<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement [ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section
240.14a-12
[ ] Definitive Additional Materials
TELCOM SEMICONDUCTOR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
<PAGE> 2
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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<PAGE> 3
[TELCOM LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of TelCom
Semiconductor, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, April 13, 2000, at 2:00 p.m., local time, at the Company's offices
located at 1300 Terra Bella Avenue, Mountain View, California, for the following
purposes:
1. To elect five (5) directors to serve for the ensuing year and
until their successors are duly elected and qualified.
2. To amend the Company's 1994 Stock Option Plan to increase the
number of shares available for issuance thereunder by 1,000,000
shares to an aggregate of 6,300,000 shares.
3. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the 2000 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on February 23,
2000 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign and return the enclosed proxy as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a proxy.
FOR THE BOARD OF DIRECTORS
Robert G. Gargus
Secretary
Mountain View, California
March 13, 2000
- --------------------------------------------------------------------------------
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE REQUESTED TO COMPLETE AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
<PAGE> 4
TELCOM SEMICONDUCTOR, INC.
1300 TERRA BELLA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94039
PROXY STATEMENT FOR 2000
ANNUAL MEETING OF STOCKHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
TelCom Semiconductor, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on Thursday, April 13, 2000 at 2:00 p.m., local time, or
at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company's offices located at 1300 Terra Bella Avenue, Mountain
View, California.
The proxy solicitation materials were mailed on or about March 13, 2000
to all stockholders of record on February 23, 2000.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it any time before its use by delivering to the Secretary of the
Company at the above address of the Company, written notice of revocation or a
duly executed proxy bearing a later date, or by attending the meeting and voting
in person.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on February 23, 2000
(the "Record Date") are entitled to notice of the meeting and to vote at the
meeting. At the record date, 14,580,991 shares of the Company's Common Stock,
$0.001 par value per share, were issued and outstanding and entitled to vote at
the meeting.
VOTING AND SOLICITATION
Proxies properly executed, duly returned to the Company and not revoked,
will be voted in accordance with the specifications made. Where no
specifications are given, such proxies will be voted as the management of the
Company may propose. If any matter not described in this Proxy Statement is
properly presented for action at the meeting, the persons named in the enclosed
form of proxy will have discretionary authority to vote according to their best
judgment.
Each stockholder is entitled to one (1) vote for each share of Common
Stock on all matters presented at the meeting. The required quorum for the
transaction of business at the Annual Meeting is a majority of the votes
eligible to be cast by holders of shares of Common Stock issued and outstanding
on the Record Date. Shares that are voted "FOR," "AGAINST," "WITHHELD" or
"ABSTAIN" are treated as being present at the meeting for purposes of
establishing a quorum and are also treated as shares entitled to vote at the
Annual Meeting (the "Votes Cast") with respect to such matter. Abstentions will
have the same effect as a vote against a proposal. Broker non-votes will be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, but such non-votes will not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal on
which a broker has expressly not voted. Thus, a broker non-vote will not effect
the outcome of the voting on a proposal.
<PAGE> 5
The cost of soliciting proxies will be borne by the Company. The Company
may also reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers, and employees, without additional compensation, personally
or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proper proposals for inclusion in
the Company's proxy statement and for consideration at the next annual meeting
of its stockholders by submitting their proposals in writing to the Secretary of
the Company in a timely manner. In order to be included in the Company's proxy
materials for the annual meeting of stockholders to be held in the year 2001,
stockholder proposals must be received by the Secretary of the Company no later
than November 13, 2000, and must otherwise comply with the requirements of Rule
14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition, the Company's Bylaws establish an advance notice procedure
with regard to stockholder nominations for the election of directors. For
nominations to be properly brought before the meeting by a stockholder, such
stockholder must provide written notice delivered to the Secretary of the
Company at least 90 days in advance of the annual meeting, which notice must
contain specified information concerning the nominee. A copy of the full text of
the Bylaw provision discussed above may be obtained by writing to the Secretary
of the Company. All notices of proposals by stockholders, whether or not
included in the Company's proxy materials, should be sent to TelCom
Semiconductor, Inc., 1300 Terra Bella Avenue, Mountain View, California 94039,
Attention: Corporate Secretary.
The attached proxy card grants the proxy holders discretionary authority
to vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the Company's 2001 Annual Meeting, which is not eligible
for inclusion in the proxy statement and form of proxy relating to that meeting,
the stockholder must do so no later than January 27, 2001. If such a stockholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 2001 Annual Meeting.
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<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of five (5) directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five (5) nominees named below, all of
whom are presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for the nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each person
elected as a director will continue until the next Annual Meeting or until a
successor has been elected and qualified.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The five (5) candidates receiving the highest number of "FOR" votes
shall be elected to the Company's Board of Directors. An abstention will have
the same effect as a vote withheld for the election of directors.
The Board of Directors Recommends that the Stockholders Vote "For" the
Nominees Listed Below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Phillip M. Drayer.................... 54 Chief Executive Officer and Director of the Company
Robert G. Gargus..................... 48 President and Chief Financial Officer of the
Company
T. Peter Thomas...................... 53 General Partner, Institutional Venture Partners
Donald E. Fowler..................... 62 Consultant
Frank Gill........................... 56 Director of the Company
</TABLE>
Except as set forth below, each nominee has been engaged in his
principal occupation described above during the past five (5) years. There is no
family relationship among any directors or executive officers of the Company.
