, which is applicable to the Company,
may be deemed to have certain anti-takeover effects by prescribing certain
voting requirements in instances in which there is a transaction between a
publicly-held Delaware corporation and an "interested stockholder". See Proposal
9 for a summary description of Section 203 of the Delaware GCL.
---------------------------------------------------------
PROPOSAL 3
ADVANCE NOTICE OF
STOCKHOLDER
NOMINATIONS AND PROPOSALS
---------------------------------------------------------
Advance Notice of Nominations and Proposals
The Board has adopted, subject to stockholder approval, an amendment to
the Certificate of Incorporation and a corresponding amendment to the Bylaws
requiring that stockholders submit director nominations and other business to be
considered at annual meetings of stockholders in accordance with a specific
advance notice procedure. No such procedure is currently provided for in either
the Certificate of Incorporation or the Bylaws. At the Meeting, stockholders
will be asked to consider and vote on these proposed amendments.
Analysis of Proposal 3
The proposed amendments will provide a detailed and circumscribed
notice procedure with regard to the nomination, other than by or at the
direction of the Board, of candidates for election as directors (the "Nomination
Procedure") and with regard to stockholder proposals to be brought before an
annual meeting of stockholders (the "Business Procedure"). The Nomination
Procedure provides that only persons who are nominated by or at the direction of
the Board, or by a stockholder who has given timely prior written notice to the
Corporate Secretary of the Company prior to the meeting at which directors are
to be elected, will be eligible for election as directors. The Business
Procedure provides that stockholder proposals must be submitted in writing in a
timely manner in order to be considered at any annual meeting. To be timely,
notice for nominations or stockholder proposals must be received by the Company
not less than 60 days nor more than 90 days prior to the annual meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder,
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<PAGE>
to be timely, must be received no later than the close of business on the tenth
day following the date on which such notice of the date of the annual meeting
was made or such public disclosure was made, whichever first occurs.
Under the Nomination Procedure, notice to the Company from a
stockholder who proposes to nominate a person at a meeting for election as a
director must contain certain information about that person, including age,
business and residence addresses, principal occupation, the class and number of
shares of Common Stock or other capital stock beneficially owned, the consent of
such person to be nominated and such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the stockholder proposing to
nominate that person.
Under the Business Procedure, notice relating to a stockholder proposal
must contain certain information about such proposal and about the stockholder
who proposes to bring the proposal before the meeting.
The purpose of the Nomination Procedure is, by requiring a specified
amount of advance notice of nominations by stockholders, to afford the Board a
meaningful opportunity to consider the qualifications of the proposed nominees
during the appropriate period when the Board is focused on nominations and, to
the extent deemed necessary or desirable by the Board, to inform stockholders
about the qualifications of the proposed nominee. The purpose of the Business
Procedure is, by requiring a specified amount of advance notice of stockholder
proposals, to provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board, to
provide the Board with a meaningful opportunity to analyze such proposals and to
decide whether it is appropriate to either (i) omit such proposal or (ii) inform
stockholders, prior to such meetings, of any proposal to be introduced at such
meetings, together with any recommendation of the Board's position or belief as
to action to be taken with respect to such proposal, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the Board as to the disposition of any such proposal.
Although the amendment does not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or any other
proposal submitted by stockholders, the amendment may have the effect of
precluding or making more difficult a stockholder nomination for the election of
directors or the submission by stockholders of proposals at a particular
stockholders meeting because of the difficulty of the procedures to be followed,
and may discourage a stockholder from conducting a solicitation of proxies to
elect such stockholder's own slate of directors or otherwise attempting to
obtain control of the Company, even if the conduct of such solicitation or such
attempt might be beneficial to the Company and its stockholders. For these
reasons, this Proposal may have an anti-takeover effect, particularly when
combined with Proposal 4 below. The Board, however, is not aware of any efforts
to obtain control of the Company, and the proposal of this measure is not in
response to any such efforts. For a general
-26-
<PAGE>
discussion of certain anti-takeover effects of Proposal 3, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolution
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by adding a new Article 11, which shall be and read as follows:
Article 11: Subject to the rights of holders of any class or series of
Preferred Stock,
(i) nominations for the election of directors, and
(ii) business proposed to be brought before an annual meeting
of stockholders
may be made by the Board of Directors or committee appointed by the
Board of Directors or by any stockholder entitled to vote in the
election of directors generally. However, any such stockholder may
nominate one or more persons for election as directors at an annual
meeting or propose business to be brought before an annual meeting, or
both, only if such stockholder has given timely notice in proper
written form of his or her intent to make such nomination or
nominations or to propose such business. To be timely, a stockholder's
notice must be delivered to or mailed and received by the Secretary of
the Corporation not less than 60 days nor more than 90 days prior to
the annual meeting; provided, however, that in the event that less than
70 days notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by a stockholder, to
be timely, must be received no later than the close of business on the
tenth day following the date on which such notice of the date of the
annual meeting was made or such public disclosure was made, whichever
first occurs. To be in proper written form, a stockholder's notice to
the Secretary shall set forth:
(a) 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;
(b) 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;
(c) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such
-27-
<PAGE>
person or persons) pursuant to which the nomination or nominations are
to be made by the stockholder;
(d) 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
such other information about the nominee as the Board of Directors
deems appropriate, including, without limitation, the nominee's age,
business and residence addresses, principal occupation and the class
and number of shares of Common Stock or other capital stock of the
Company beneficially owned by the nominee, or such other information
about the business to be proposed and about the stockholder making such
business proposal before the annual meeting as the Board of Directors
deems appropriate, including, without limitation, the class and number
of shares of Common Stock or other capital stock beneficially owned by
such stockholder; and
(e) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected. The chairman of the meeting
may refuse to acknowledge the nomination of any person or the proposal
of any business not made in compliance with the foregoing procedure.
