<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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Applied Digital Access, 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:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
APPLIED DIGITAL ACCESS, INC.
9855 SCRANTON ROAD
SAN DIEGO, CALIFORNIA 92121
April 8, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Applied Digital Access, Inc., which will be held at the Company's executive
offices, 9855 Scranton Road, San Diego, California on Tuesday, May 20, 1997 at
9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting of Shareholders and Proxy Statement.
In order for us to have an efficient meeting, please sign, date and return
the enclosed proxy promptly in the accompanying reply envelope. If you are able
to attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
PETER P. SAVAGE
President
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and return it
in the enclosed envelope. No postage need be affixed if mailed in the United
States.
<PAGE> 3
APPLIED DIGITAL ACCESS, INC.
9855 SCRANTON ROAD
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
The Annual Meeting of Shareholders of Applied Digital Access, Inc. (the
"Company") will be held at the Company's executive offices, 9855 Scranton Road,
San Diego, California on Tuesday, May 20, 1997 at 9:00 a.m., Pacific Standard
Time (the "Annual Meeting"), for the following purposes:
1. To elect a Board of Directors. Management has nominated the following
persons for election at the meeting: Kenneth E. Olson, Christopher B.
Paisley, Peter P. Savage, Edward F. Tuck.
2. To approve the Company's reincorporation in Delaware, through the merger
of Applied Digital Access, Inc., a California corporation, with and into
a wholly-owned Delaware subsidiary of Applied Digital Access, Inc.
3. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
4. To transact any other business which may properly come before the Annual
Meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on March 31, 1997 will be
entitled to vote at the Annual Meeting. A list of shareholders entitled to vote
at the Annual Meeting will be available for inspection at the offices of the
Company. Whether or not you plan to attend the Annual Meeting in person, please
sign, date and return the enclosed proxy in the reply envelope provided. If you
attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy will assist us in preparing for the Annual Meeting.
By Order of the Board of Directors
JAMES L. KEEFE
Secretary
Dated: April 8, 1997
<PAGE> 4
APPLIED DIGITAL ACCESS, INC.
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
------------------------
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of Applied
Digital Access, Inc., a California corporation (the "Company"), for the Annual
Meeting of Shareholders to be held at 9:00 a.m. on Tuesday, May 20, 1997 and at
any adjournment or postponement of the Annual Meeting (the "Annual Meeting").
These proxy materials were first mailed to shareholders of record beginning on
approximately April 8, 1997.
The mailing address of the principal executive office of the Company is
9855 Scranton Road, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Annual Meeting or by properly executing and
delivering a proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the Annual Meeting who elects to vote his or her shares
in person. The cost of soliciting proxies will be paid by the Company and may
include reimbursement paid to brokerage firms and others for their expense in
forwarding solicitation material. Solicitation will be made primarily through
the use of the mail, but regular employees of the Company may, without
additional remuneration, solicit proxies personally by telephone or telegram.
The Company has contracted with Corporate Investor Communications, Inc. ("CIC")
to solicit proxies on the Board of Director's behalf. CIC will mail a search
notice to banks, brokers, nominees and street-name accounts to develop a listing
of shareholders, distribute proxy material to brokers and banks for subsequent
distribution to beneficial holders of stock and solicit proxy responses from
holders of the Common Stock.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Annual Meeting has been fixed as March 31, 1997.