Phillip M. Drayer has been Chief Executive Officer and a director of the
Company since the Company commenced operations in December 1993. Mr. Drayer also
served as President of the Company from December 1993 to December 1999. From
1990 through 1993, Mr. Drayer was President and Chief Executive Officer of the
Teledyne Components division of Teledyne, Inc. From 1980 to 1990, he was
President and Chief Executive Officer of EPI Technologies, a semiconductor
testing company, and from 1976 and 1979, he was Manufacturing Manager at Mostek,
a semiconductor manufacturer. Mr. Drayer earned his B.S.E.E. degree from Lamar
University and his J.D. degree from South Texas College of Law. Mr. Drayer is a
member of the Texas bar.
Robert G. Gargus has been President and Chief Financial Officer of the
Company since December 1999, and has been a director since January 2000. He had
been our Vice President, Financial and Administration and Chief Financial
Officer since May 1998. From 1984 to May of 1998, he held a number of financial
and non-financial positions at Tandem Computers (now a part of Compaq Computer).
His last two positions at Tandem were as President and General Manager of their
Atalla Security Products Division and as the Corporate Controller. He also has
14 years experience in a number of financial positions at Unisys
-3-
<PAGE> 7
Corporation. Mr. Gargus earned his B.S. degree in accounting and an M.B.A. in
finance from the University of Detroit.
T. Peter Thomas has served as a director of the Company since June 1994.
Mr. Thomas is a general partner of Institutional Venture Management III, IV, V,
VI and VII, the General Partners of Institutional Venture Partners III, IV, V,
VI and VII, respectively, all of which are venture capital funds. Mr. Thomas has
been a general partner with Institutional Venture Partners since 1985. He
received his B.S.E.E. degree from Utah State University and his M.S. in Computer
Science from the University of Santa Clara. Mr. Thomas is also a director of
Atmel Corporation.
Donald E. Fowler has served as a director of the Company since January
1998. Since August 1998, he has been a consultant. From 1996 to 1998, Mr. Fowler
was President and Chief Executive Officer of Et Communications, an early stage
company which supplies home-based transaction processing systems to enable
delivery of multiple information services to homes and small businesses. From
1986 to 1996, he was a Senior Vice President and Executive Committee Member of
Tandem Computer Corporation, a computer company. Prior to 1986, Mr. Fowler held
executive positions at Bechtel Corporation and IBM. He earned his B.S. degree
and M.B.A. degree from the University of Washington. He is also a director of
and ECCS Corporation. Mr. Fowler also serves as Chairman of the President's
Cabinet at Cal Poly University in San Luis Obispo, California.
Frank Gill has served as a director of the Company since January 1998.
From 1989 to 1998, Mr. Gill was an Executive Vice President of Intel Corp., a
semiconductor company. From 1997 to 1998, he was in charge of the Small Business
and Networking Group. From 1995 to 1997, he was in charge of the Internet and
Communications Group. From 1990 to 1995, Mr. Gill was in charge of the Intel
Products Group. From 1987 to 1990, he headed Intel's North American Sales Force.
From 1986 to 1975, Mr. Gill held various managerial positions in the sales
department of Intel. He is also a director of Sequent Computer Systems and
Inktomi Inc. He earned his B.S.E.E. degree from the University of California at
Davis.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held ten (10) meetings during
fiscal 1999.
The Audit Committee, which consists of Messrs. Donald Fowler, Frank Gill
and Peter Thomas, held two (2) meetings during fiscal 1999. The Audit Committee
reviews the financial statements and the internal financial reporting system and
controls of the Company with the Company's management and independent
accountants, recommends resolutions for any dispute between the Company's
management and its auditors, and reviews other matters relating to the
relationship of the Company with its independent accountants.
The Compensation Committee, which consists of Messrs. Gill and Thomas,
held five (5) meetings during fiscal 1999. The Compensation Committee makes
recommendations to the Board of Directors regarding the Company's executive
compensation policies and administers the Company's stock option plan and
employee stock purchase plan.
The Board of Directors currently has no nominating committee or
committee performing a similar function.
Peter Thomas was absent for one (1) meeting of the Board of Directors
during fiscal 1999. Except for this absence, each director attended all of (i)
the meetings of the Board of Directors held during fiscal 1999 and (ii) the
meetings held by all committees of the Board of Directors during fiscal 1999 on
which such director served.
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<PAGE> 8
COMPENSATION OF DIRECTORS
In fiscal 1999, each non-employee director received $1,000 for each
Board meeting attended, except for the Board meeting held in January 1999, for
which each non-employee director received $500. Non-employee directors also
participate in the Company's 1996 Director Stock Option Plan (the "Director
Plan"). Under the Director Plan, each non-employee director who joins the Board
will automatically be granted a non-statutory option to purchase 12,000 shares
of Common Stock on the date upon which such person first becomes a director. In
addition, each non-employee director will automatically receive a non-statutory
option to purchase 3,000 shares of Common Stock upon such director's annual
re-election to the Board, provided the director has been a member of the Board
for at least six (6) months upon the date of re-election. The exercise price of
each option granted under the Director Plan must be equal to the fair market
value of the Common Stock on the date of grant. The 12,000 share grant vests at
the rate of twenty five percent (25%) of the option shares upon the first
anniversary of the date of grant and as to twenty-five percent (25%) of the
shares each year thereafter and the 3,000 share grant vests monthly over a
twelve (12) month period. Options granted under the Director Plan have a term of
ten (10) years unless terminated sooner, whether upon termination of the
optionee's status as a director or otherwise pursuant to the Director Plan. In
fiscal 1999, Messrs. Thomas, Gill and Fowler were each granted an option to
purchase 3,000 shares of Common Stock under the Director Plan at an exercise
price of $4.5625 per share, each of which options is fully vested and
exercisable.