RESOLVED, that Article II of the Bylaws be amended by adding a new
Section 12 containing a provision substantially the same as the provision set
forth in the preceding resolution and other provisions, if any, as may be
necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 3.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 3
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---------------------------------------------------------
PROPOSAL 4
LIMITATIONS ON STOCKHOLDERS
WITH RESPECT TO SPECIAL
MEETINGS
---------------------------------------------------------
Ability to Call Special Meetings of the Stockholders
Article II, Section 5 of the Bylaws currently provides that special
meetings of stockholders may be called by the President, the Secretary or by a
majority of the Board of Directors. The Board has adopted, subject to
stockholder approval, an amendment to the Certificate of Incorporation to
include the foregoing provision and to expand such provision to provide that
stockholders of the Company are not permitted to call a special meeting or to
require that the Board call a special meeting of stockholders and that the
business permitted to be conducted at such meetings be limited to that brought
before the meetings by or at the direction of the Board. A corresponding
amendment to the Bylaws has also been adopted, subject to stockholder approval.
At the Meeting, stockholders will be asked to consider and vote on these
proposed amendments.
Analysis of Proposal 4
The proposed amendments will provide for the orderly conduct of all
Company affairs at special meetings of stockholders. Accordingly, a stockholder
could not force stockholder consideration of a proposal over the opposition of
the Board by calling a special meeting of stockholders prior to the next annual
meeting or prior to such time that the Board believed such consideration to be
appropriate. As a result, the Board would have the opportunity to inform other
stockholders adequately of the matters to be considered at any special meeting
of stockholders.
Persons attempting a takeover bid could be delayed or deterred by not
being able to propose a transaction at a time advantageous for them. For these
reasons, these proposed amendments may have an anti-takeover effect. The Board,
however, is not aware of any efforts to obtain control of the Company, and the
proposal of this measure is not in response to any such efforts. For a general
discussion of certain anti-takeover effects of Proposal 4, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article 12, which shall be and read as follows:
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Subject to the rights of holders of any class or series of Preferred
Stock, special meetings of stockholders may be called only by the
President, the Chairman of the Board, the Secretary or by the Board of
Directors pursuant to a resolution adopted by a majority vote of the
total number of authorized directors (whether or not there exists any
vacancies in previously authorized directorships) at the time any such
resolutions are presented to the Board for adoption. Such meetings to
be held at such time and such place either within or without the State
of Delaware as may stated in the notice. Stockholders of the
Corporation are not permitted to call a special meeting or to require
that the Board call a special meeting of stockholders. The business
permitted at any special meeting of stockholders shall be limited to
the business brought before the meeting by or at the direction of the
Board.
RESOLVED, that Section 5 of Article II of the Bylaws be amended by
deleting the existing Section 5 and adding a new Section 5 which incorporates
substantially the provision set forth in the preceding resolution and other
provisions, if any, as may be necessary to make the Bylaws consistent with this
amendment.
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 4.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 4
--------------------------------------------------------------
PROPOSAL 5
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
PROVIDE THAT STOCKHOLDERS MAY
ONLY REMOVE DIRECTORS FOR CAUSE
--------------------------------------------------------------
Removal of a Director for Cause
Article III, Section 14 of the Bylaws currently provides that any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares entitled at the time to vote at an
election of directors. The Board of Directors has adopted, subject
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to stockholder approval, an amendment to the Certificate of Incorporation and a
corresponding amendment to the Bylaws which provides that any director, or the
entire Board of Directors, may be removed by the stockholders for cause only by
the affirmative vote of the holders of at least 66 2/3% of the then Voting
Stock. At the Meeting, stockholders will be asked to consider and vote on these
proposed amendments.