At the close of business on the record date, the Company had 12,394,971
outstanding shares of Common Stock (the "Common Stock"). Each share of Common
Stock is entitled to one vote on matters brought before the Annual Meeting. In
voting for directors, each shareholder currently has the right to cumulate his
votes and give one nominee a number of votes equal to the number of directors to
be elected multiplied by the number of shares he holds, or to distribute his
votes on the same principle among the nominees to be elected in such manner as
he may see fit. California corporate law allows a shareholder to cumulate his or
her votes with respect to the election of directors if the director nominee has
been placed in nomination prior to voting and if any shareholder present at the
Annual Meeting has given notice at the Annual Meeting of his or her intention to
cumulate votes. Such notice allows all votes cast in the
<PAGE> 5
election to be counted cumulatively. If no such notice is given, no cumulative
voting will be used in the election of directors. While the notice of intention
to cumulate votes may be presented orally at the Annual Meeting, it is
appreciated that any shareholder intending to cumulate his or her votes present
a written notice of such intention to the Chairman of the Annual Meeting prior
to the beginning of voting, but after all candidates have been placed in
nomination. The persons named in the enclosed proxy card may also elect to give
such notice and vote the shares they represent in such a manner. In addition,
non-management proxyholders present at the Annual Meeting may also provide the
requisite notice of intention to cumulate votes. Shareholders who wish to
cumulate their votes must be present at the Annual Meeting or must give proxies
to non-management proxyholders along with a written statement that such
non-management proxyholders have the authority to give notice of their intention
to cumulate votes. Discretionary authority to cumulate votes is being solicited
by the Board of Directors and it is intended that the proxies received by the
management proxyholders pursuant to the solicitation will be voted in the manner
best designed to cause the election of the maximum number of the Board of
Director's nominees. Article VIII of the Company's Restated Articles of
Incorporation ("Restated Articles") provide that no cumulative voting will be
available in the election of directors once the Company is a "listed
corporation" within the meaning of California Corporations Code Section
301.5(d).
At the record date, directors and executive officers of the Company may be
deemed to be beneficial owners of an aggregate of 898,466 shares of the
Company's Common Stock (not including shares of the Common Stock issuable upon
exercise of outstanding stock options and warrants) constituting approximately
7.00% of the shares of Common Stock outstanding and entitled to vote at the
Annual Meeting. Such directors and executive officers have indicated to the
Company that each such person intends to vote or direct the vote of all shares
of Common Stock held or owned by such persons, or over which such person has
voting control, in favor of all of the Proposals. The approval of the Proposals
is not assured. See "Principal Shareholders" and "Common Stock Ownership of
Management."
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
annual meeting of shareholders or until their successors are elected and have
qualified. The Company's Amended and Restated Bylaws provide that the authorized
number of directors is five. The Company's Board of Directors has selected four
nominees, all of whom are currently directors of the Company, and is actively
searching for a qualified individual to fill the one vacancy on the Board of
Directors. Each returned proxy cannot be voted for a greater number of persons
than the four nominees named. Unless individual shareholders specify otherwise,
each returned proxy will be voted for the election of the four nominees who are
listed herein, or for as many nominees of the Board of Directors as possible,
not to exceed four, such votes to be distributed among such nominees in the
manner as the persons named in the enclosed proxy card see fit.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Annual Meeting, the persons named in the
enclosed proxy will exercise discretionary authority to vote for substitutes.
The Board of Directors is not aware of any circumstances that would render any
nominee unavailable for election. Discretionary authority to cumulate votes is
being solicited by the Board of Directors and it is intended that the proxies
received by the management proxyholders pursuant to the solicitation will be
voted in the manner best designed to cause the election of the maximum number of
the Board of Directors' nominees. The following schedule sets forth certain
information concerning the nominees for election as directors.
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<PAGE> 6
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
NOMINEES LISTED HEREIN.
<TABLE>
<CAPTION>
FIRST YEAR
ELECTED
NAME DIRECTOR AGE
- ----------------------------- ---------- ---
<S> <C> <C>
Kenneth E. Olson (1) 1996 60
Christopher B. Paisley(1)(2) 1996 44
Peter P. Savage 1990 55
Edward F. Tuck (2) 1987 65
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Olson has served as a director of the Company since December 1996. Mr.
Olson has served as Chairman of the Board of Proxima Corporation ("Proxima"), a
publicly-traded manufacturer of multimedia projection products, since July 1983
and as its Chief Executive Officer from December 1990 through January 1996. In
addition to serving as a director of Proxima, Mr. Olson also currently serves as
a director of LIDAK Pharmaceuticals, Inc., and four privately-held companies.
Mr. Paisley has served as a director of the Company since March 1996. Since
September 1985, Mr. Paisley has been the Senior Vice President, Finance and
Chief Financial Officer of 3Com Corporation, a global data networking company.
Mr. Paisley currently serves as a director of two privately-held companies.
Mr. Savage has served as President, Chief Executive Officer and as a
director of the Company since November 1990. Prior to joining the Company, Mr.