-5-
<PAGE> 9
PROPOSAL TWO
APPROVAL OF AMENDMENT TO 1994 STOCK OPTION PLAN
The Company's Board of Directors and stockholders have previously
adopted and approved the Company's 1994 Stock Option Plan (the "Option Plan"). A
total of 5,300,000 shares of Common Stock are presently reserved for issuance
under the Option Plan. In February 2000, the Board of Directors approved an
amendment to the Option Plan, subject to stockholder approval, to increase the
shares reserved for issuance thereunder by 1,000,000 shares, bringing the total
number of shares issuable under the Option Plan to 6,300,000.
As of February 23, 2000, there were 626,194 shares available for future
issuance under the Option Plan.
At the Annual Meeting, the stockholders are being requested to consider
and approve the proposed amendment to the Option Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 1,000,000 shares,
bringing the total number of shares issuable under the Option Plan to 6,300,000.
The Board believes that the amendment will enable the Company to continue its
policy of widespread employee stock ownership as a means to motivate, attract
and retain key employees.
For a description of the principal features of the Option Plan, see
"Appendix A--Description of 1994 Stock Option Plan."
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the Option Plan requires the
affirmative vote of a majority of the Votes Cast on the proposal at the Annual
Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER.
-6-
<PAGE> 10
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLC,
independent accountants, to audit the financial statements of the Company for
the 2000 fiscal year. This nomination is being presented to the stockholders for
ratification at the meeting. PricewaterhouseCoopers LLC has audited the
Company's financial statements since the Company's inception. A representative
of PricewaterhouseCoopers LLC is expected to be present at the meeting, will
have the opportunity to make a statement, and is expected to be available to
respond to appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at
the Annual Meeting is required to ratify the Board's selection. If the
stockholders reject the nomination, the Board will reconsider its selection.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE 2000 FISCAL YEAR.
-7-
<PAGE> 11
ADDITIONAL INFORMATION
PRINCIPAL SHARE OWNERSHIP
As of February 23, 2000, the following person was known by the Company
to be the beneficial owner of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME NUMBER PERCENT
- ----------------------------------------------------- ------ -------
<S> <C> <C>
Phillip M. Drayer (1)................................ 986,861 6.7%
TelCom Semiconductor, Inc.
1300 Terra Bella Avenue
Mountain View, CA 94035
</TABLE>
- ------------
(1) Includes 73,950 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 23, 2000 (i) by each director of the Company, (ii)
by the Company's Chief Executive Officer and the four (4) other most highly
compensated executive officers of the Company for fiscal 1999 (such officers are
collectively referred to as the "Named Executive Officers"), and (iii) by all
current directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL
- ----------------------------------------------------- --------- ----------
<S> <C> <C>
Phillip M. Drayer (1)................................ 986,861 6.7%
Robert G. Gargus (2)................................. 76,181 *
Edward Browder (3)................................... 57,967 *
Thomas J. Grune (4).................................. 7,243 *
Edward D. Mitchell (5)............................... 153,298 1.0%
T. Peter Thomas (6).................................. 145,973 1.0%
Donald E. Fowler (7)................................. 61,000 *
Frank Gill (8)....................................... 19,000 *
All executive officers and directors as a group 1,507,523 10.1%
(8 persons)(9).....................................
</TABLE>
- -------------------
* Less than 1%
(1) Includes 73,950 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(2) Includes 69,993 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(3) Includes 52,285 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(4) Includes 5,801 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(5) Includes 133,298 shares issuable upon the exercise of options to
purchase Common Stock which are exercisable within 60 days of February
23, 2000.
-8-
<PAGE> 12
(6) Includes 9,000 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
Also includes 27,420 shares held by funds affiliated with Institutional
Venture Partners and 2,100 shares held by Mr. Thomas' wife. Mr. Thomas
disclaims beneficial ownership of all shares held by such funds, except
as to the pecuniary interest therein arising from his interest in such
funds. See "Principal Share Ownership."
(7) Includes 9,000 shares issuable upon exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(8) Includes 9,000 shares issuable upon exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
(9) Includes 362,327 shares issuable upon exercise of options to purchase
Common Stock which are exercisable within 60 days of February 23, 2000.