Analysis of Proposal 5
The proposed amendment should render more difficult an attempt to
acquire control of the Company without the approval of the Company's management.
Generally, the proposed amendment would make it impossible for someone who
acquires voting control of the Company to remove immediately the incumbent
directors who may oppose such person and to replace them with more friendly
directors, and will instead require such a person to replace incumbent directors
as their terms expire over a period of up to three years, unless cause exists
for such removal. This proposal would protect the continuity of the Board of
Directors and thereby enhance the ability of the Company to carry out long-range
plans and goals for its benefit and the benefit of its stockholders.
Stockholders should recognize, however, that the proposed amendment
will also make more difficult the removal of a director in circumstances which
do not constitute a takeover attempt and where, in the opinion of the holders of
66 2/3% of the Company's outstanding shares, such removal is appropriate but
where no cause exists. Moreover, the proposed amendment may have the effect of
delaying an ultimate change in existing management which might be desired by a
majority of the stockholders. The proposed amendment is in accordance with the
Delaware GCL.
The inability to remove directors other than for cause may have the
effect of discouraging potential unfriendly bids for shares of the Company
because of the delay it could cause in replacing board members. However, the
Board of Directors is not aware of any efforts to obtain control of the Company,
and the proposal of this measure is not in response to any such efforts. For a
general discussion of certain anti-takeover effects of Proposal 5, see the
section entitled "Anti-Takeover Proposals" above.
Proposed Resolution
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article 13 which shall be and read as follows:
Any director, or the entire Board of Directors, may be removed, for
cause only, by the affirmative vote of the holders of at least 66 2/3%
of the voting power of the then outstanding shares of any class or
series of capital stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class.
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<PAGE>
RESOLVED, that Section 14 of Article III of the Bylaws be amended by
deleting the existing Section 14 and adding a new Section 14 which incorporates
substantially the provision set forth in the preceding resolution and other
provisions, if any, as may be necessary to make the Bylaws consistent with this
amendment.
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 5.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 5
---------------------------------------------------------
PROPOSAL 6
AMENDING THE BYLAWS TO FIX
THE NUMBER OF DIRECTORS
AND
PROVIDE FOR FILLING VACANCIES
ON THE BOARD
---------------------------------------------------------
Fixing the Number of Directors
Article II, Section 2.1 of the Bylaws currently provides, in part, that
the number of directors which shall constitute the whole board shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting of stockholders. The Board has adopted, subject to stockholder
approval, an amendment to the Bylaws fixing the size of the Board of Directors
at a maximum of twelve directors, with the authorized number of directors set at
eight, and the Board of Directors having the sole power and authority to
increase or decrease the size of the Board acting by an affirmative vote of at
least a majority of the total number of authorized directors most recently fixed
by the Board of Directors. At the Meeting, stockholders will be asked to
consider and vote on this proposed amendment.
Filling Vacancies on the Board of Directors
Article III, Section 2 of the Bylaws currently provides, in relevant
part, that "vacancies and new created directorships resulting from an increase
in the authorized number of directors may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
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director. If there are no directors in office, then an election of directors may
be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
the shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office." The Board of Directors has adopted, subject to stockholder approval,
an amendment to Article III, Section 2 of the Bylaws providing that a vacancy on
the Board of Directors, including a vacancy created by an increase in the
authorized number of directors, may be filled only by the affirmative vote of at
least a majority of the remaining directors then in office, even if less than a
quorum, or by the sole remaining director. At the Meeting, stockholders will be
asked to consider and vote on this proposed amendment.
Analysis of Proposal 6
Because, by increasing or decreasing the size of the Board of
Directors, vacancies may result which, if filled by a vote of the stockholders,
could circumvent the continuity to be provided for by the Company's Board of
Directors, the Board of Directors believes that this proposal fixing the number
of directors and governing the filling of vacancies on the Board of Directors
would promote such continuity of management and thereby enhance the ability of
the Company to carry out long-range plans and goals for its benefit and the
benefit of its stockholders. This proposal would prevent a third party seeking
majority representation on the Board of Directors from obtaining such
representation simply by enlarging the Board of Directors and then filling the
new directorships with its own nominees.
In addition, this proposal, coupled with the proposal set forth above
relating to the removal of directors, if adopted, would preclude stockholders
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with their own nominees. Although the Company has not experienced
difficulties in the past in maintaining continuity of the Board of Directors and
management, the Board of Directors believes that this proposal will assist the
Company in maintaining this continuity of management into the future.