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<PAGE> 13
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation paid
to the Named Executive Officers during the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
FISCAL --------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- -------------------------------------------- ------ -------- ---------------- ------------
<S> <C> <C> <C> <C>
Phillip M. Drayer .......................... 1999 $238,477 $115,445 37,500
Chief Executive Officer 1998 224,629 45,000 175,000
1997 210,970 -- --
Robert G. Gargus(2)......................... 1999 163,853 76,192 25,000
President and Chief Financial Officer 1998 96,929 30,000 160,000
Edward Browder (3).......................... 1999 168,864 78,507 25,000
Vice President, Manufacturing 1998 107,309 40,000 165,000
Operations and Chief Operating Officer
Thomas J. Grune (4)......................... 1999 150,030 69,271 94,000
Vice President, Sales 1998 107,436 18,137 45,000
1997 65,466 3,587 21,000
Edward D. Mitchell.......................... 1999 168,864 78,507 25,000
Vice President, Engineering and Chief. 1998 154,234 30,000 65,000
Technical Officer 1997 139,629 -- 67,500
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits which for each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for such officer during any fiscal year.
(2) Mr. Gargus joined the Company in May 1998.
(3) Mr. Browder joined the Company in April 1998.
(4) Mr. Grune joined the Company in May 1997 and became Vice President, Sales in
January 1999.
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<PAGE> 14
OPTION INFORMATION
The following tables set forth information regarding stock options
granted to the Named Executive Officers during fiscal 1999, as well as options
held by such officers as of December 31,1999, the last day of the Company's 1999
fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUES
OF ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS (1) (THROUGH EXPIRATION DATE)(2)
---------------------------------------------- ------------------------------
% OF TOTAL EXERCISE
OPTIONS OPTION PRICE EXPIRATION 5% PER 10% PER
GRANTED GRANTS ($/SH) DATE YEAR YEAR
------- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Phillip M. Drayer..... 37,500 3.6% $ 12.438 7/21/09 293,320 743,331
Robert G. Gargus...... 25,000 2.4% 12.438 7/21/09 195,547 495,554
Edward Browder........ 25,000 2.4% 12.438 7/21/09 195,547 495,554
Thomas J. Grune....... 44,000 1.3% 5.188 1/27/09 143,545 363,772
25,000 2.4% 5.50 5/18/09 86,473 219,139
25,000 2.4% 12.438 7/21/09 195,547 495,554
Edward D. Mitchell.... 25,000 2.4% 12.438 7/21/09 195,547 495,547
</TABLE>
- -----------------
(1) Each of these options was granted pursuant to the Option Plan and is subject
to the terms of such plan. These options were granted at an exercise price
equal to the fair market value of the Company's Common Stock as determined
by the Board of Directors of the Company on the date of grant and, as long
as the optionee maintains continuous employment with the Company, vest over
a four year period at a rate of one-fourth of the shares on the first
anniversary of the date of grant and 1/36th of the remaining shares per
month thereafter.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if they were exercised at the end of the
option term. The assumed 5% and 10% rates of stock appreciation are based on
appreciation from the exercise price per share. These rates are provided in
accordance with the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common
Stock price. Actual gains, if any, on stock option exercises are dependent
on the future financial performance of the Company, overall stock market
conditions and the option holders' continued employment through the vesting
period.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE REALIZED UNVESTED VESTED UNVESTED VESTED
- ----------------------- -------- -------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Phillip M. Drayer..... -- -- 153,126 59,374 $2,323,650 $1,020,882
Robert G. Gargus....... -- -- 128,335 56,665 1,977,425 961,638
Edward Browder......... -- -- 131,459 58,541 2,029,556 992,944
Thomas J. Grune........ 15,000 $177,187 123,565 11,435 1,797,976 195,068
Edward D. Mitchell.... -- -- 98,429 124,071 1,476,500 2,129,593
</TABLE>
- -------------
(1) Represents the difference between the exercise price of the options and the
closing price of the Company's Common Stock on December 31, 1999 of $21 per
share.
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<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee (the "Committee") currently consists of
Messrs. Gill and Thomas, neither of whom is an officer or employee of the
Company. No member of the Compensation Committee or executive officer of the
Company has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Committee currently consists of Messrs. Gill and Thomas, neither of
whom is an officer or employee of the Company. The Committee sets, reviews and
administers the Company's executive compensation program. The role of the
Committee is to establish and recommend salaries and other compensation paid to
executive officers of the Company and to administer the Company's stock option
plan and employee stock purchase plan. The Company's Board of Directors reviews
and approves all stock option grants to employees and all executive officer base
salaries and any cash bonus payments to the executive officers.
The Company's executive pay programs are designed to attract and retain
executives who will contribute to the Company's long-term success, to mesh
executive and stockholder interests through stock option based plans and to
provide a compensation package that recognizes individual contributions and
Company performance.
At this time in the Company's growth, the Committee has determined that
the most effective means of compensation are base salaries, cash bonuses, profit
sharing and long-term incentives through the Company's stock option program.
BASE SALARY. The base salaries of executive officers are initially
determined by evaluating the responsibilities of the position held and the
experience and performance of the individual, with reference to the competitive
marketplace for executive talent, including a comparison to base salaries for
comparable positions in high growth, technology-based companies of reasonably
similar size. The Committee reviews executive salaries annually and adjusts them
as appropriate to reflect changes in the market conditions and individual
performance and responsibility. During fiscal 1999, salaries for executive
officers were increased by 4% to 53%. For fiscal 1999, the Chief Executive
Officer's annual salary was increased by 25% to $238,477.
STOCK OPTIONS. Under the Company's Option Plan, stock options may be
granted to executive officers and other employees of the Company. Upon joining
the Company, an individual's initial option grant is based on the individual's
responsibilities and position. The size of any annual stock option awards is
based primarily on an individual's performance and responsibilities. The
Committee believes stock option grants are an effective method of ensuring that
the executive is taking a longer term view of the Company's performance and that
the executive's and the stockholder's interests are in alignment.
CASH BONUSES. In fiscal 1999, the Board approved bonuses for the
Company's executive officers. These bonuses ranged from $34,320 to $115,445 and
were based on achievement of Company and individual performance goals. The Chief
Executive Officer received a bonus of $115,445.
Other elements of executive compensation include Company-wide medical
and life insurance benefits and the ability to defer compensation pursuant to a
401(k) plan. The Company matches annual contributions under the 401(k) plan up
to a maximum of $2,000 for fiscal 1999.
-12-
<PAGE> 16
The Company's Chief Executive Officer does not receive any other special
or additional compensation other than as described above.
The Committee has considered the potential impact of Section 162(m) of
the Code, and the regulations thereunder (the "Section"). The Section disallows
a tax deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for any of the Named Executive
Officers, unless such compensation is performance-based. Since the cash
compensation of each of the Named Executive Officers is below the $1 million
threshold and the Committee believes that any options granted under the Option
Plan will meet the requirements of being performance-based, the Committee
believes that the Section will not reduce the tax deduction available to the
Company. The Company's policy is to qualify, to the extent reasonable, its
executive officers' compensation for deductibility under applicable tax laws.
However, the Committee believes that its primary responsibility is to provide a
compensation program that will attract, retain and reward the executive talent
necessary to the Company's success. Consequently, the Committee recognizes that
the loss of a tax deduction could be necessary in some circumstances.
Compensation Committee of the Board of Directors
Frank Gill
T. Peter Thomas
-13-
<PAGE> 17
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph sets forth the Company's total cumulative
stockholder return compared to the Standard & Poor's 500 Index, the Standard &
Poor's Semiconductor Index and the Philadelphia Stock Exchange Semiconductor
Index for the period July 28, 1995 (the date of the Company's initial public
offering) through December 31, 1999. Beginning in fiscal 2000, the Company plans
to begin using the Philadelphia Stock Exchange Semiconductor Index instead of
the Standard & Poor's Semiconductor Index because it believes data for the
Philadelphia Stock Exchange Semiconductor Index is more readily available and
more representative of the companies in the Company's industry. Total
stockholder return assumes $100 invested at the beginning of the period in the
Common Stock of the Company, the stocks represented in the Standard & Poor's 500
Index, the stocks represented in the Standard & Poor's Semiconductor Index and
the Philadelphia Stock Exchange Semiconductor Index, respectively. Total return
also assumes reinvestment of dividends; the Company has paid no dividends on its
Common Stock.
Historical stock price performance should not be relied upon as
indicative of future stock price performance.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P PHILADELPHIA STOCK
TELCOM S&P SEMICONDUCTOR EXCHANGE
SEMICONDUCTOR 500 INDEX INDEX SEMICONDUCTOR INDEX
------------- --------- ----- -------------------
<S> <C> <C> <C> <C>
07/28/95 $100 $100 $100 $100
09/31/95 82 104 97 100
12/31/95 52 109 75 70
03/31/96 37 115 71 62
06/30/96 37 119 82 62
09/30/96 34 122 103 67
12/31/96 29 132 136 85
03/31/97 35 134 150 96
06/30/97 54 157 153 108
09/30/97 96 168 198 136
12/31/97 56 172 145 92
03/31/98 65 196 164 103
06/30/98 37 201 155 88
09/30/98 18 181 171 78
12/31/98 26 218 243 122
3/31/99 34 231 248 130
6/30/99 70 240 268 167
9/30/99 88 225 337 182
12/31/99 116 260 381 245
</TABLE>
-14-
<PAGE> 18
CERTAIN TRANSACTIONS
Effective October 21, 1998, the Company entered into an Executive
Retention Agreement with Phillip Drayer, the Company's Chief Executive Officer
and President. The agreement provides that in the event the executive's
employment with the Company is terminated as a result of an Involuntary
Termination (as defined in the agreement), the executive shall receive a payment
equal to the greater of 12 months base salary or $250,000. In such event, the
executive is also entitled to continuation of his employee benefits coverage for
up to 12 months. In addition, in the event of a Change of Control of the Company
(as defined in the agreement), the executive shall vest and be able to exercise
any stock options granted by the Company to Executive on or prior to October 21,
1998 for all shares subject to the options, including shares which would not
otherwise be vested or exercisable.
Effective October 21, 1998, the Company entered into an Executive
Retention Agreement with Robert Gargus, the Company's Chief Financial Officer.
The agreement provides that in the event the executive's employment by the
Company is terminated as a result of an Involuntary Termination (as defined in
the agreement) occurring within 12 months following a Change of Control of the
Company (as defined in the agreement) the executive shall receive a payment
equal to 12 months base salary. In such event, the executive is also entitled to
continuation of his employee benefits coverage for up to 12 months. In addition,
in the event of a Change of Control of the Company (as defined in the
agreement), the executive shall vest and be able to exercise any stock options
granted by the Company to Executive on or prior to October 21, 1998 for all
shares subject to the options, including shares which would not otherwise be
vested or exercisable.