The proposed amendment is in accordance with the Delaware GCL which
provides that the number of directors may be fixed in any manner as provided for
in a corporation's bylaws and that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by the sole remaining director, unless the certificate of incorporation or
bylaws provide otherwise.
Persons attempting a takeover bid could be delayed or deterred by not
being able to procedurally obtain control of the Board of Directors as quickly
as they could in the absence of these
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<PAGE>
provisions. For these reasons, this Proposal may have an anti-takeover effect.
The Board of Directors, however, is not aware of any efforts to obtain control
of the Company, and the proposal of these measures is not in response to any
such efforts. For a general discussion of certain anti-takeover effects of
Proposal 6, see the section entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that Section 1 of Article III of the Bylaws be amended by
deleting the existing Section 1 and adding a new Section 1 which shall be and
read as follows:
The business, property, and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. The Board of
Directors shall consist of not fewer than six (6) members and not more
than twelve (12) members, with the number of authorized directors being
initially fixed at eight (8), which number may be changed from time to
time by a resolution of the Board of Directors adopted by the
affirmative vote of at least a majority of the total number of
authorized directors most recently fixed by the Board of Directors,
except in each case as may be provided pursuant to resolutions of the
Board of Directors, adopted pursuant to the provisions of the
Certificate of Incorporation, establishing any series of Preferred
Stock and granting to holders of shares of such series of Preferred
Stock rights to elect additional directors under specified
circumstances. If the number of directors is changed, then any increase
or decrease in such number shall be apportioned by the Board of
Directors among the classes of directors so as to maintain as nearly as
possible an equal number of directors in each class. The directors
shall be elected by the holders of shares entitled to vote thereon at
the annual meeting of stockholders, and each shall serve (subject to
the provisions of Article III Section 14) until the next succeeding
annual meeting of stockholders and until his respective successor has
been elected and qualified.
"RESOLVED, that Section 2 of Article III of the Bylaws be amended by
deleting the existing Section 2 and adding a new Section 2 which shall be and
read as follows:
(a) Officers. Any vacancy in the office of any officer through
death, resignation, removal, disqualification, or other cause, may be
filled at any time by a majority of the directors then in office (even
though less than a quorum remains).
(b) Directors. Any vacancy on the Board of Directors,
howsoever resulting, including through an increase in the number of
directors, shall only be filled by the affirmative vote of a majority
of the remaining directors then in office, even if less than a quorum,
or by the sole remaining director. Any director elected to fill a
vacancy shall hold office for the same remaining term as that of his or
her predecessor, or if such director was elected as a result of an
increase in the number of directors, then for the term specified in the
resolution providing for such increase.
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<PAGE>
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 6.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 6
----------------------------------------------------------------
PROPOSAL 7
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
ELIMINATE STOCKHOLDER ACTION BY
WRITTEN CONSENT
----------------------------------------------------------------
Ability of Stockholders to Act by Written Consent
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders of a
corporation may be taken without a meeting, without prior notice and without a
stockholder vote, if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes that would be necessary to authorize such an action at a meeting of
stockholders at which all shares entitled to vote thereon were present and
voted. Currently, the Certificate of Incorporation does not prohibit such action
by written consent. The Board of Directors has adopted, subject to stockholder
approval, an amendment to the Certificate of Incorporation and a corresponding
amendment to the Bylaws to provide that actions required or permitted to be
taken at any annual or special meeting of the stockholders may be taken only
upon the vote of the stockholders at a meeting duly called and may not be taken
by written consent of the stockholders. At the Meeting, stockholders will be
asked to consider and vote on these proposed amendments.
Analysis of Proposal 7
The adoption of this proposal would eliminate the ability of the
Company's stockholders to act by written consent in lieu of a meeting. It is
intended to prevent solicitation of consents by stockholders seeking to effect
changes without giving all of the Company's stockholders entitled to vote on a
proposed action an adequate opportunity to participate at a meeting where such
proposed
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<PAGE>
action is considered. The proposed amendment would prevent a takeover bidder
holding or controlling a large block of the Company's voting stock from using
the written consent procedure to take stockholder action unilaterally.
This amendment, if adopted, would ensure that all stockholders would
have advance notice of any attempted major corporate action by stockholders, and
that all stockholders would have an equal opportunity to participate at the
meeting of stockholders where such action was being considered. It would enable
the Company to set a record date for any stockholder voting and would reduce the
possibility of disputes or confusion regarding the validity of purported
stockholder action. The amendment would encourage a potential acquiror to
negotiate directly with the Board of Directors.