Effective October 21, 1998, the Company entered into Executive Retention
Agreements with Edward Browder, Donald Herman and Edward Mitchell, executive
officers of the Company. The agreements provide that in the event the
executive's employment by the Company is terminated as a result of an
Involuntary Termination (as defined in the agreement), occurring within 12
months following a Change of Control of the Company (as defined in the
agreement) the executive shall receive a payment equal to 12 months base salary.
In such event, the executive is also entitled to continuation of his employee
benefits coverage for up to 12 months. In addition, in the event of a Change of
Control of the Company (as defined in the agreement), the executive shall vest
and be able to exercise any stock options granted by the Company to Executive
prior to October 21, 1998 for all shares subject to the options, including
shares which would not otherwise be vested or exercisable.
From October 1998 to May 1999, Mr. Fowler served as a consultant to the
Company with respect to marketing and strategic matters. Mr. Fowler was paid
$60,000 pursuant to such arrangement in fiscal 1999. In connection with such
services, Mr. Fowler was granted a nonstatutory option to purchase 50,000 shares
of the Company's Common Stock at an exercise price of $2.94 per share. The
option is fully vested.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of filings under Section 16(a) of
the Securities Exchange Act of 1934, as amended, received by it, or written
representations from certain reporting persons, the Company believes that during
fiscal 1999 all Section 16 filing requirements were met.
-15-
<PAGE> 19
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board of Directors of the Company may recommend.
THE BOARD OF DIRECTORS
Mountain View, California
March 13, 2000
-16-
<PAGE> 20
APPENDIX A
DESCRIPTION OF THE 1994 STOCK OPTION PLAN
GENERAL. The Company's 1994 Stock Option Plan (the "Option Plan") was adopted by
the Board of Directors and approved by the stockholders in February 1994. The
Option Plan authorizes the Board, or one or more committees which the Board may
appoint from among its members (the "Committee"), to grant stock options. Prior
to the proposed amendment to the Option Plan to be voted on at the Annual
Meeting, a total of 5,300,000 shares of Common Stock has been reserved for
issuance under the Option Plan. Options granted under the Option Plan may be
either "incentive stock options" as defined in Section 422 of the Code, or
nonstatutory stock options, as determined by the Board or the Committee.
PURPOSE. The general purpose of the Option Plan is to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants and to promote the success of
the Company's business.
ADMINISTRATION. The Option Plan may be administered by the Board or the
Committee. Subject to the other provisions of the Option Plan, the Board has the
authority to: (i) determine the fair market value of the stock; (ii) approve
forms of agreement for use under the Plan; (iii) select the persons to whom
options are to be granted; (iv) determine the number of shares to be made
subject to each option; (v) determine whether and to what extent options are to
be granted; (vi) prescribe the terms and conditions of each option (including
the exercise price, whether an option will be classified as an incentive stock
option or a nonstatutory option and the provisions of the stock option or stock
purchase agreement to be entered into between the Company and the grantee); and
(vii) reduce the exercise price of an option to the then current fair market
value. All decisions, interpretations and other actions of the Committee shall
be final and binding on all holders of options and on all persons deriving their
rights therefrom.
ELIGIBILITY. The Option Plan provides that options may be granted to the
Company's Employees and Consultants (as such terms are defined in the Option
Plan). Incentive stock options may be granted only to Employees. Any optionee
who owns more than 10% of the combined voting power of all classes of
outstanding stock of the Company (a "10% Stockholder") is not eligible for the
grant of an option unless the exercise price of the option is at least 110% of
the fair market value of the Common Stock on the date of grant.
TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Option Plan is
evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) EXERCISE PRICE. The Board or Committee determines the exercise price
of options to purchase shares of Common Stock at the time the options are
granted. However, excluding options issued to 10% Stockholders, the exercise
price under an incentive stock option must not be less than 100% of the fair
market value of the Common Stock on the date the option is granted and the
exercise price of a nonstatutory stock option must not be less than 85% of the
fair market value of the Common Stock on the date the option is granted.
Generally, the fair market value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on The Nasdaq National
Market on the last market trading day prior to the date of determination.
(b) FORM OF CONSIDERATION. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally may be
made by cash, check, promissory note, other shares
A-1
<PAGE> 21
of Common Stock of the Company owned by the optionee, delivery of an exercise
notice together with irrevocable instructions to a broker to deliver the
exercise price to the Company from the sale or loan proceeds, reduction in the
amount of any Company liability to the optionee, authorization for the Company
to retain the number of shares having a fair market value on the date of
exercise equal to the exercise price, or by a combination thereof.
(c) EXERCISE OF THE OPTION. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable.
However, in no event shall an option granted under the Option Plan be exercised
more than ten (10) years after the date of grant. Moreover, in the case of an
incentive stock option granted to a 10% Stockholder, the term of the option
shall be for no more than five (5) years from the date of grant.
(d) TERMINATION OF EMPLOYMENT. If an optionee's employment terminates
for any reason (other than death or permanent disability), the optionee may
exercise his or her option, but only within such period of time as is determined
by the Board or Committee at the time of grant (such period not to exceed ninety
(90) days in the case of an Incentive Stock Option) from the date of such
termination, and only to the extent that the optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such option as set forth in the option agreement). To the extent
that the optionee was not entitled to exercise an option at the date of such
termination, and to the extent that the optionee does not exercise such option
(to the extent otherwise so entitled) within the time permitted, the option
shall terminate.