In addition, the Board of Directors believes that this change to
eliminate stockholder action by written consent is desirable to avoid untimely
action in a context that might not permit stockholders to have the full benefit
of the knowledge, advice and participation of the Company's management and Board
of Directors. In the event of a proposed acquisition of the Company, the Board
of Directors believes that the interests of stockholders would best be served by
a transaction that resulted from negotiations based on careful consideration of
the proposed terms. Although there can be no certainty as to the result of any
particular negotiations, the Board of Directors believes that the intended
effect of Proposal 7 of promoting negotiations concerning any proposed
acquisition of the Company, with the bargaining power in the Board of Directors,
would be in the long-term interests of the Company and its stockholders.
However, any provision in the Certificate of Incorporation which effectively
requires a potential acquiror to negotiate with the Company's management and
Board of Directors could be characterized as increasing management's and the
Board of Directors's ability to retain their positions with the Company and to
resist a transaction which may be deemed advantageous by even a majority of the
stockholders.
These proposed amendments are in accordance with the Delaware GCL,
which provides that stockholders may act by written consent unless otherwise
provided by a corporation's certificate of incorporation.
Persons attempting a takeover bid could be delayed or deterred by not
being able to propose a transaction at a time advantageous for them. For these
reasons, this Proposal may have an anti-takeover effect. The Board of Directors,
however, is not aware of any efforts to obtain control of the Company, and the
proposal of this measure is not in response to any such efforts. For a general
discussion of certain anti-takeover effects of Proposal 7, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article 14 which shall be and read as follows:
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<PAGE>
Except as otherwise provided in the resolutions of the Board of
Directors designating any series of Preferred Stock, any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting
of stockholders and may not be effected by a consent in writing by any
such stockholders.
RESOLVED, that the Bylaws be amended by deleting the existing Section
11 of Article II and adding a new Section 11 which incorporates substantially
the provision set forth in the preceding resolution and other provisions, if
any, as may be necessary to make the Bylaws consistent with this amendment.
RESOLVED, that the Bylaws be further amended by amending Section 5 of
Article VI, which deals with fixing the record date for certain matters, to
delete therefrom any references to actions by stockholders pursuant to written
consent.
Required Vote
The affirmative vote of holders of a majority of the Shares outstanding
and entitled to vote at the Meeting is required to approve Proposal 7.
The Board of Directors Recommends
That You Vote "FOR"
The Approval of Proposal 7
----------------------------------------------------------------------------
PROPOSAL 8
AMENDING THE COMPANY'S
CERTIFICATE OF INCORPORATION TO REQUIRE
AN 80% SUPERMAJORITY STOCKHOLDER VOTE
FOR CERTAIN TRANSACTIONS
----------------------------------------------------------------------------
Supermajority Stockholder Vote for Certain Transactions
The Board of Directors has approved, subject to stockholder approval,
an amendment to the Certificate of Incorporation and a corresponding amendment
to the Bylaws which provides that a Business Combination (as defined in the
amendment) transaction between the Company or a subsidiary of the Company and an
"Interested Stockholder" (as defined in the amendment) would be subject to
either (i) the approval of a majority of the Continuing Directors (as defined in
the amendment), or (ii) the approval by the affirmative vote of both (a) at
least 80% of the voting power of the then Voting Stock, including shares held by
an Interested Stockholder, and (b) two-thirds of
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<PAGE>
the votes entitled to be cast by holders of the Voting Stock, excluding Voting
Stock beneficially owned by the Interested Stockholder.
Analysis of Proposal 8
Generally, Delaware GCL Section 203 prohibits a publicly-held Delaware
corporation from engaging in a broad range of business combinations with an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for three years following the time such
person became an interested stockholder unless: (i) before the person becomes an
interested stockholder, the transaction resulting in such person becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the corporation
(excluding shares owned by directors who are also officers of the corporation or
shares held by employee stock plans that do not provide employees with the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer); or (iii) at or subsequent to such
time the business combination is approved by the Board, and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock
excluding shares owned by the interested stockholder.
Although Section 203 of the Delaware GCL applies to the Company as a
Delaware corporation, neither the Certificate of Incorporation nor the Bylaws
contain any provision specifically requiring a supermajority vote in the event
of certain business combinations. Proposal 8, if adopted, would supplement,
rather than replace, Section 203 as applicable to the Company, and would apply
in any case where a transaction which qualifies as a "Business Combination" is
proposed between the Company and a holder of 15% or more of the Voting Stock who
qualifies as an "Interested Stockholder". Proposal 8 would increase the vote
required for approval of such business combinations by stockholders from 66 2/3%
to (a) at least 80% of the voting power of the then Voting Stock, including
shares held by an Interested Stockholder, and (b) 66 2/3% of the votes entitled
to be cast by holders of the Voting Stock, excluding Voting Stock beneficially
owned by the Interested Stockholder.