(e) PERMANENT DISABILITY. If an employee is unable to continue
employment with the Company as a result of disability, then all options held by
such optionee under the Option Plan shall expire upon the earlier of (i) six (6)
months after the date of termination of the optionee's employment or (ii) the
expiration date of the option. However, if such disability is not a disability
as defined in Section 22(e)(3) of the Code, then any incentive stock options
shall convert into nonstatutory stock options after three (3) months. The
optionee may exercise all or part of his or her option at any time before such
expiration to the extent that such option was exercisable at the time of
termination of employment.
(f) DEATH. If an optionee dies while employed by the Company, his or her
option shall expire upon the earlier of (i) twelve (12) months after the
optionee's death or (ii) the expiration date of the option. The executor or
other legal representative of the optionee may exercise all or part of the
optionee's option at any time before such expiration to the extent that such
option was exercisable at the time of death.
(g) TERMINATION OF OPTIONS. Each stock option agreement will specify the
term of the option and the date when all or any installment of the option is to
become exercisable. Notwithstanding the foregoing, however, the term of any
incentive stock option shall not exceed ten (10) years from the date of grant.
No options may be exercised by any person after the expiration of its term.
(h) NONTRANSFERABILITY OF OPTIONS. During an optionee's lifetime, his or
her option(s) shall be exercisable only by the optionee and shall not be
transferable other than by will or laws of descent and distribution.
(i) VALUE LIMITATION. If the aggregate fair market value of all shares
of Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess options shall be treated as nonstatutory options.
A-2
<PAGE> 22
(j) RULE 162(m) LIMITATION. The Option Plan provides that no employee
shall be granted, in any fiscal year of the Company, options to purchase more
than 250,000 shares of Common Stock.
STOCK WITHHOLDING. The administrator may allow optionees to satisfy their
withholding obligations by electing to have a certain number of shares of stock
withheld by the Company which would otherwise be received pursuant to the
exercise of the option.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION, CHANGE IN CONTROL. In the event that
the stock of the Company is changed by reason of any stock split, reverse stock
split, stock dividend, recapitalization or other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company, appropriate proportional adjustments shall be made
in the number and class of shares of stock subject to the Option Plan, the
number of shares of stock subject to any option or right outstanding under the
Option Plan, and the exercise price of any such outstanding option or right. Any
such adjustment will be made by the Board, whose determination shall be
conclusive. In connection with any merger, consolidation, acquisition of assets
or like event involving the Company, each outstanding option and right may be
assumed or an equivalent option or right substituted by a successor corporation.
If the successor corporation does not assume the options or substitute
substantially equivalent options, the option will terminate.
AMENDMENTS, SUSPENSIONS AND TERMINATION OF THE OPTION PLAN. The Board may amend,
suspend or terminate the Option Plan at any time; provided, however, that
stockholder approval is required for any amendment to the extent necessary to
comply with Rule 16b-3 promulgated under the Exchange Act or Section 422 of the
Code, or any similar rule or statute. In any event, the Option Plan will
terminate automatically in 2004.
FEDERAL TAX INFORMATION FOR OPTION PLAN. Options granted under the Option Plan
may be either "incentive stock options," as defined in Section 422 of the Code,
or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two (2) years after grant of
the option and one (1) year after exercising the option, any gain or loss will
be treated as long term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% Stockholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income will be characterized as long-
term or short-term capital gain or loss, depending on the holding period.
All options which do not qualify as incentive stock options are referred
to as nonstatutory options. An optionee will not recognize any taxable income at
the time he or she is granted a nonstatutory option. However, upon its exercise,
the optionee will recognize taxable income generally measured as the excess of
the then fair market value of the shares purchased over the purchase price. Any
taxable income recognized in connection with an option exercise by an optionee
who is also an employee of the Company will be subject to tax withholding by the
Company. Upon resale of such shares by the optionee, any difference between the
sales price and the optionee's purchase price, to the extent not recognized as
taxable income as described
A-3
<PAGE> 23
above, will be treated as long-term or short-term capital gain or loss,
depending on the holding period. The Company will be entitled to a tax deduction
in the same amount as the ordinary income recognized by the optionee with
respect to shares acquired upon exercise of a nonstatutory option.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
THE OPTIONEE AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE OPTION PLAN, DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE
TAX CONSEQUENCES OF THE OPTIONEE'S DEATH OR THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH AN OPTIONEE MAY RESIDE.
OPTION PLAN BENEFITS. The Company is unable to predict the amount of benefits
that will be received by or allocated to any particular participant under the
Option Plan. The following table sets forth the dollar amount and the number of
shares granted under the Option Plan during the last fiscal year to (i) each of
the Company's Named Executive Officers, (ii) all executive officers as a group,
(iii) all non-employee directors as a group and (iv) all employees other than
executive officers as a group:
OPTION PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
OPTIONS VALUE OF OPTIONS
GRANTED GRANTED (1)
------- ---------------
<S> <C> <C>
Phillip M. Drayer..... 37,500 $ 466,406
Robert G. Gargus...... 25,000 310,938
Edward Browder........ 25,000 310,938
Thomas J. Grune....... 94,000 676,688
Edward D. Mitchell.... 25,000 310,938
All executive officers as a group (7
persons)................. 251,500 2,496,846
All non-employee directors as a group (3
persons).......... 9,000 41,063
All employees other than executive
officers as a group... 779,100 9,891,858
</TABLE>
- -----------------
(1) The dollar value of option grants under the Option Plan was computed by
multiplying the number of shares granted times the exercise price of the option.