Proposal 8 is designed to permit the Board to evaluate proposed
Business Combinations free from substantial pressure on the Board that a
potentially hostile acquiror can exert. Furthermore, by providing the Board with
the means of imposing an 80% supermajority vote of the shareholders, the
amendment encourages corporations that seek to acquire control of the Company to
engage in good faith, non-hostile negotiations with the Board. The Company
believes that Proposal 8, if adopted, may encourage persons interested in
acquiring the Company to negotiate in advance with the Board of Directors since
the supermajority voting requirement would not be invoked if a majority of the
Continuing Directors were to approve a Business Combination. In the event of a
proposed acquisition of the Company, the management of the Company believes that
the interest of the
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<PAGE>
Company's stockholders will best be served by a transaction that results from
negotiations based upon careful consideration of the proposed terms, such as the
price to be paid to minority stockholders, the form of consideration to be paid
and the tax effects of the transaction and by the Board's being able to
negotiate with all acquirors from the strongest possible position.
The overall effect of Proposal 8 would be to render more difficult the
accomplishment of certain mergers or other acquisition of control of the Company
by a principal stockholder (other than a stockholder who, currently holds over
fifteen percent of the Company's Common Stock). At the same time, Proposal 8 may
discourage persons from making a tender offer for, or acquisitions of,
substantial amounts of the Common Stock, which could have the effect of
inhibiting changes in management and may also prevent temporary fluctuations in
the Common Stock that often result from takeover attempts. In addition, by
requiring a supermajority vote of stockholders to approve a Business
Combination, Proposal 8 may, absent approval by the Continuing Directors, enable
a minority of the stockholders to prevent consummation of a Business
Combination, notwithstanding the fact that a majority of the stockholders voted
in favor of it. Some stockholders may find the proposed supermajority vote
provisions of Proposal 8 disadvantageous to the extent that such provisions
discourage takeovers which are not approved by a majority of the Continuing
Directors but in which stockholders might receive, for at least some of their
shares, a substantial premium above the market price at the time a tender offer
or other acquisition transaction is made. Thus, stockholders who might desire to
participate in a tender offer may not be afforded the opportunity to do so. To
the extent that the proposed supermajority vote provisions discourage tender
offers or accumulations of the Company's Common Stock, stockholders may be
deprived of higher market prices for their stock which often prevail as a result
of such events.
The Company believes that Proposal 8, if adopted, may encourage persons
interested in acquiring the Company to negotiate in advance with the Board of
Directors since the supermajority voting requirement would not be invoked if a
majority of the Continuing Directors were to approve a Business Combination. For
these reasons, this Proposal may have an anti-takeover effect. The Board of
Directors, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
8, see the section entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article 15 which shall be and read as follows:
(a) In addition to the affirmative vote required by law or
this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section (b) of this Article,
the approval of a Business Combination (as hereinafter defined) shall
require the affirmative vote of both (1) at least eighty percent (80%)
of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock (as hereinafter
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<PAGE>
defined), voting together as a single class, and (2) at least 66 2/3%
of the votes entitled to be cast by holders of the Voting Stock,
excluding shares owned by an Interested Stockholder (as hereinafter
defined). Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with
any national securities exchange or otherwise.
(b) The provisions of Section (a) of this Article shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is
required by law or by any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation, or any agreement with
any national securities exchange, if the Business Combination shall
have been approved by a majority (whether such approval is made prior
to or subsequent to the acquisition of beneficial ownership of the
Voting Stock that caused the Interested Stockholder (as hereinafter
defined) to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
(c) The following definitions shall apply with respect to this
Article:
1. "Business Combination" shall mean: (a) any merger
or consolidation of the Corporation or any Subsidiary (as hereinafter
defined) with (i) any Interested Stockholder or (ii) any other company
(whether or not itself an Interested Stockholder) which is or after
merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase, agreement
to pay, extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with or
for the benefit of any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; (c) the adoption of the plan
proposal for the liquidation or dissolution of the Corporation which is
voted for or consented to by any Interested Stockholder; or (d) any
reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of
the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or otherwise involving an Interested Stockholder)
that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into equity securities of
any Subsidiary, that is beneficially owned by an Interested Stockholder
or any Affiliate or Associate of any Interested Stockholder; or (e) any
receipt by any Interested Stockholder of the benefit, directly or
indirectly (except proportionally as a stockholder of the Corporation)
of any loans, advances, guarantees, pledges, or other financial
benefits (other than those expressly permitted in clauses (a) to (d) of
this paragraph), provided by the Corporation or any director or any
direct or indirect majority-owned Subsidiary; or (f) any agreement,
contract or other arrangement providing for any one or more of the
actions specified in the foregoing clauses (a) to (e).
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<PAGE>
2. "Capital Stock" shall mean all capital stock of
the Corporation authorized to be issued from time to time under the
Certificate of Incorporation, and the term "Voting Stock" shall mean
all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally.
3. "person" shall mean any individual, firm, company,
partnership, corporation, joint venture, association, limited liability
company or other entity and shall include any group comprised of any
person and any other person or entity with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding voting or disposing of Capital Stock.
4. "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any
profit-sharing employee stock ownership or other employee benefit plan
of the Corporation or any Subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity) who (a) is
the beneficial owner of Voting Stock representing fifteen percent (15%)
or more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock; or (b) is an Affiliate or Associate
of the Corporation and at any time within the three-year period
immediately prior to the date in question was the beneficial owner of
Voting Stock representing fifteen percent (15%) or more of the votes
entitled to be cast by the holders of all the then outstanding shares
of Voting Stock; provided, however, that the term "Interested
Stockholder" shall not include any person who would have qualified as
an Interested Stockholder under either preceding clause immediately
prior to the effective date of this Amendment to the Corporation's
Certificate of Incorporation.
5. A person shall be a "beneficial owner" of any
Capital Stock (a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which such
person or any of its Affiliates or Associates has, directly or
indirectly, (i) the right to acquire (whether such right is exercisable
immediately or subject to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purposes of
determining whether a person is an Interested Stockholder hereunder,
the number of shares of Capital Stock deemed to be outstanding shall
include shares deemed beneficially owned by such person through
application of this Paragraph 5 of Section (c), but shall not include
any other shares of Capital Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
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<PAGE>
6. The terms "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in the Securities
Exchange Act of 1934, as such may be amended from time to time.
7. "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the definition
of Interested Stockholder, the term "Subsidiary" shall mean only a
company of which a majority of each class of equity security is
beneficially owned by the Corporation.
8. "Continuing Director" means any member of the
Board of Directors of the Corporation, while such person is a member of
the Board of Directors, who is not an Affiliate, Associate or
representative of the Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor of a Continuing
Director while such successor is a member of the Board of Directors,
provided that such successor is not an Affiliate, Associate or
representative of the Interested Stockholder and is recommended or
elected to succeed the Continuing Director by a majority of Continuing
Directors.
(d) A majority of the Continuing Directors shall have the
power and duty to determine for the purposes of this Article, on the
basis of information known to them after reasonable inquiry, (i)
whether a person is an Interested Stockholder, (ii) the number of
shares of Capital Stock or other securities beneficially owned by any
person, and (iii) whether a person is an Affiliate or Associate of
another. Any such determination made in good faith shall be binding and
conclusive on all parties.
(e) Nothing contained in this Article shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) The fact that any Business Combination complies with the
provisions of Section (b) of this Article shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof to approve such Business Combination
or recommend its adoption or approval to the stockholders or the
Corporation, nor shall such compliance limit, prohibit or otherwise
restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of or actions and responses taken with
respect to such Business Combination. Notwithstanding any other
provisions of this Certificate of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law, this Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote
of the holders of not less than eighty percent (80%) of the votes to be
cast by the holders of all the then outstanding shares of Voting Stock,
voting together as a single class, shall be required to amend or
repeal, or adopt any provisions inconsistent with this Article.
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<PAGE>
RESOLVED, that Article II of the Bylaws be amended by adding a new
Section 13 containing a provision substantially the same as the provision set
forth in the preceding resolution and other provisions, if any, as may be
necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 8.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 8
------------------------------------------------------------------
PROPOSAL 9
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
REQUIRE SUPERMAJORITY VOTE TO
AMEND OR REPEAL THE PROPOSED
AMENDMENTS WHICH ARE ADOPTED
------------------------------------------------------------------
Requirement for Supermajority Vote to Amend any Adopted Proposals
Delaware GCL provides that the Certificate of Incorporation may be
amended by the vote of a majority of the shares of common stock outstanding and
entitled to vote, unless the relevant provision of the Certificate of
Incorporation requires the vote of a greater number or proportion than a
majority, in which case such provision may not be amended, altered or repealed
except by such greater vote. Delaware GCL further confers sole authority to
adopt, amend or repeal bylaws in the stockholders unless the certificate of
incorporation also confers such a power upon the board of directors. Article
SEVEN of the Certificate of Incorporation expressly confers such powers upon the
Board of Directors, provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors. The Board of Directors has
adopted, subject to stockholder approval, amendments to the Certificate of
Incorporation and Bylaws to require the affirmative vote of holders of 66 2/3%
of the Voting Stock to amend or repeal, or to adopt any provisions inconsistent
with, any of the provisions added to the Certificate of Incorporation and Bylaws
by Proposals 1 and 3 through 8 above and this Proposal 9. At the Meeting,
stockholders will be asked to consider and vote on the proposed amendment.