All options granted under the Option Plan were granted at an exercise price
equal to the fair market value of the Common Stock on the date of grant.
A-4
<PAGE> 24
TELCOM SEMICONDUCTOR, INC.
1994 STOCK OPTION PLAN
(as approved by the Board of Directors on February 18, 2000)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under this Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Company" means TelCom Semiconductor, Inc., a Delaware
corporation (formerly named TelCom Universal, Inc.).
(f) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (ii) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
(h) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
A-5
<PAGE> 25
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of the
Stock determined as follows:
(i) If the Stock is listed on any established stock exchange
or a national market system including, without limitation, the National Market
of the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported, as quoted on such
system or exchange or the exchange with the greatest volume of trading in Stock
for the last market trading day prior to the time of determination) as reported
in the Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Stock is quoted on the NASDAQ System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Stock or;
(iii) In the absence of an established market for the Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(k) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(l) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to the Plan.
(n) "Optioned Stock" means the Stock subject to an Option.
(o) "Optionee" means an Employee or Consultant who receives an
Option.
(p) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1994 Stock Option Plan.
(r) "Share" means a share of the Stock, as adjusted in accordance
with Section 12 of the Plan.
(s) "Stock" means the Common Stock of the Company;
(t) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum number of shares of Stock which may be optioned and sold
under the Plan is 6,300,000 shares. The shares may be authorized, but unissued,
or reacquired Stock.
A-6
<PAGE> 26
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, nondirector officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of the corporate and
securities laws of California and of the Code (the "Applicable Laws"). Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the officers, Consultants and Employees to
whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
A-7
<PAGE> 27
(iv) to determine the number of shares of Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or waiver of
forfeiture restrictions regarding any Option or other award and/or the shares of
Stock relating thereto, based in each case on such factors as the Administrator
shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be bought-out for cash under subsection 9(f);
(viii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Stock covered by such
Option shall have declined since the date the Option was granted.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall
be taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
(e) The following limitations shall apply to grants of Options to
Employees:
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(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 250,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12 hereof.
(iii) If an Option is canceled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 12 hereof, the canceled Option will be counted against the
limit set forth in Section 5(e) hereof. For this purpose, if the exercise price
of an Option is reduced, the transaction will be treated as a cancellation of
the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect until February 9, 2004, unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that such term shall be no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(2) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(1) granted to a person who, at the time of the grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
(2) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
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(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other shares of the Company's capital stock
which (x) in the case of shares of the Company's capital stock acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (y) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, (5) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, (9) or such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised, and the Optionee
deemed to be a shareholder of the shares being purchased upon exercise, when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, within thirty (30) days (or
such longer period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Consulting
relationship or Continuous Status as an Employee as a result
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of his disability, Optionee may, but only within six (6) months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the day three months and one day following such termination. To
the extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
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(c) all elections shall be subject to the consent or disapproval
of the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Stock, or any
other increase or decrease in the number of issued shares of Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action.
In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the Option or to substitute an equivalent option, the Option
shall terminate.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of
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<PAGE> 32
the Code (or any other applicable law or regulation, including the requirements
of the NASD or an established stock exchange), the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Agreements. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
19. Information to Optionees. The Company shall provide to each
Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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<PAGE> 33
TELCOM SEMICONDUCTOR, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Philip M. Drayer and Robert G. Gargus,
jointly and severally, proxies with full power of substitution, to vote all
shares of Common Stock of TELCOM SEMICONDUCTOR, INC., a Delaware corporation,
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held at the Company's offices at 1300 Terra Bella Avenue, Mountain View,
California on Thursday, April 13, 2000 at 2:00 p.m., local time, or any
adjournment thereof. The proxies are being directed to vote as specified on the
reverse side hereof or, if no specification is made, FOR the election of
directors, FOR the proposal to amend the Company's 1994 Stock Option Plan, FOR
the appointment of PricewaterhouseCoopers LLP as independent accountants and in
accordance with their discretion on such matters that may properly come before
the meeting.
THE DIRECTORS RECOMMEND A FOR VOTE ON EACH ITEM.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 34
Please mark your votes as indicated. [X]
1. Election of Directors
FOR all nominees listed WITHHOLD AUTHORITY
(except as withheld) to vote for nominees listed
[ ] [ ]
(Instructions: To withhold authority to vote for any individual nominee, strike
that nominee's name below.)
Nominees: Philip M. Drayer Donald E. Fowler
Robert G. Gargus Frank Gill
T. Peter Thomas
2. Proposal to amend the Company's 1994 Stock Option Plan to increase the
number of shares reserved thereunder by 1,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the 2000 fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I plan to attend the Meeting. [ ]
SIGNATURE(S)____________________________ DATE ________________, 2000
(Signature(s) must be exactly as name(s) appear on this proxy.) (If signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such, and, if signing for a corporation, please give your titled. When shares
are in the name of more than one person, each should sign the proxy.)
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