Analysis of Proposal 9
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<PAGE>
Proposal 9, by limiting the manner in which the Anti-Takeover
Amendments may be amended or repealed, is intended not only to promote
continuity of operations and thereby enhance the Company's ability to attain its
long term goals, but also to allow the Board of Directors to more effectively
manage the affairs of and internal operating procedures of the Company. These
proposals are intended to have the effect of making it more difficult for
stockholders, following the Meeting, to eliminate the constituent elements
contained within Proposals 1 and 3 through 8 above and this Proposal 9.
Proposal 9 will have the effect of making it more difficult for
stockholders to change the AntiTakeover Amendments which have been adopted. This
may further discourage potentially unfriendly bids for shares of the Company.
For these reasons, Proposal 9 may have an anti-takeover effect. The Board of
Directors, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
9, see the section entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding
a new Article 16 which shall be and read as follows:
Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Section 5 of Article II
("Special Meetings"), Section 12 of Article II ("Advance Notice of
Nominations and Proposals"), Section 14 of Article III ("Removal of
Directors"), Section 1 of Article III ("Number of Directors and Term of
Office"), Section 2 of Article III ("Vacancies; Directors"), and
Section 11 of Article II ("Consent of Stockholders") of the
Corporation's Bylaws and Articles 11 through 14 of this Certificate of
Incorporation shall not be amended or repealed, and no provision
inconsistent with any thereof shall be adopted, without the affirmative
vote of the holders of at least 66 2/3% of the voting power of the
Voting Stock, voting together as a single class. Section 13 of Article
II ("Supermajority Shareholder Vote for Certain Transactions") and
Section 1(b) of Article VIII ("AntiTakeover Amendments") of the
Corporation's Bylaws and Article 15 of this Certificate of
Incorporation shall not be amended or repealed, and no provision
inconsistent with any thereof shall be adopted, without the affirmative
vote of the holders of at least 80% of the voting power of the Voting
Stock, voting together as a single class.
"RESOLVED, that the Certificate of Incorporation be amended by adding a
sub-section (b) to the new Article 16, which would read as follows:
(b) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the Voting
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<PAGE>
Stock, voting together as a single class, shall be required to amend or
repeal, or adopt any provision inconsistent with, any provision of this
Article 16.
RESOLVED, that the existing text under Article VIII of the Bylaws be
designated as Section 1(a) thereunder and that such Article VIII be amended by
adding a new Section 1(b) containing a provision substantially the same as the
provision set forth in the preceding resolution and other provisions, if any, as
may be necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 9.
The Board of Directors Recommends
That You Vote "FOR"
The Approval of Proposal 9
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PROPOSAL 10
APPOINTMENT OF INDEPENDENT
AUDITORS
-----------------------------------------------------------------
The accounting firm of PricewaterhouseCoopers LLP served as the
Company's independent auditors for 1998. One or more representatives of that
firm will attend the Annual Meeting and will be given the opportunity to
comment, if they desire, and to respond to appropriate questions that may be
asked by stockholders. No auditor has yet been selected for the current year,
since it is StarBase's practice not to select independent auditors prior to the
Annual Meeting.
Approval by the stockholders of the appointment of independent auditors
is not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the Common Stock present and entitled to vote at
the meeting should not approve the selection of PricewaterhouseCoopers LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors.
The Board of Directors Recommends
That You Vote "FOR" the Ratification of the Appointment
of PricewaterhouseCoopers LLP as
Independent Auditors of the Company
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<PAGE>
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholder proposals for the 1999 Annual Meeting of Stockholders must
be received in writing by the Secretary of the Company at the Company's
executive offices by March 31, 1999 in order to be considered for inclusion in
the proxy materials.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters
other than those specifically described above and knows of no matters other than
the foregoing to come before the Meeting. If any other matters or motions
properly come before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote such Proxy in accordance with their judgment on
such matters or motions, including any matters dealing with the conduct of the
Meeting.
By order of the Board of Directors,
/s/ William R. Stow III
--------------------------
William R. Stow III
Chairman of the Board
and Chief Executive Officer
Santa Ana, California
December 18, 1998
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