Savage served as President and Chief Operating Officer of Xylogics, Inc., a
manufacturer of storage and communications controllers, from February 1989
through May 1990, and as Vice President, Engineering of Xylogics from September
1987 through January 1989. Prior to that, Mr. Savage served as President and
Chief Operating Officer of Alliance Telecommunications Corp. Commterm Division,
a manufacturer of voice messaging systems, from August 1986 through March 1987
and as Vice President, Engineering from February 1985 through July 1986. Mr.
Savage previously held a number of technical and management positions with the
telecommunications companies Infinet, Plantronics and Bell Telephone
Laboratories.
Mr. Tuck has served as a director since the Company's incorporation in
August 1987. In addition, Mr. Tuck served as the President of the Company from
August 1987 through December 1987, and as the Chief Financial Officer of the
Company from August 1987 through April 1989. Since June 1990, Mr. Tuck has been
the managing director of Kinship Venture Management, L.L.P., a venture capital
fund. Mr. Tuck currently serves as a director of Triquint Semiconductor Corp., a
semiconductor manufacturer, as well as seven privately-held companies.
All Directors currently are elected annually and hold office until the next
annual meeting of the shareholders and their successors are duly elected and
qualified. Officers serve at the discretion of the Board of Directors. Directors
are reimbursed for their out-of-pocket expenses incurred in attending meetings
of the Board of Directors and its committees. The Company does not presently pay
fees to its Directors.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met a total of nine times during the
fiscal year ended December 31, 1996. During his tenure, each of the directors
nominated for reelection attended at least 75% of the aggregate of (i) the total
meetings of the Board and (ii) the total number of meetings held by all
committees of the board on which they served.
The Company has a standing Compensation Committee currently composed of
Directors Kenneth E. Olson and Christopher B. Paisley. The Compensation
Committee met three times in fiscal 1996. The Compensation Committee reviews and
acts on matters relating to compensation levels and benefit plans for executive
officers and key employees of the Company, including salary and stock options.
The Committee is also responsible for granting stock awards, stock options and
stock appreciation rights and other awards to be
3
<PAGE> 7
made under the Company's existing incentive compensation plans. The Company also
has a standing Audit Committee composed of Directors Christopher B. Paisley and
Edward F. Tuck. The Audit Committee met two times in fiscal 1996. The Audit
Committee assists in selecting the independent auditors, designating services
they are to perform and in maintaining effective communication with those
auditors. The Company does not have a standing Nominating Committee or any other
committee performing similar functions, and such matters are considered at
meetings of the full Board of Directors.
PROPOSAL 2
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, the Board of
Directors believes that reincorporation will enhance the Company's ability to
attract and retain qualified members of the Company's Board of Directors as well
as encourage directors to continue to make independent decisions in good faith
on behalf of the Company. The Company believes that the more favorable corporate
environment afforded by Delaware will enable it to compete more effectively with
other public companies, most of which are incorporated in Delaware, to attract
new directors and to retain its current directors. Reincorporation in Delaware
will allow the Company the increased flexibility and predictability afforded by
Delaware law. Concurrent with the reincorporation, the Company proposes to adopt
or maintain certain measures designed to make hostile takeovers of the Company
more difficult. The Board believes that adoption or maintenance of these
measures will enable the Board to consider fully any proposed takeover attempt
and to negotiate terms that maximize the benefit to the Company and its
shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years Delaware has followed a policy of encouraging incorporation
in that state. In furtherance of that policy, Delaware has adopted comprehensive
corporate laws which are revised regularly to meet changing business
circumstances. The Delaware legislature is particularly sensitive to issues
regarding corporate law and is especially responsive to developments in modern
corporate law. The Delaware courts have developed considerable expertise in
dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
In 1986, Delaware amended its corporate law to allow corporations to limit
the personal monetary liability of its directors for their conduct as directors
under certain circumstances. The directors have elected to adopt such a
provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct or any
transaction from which the director derives an improper personal benefit or for
violations of federal laws. The Board of Directors believes that Delaware
incorporation will enhance the Company's ability to recruit and retain directors
in the future, however, the shareholders should be aware that such a provision
inures to the benefit of the directors, and the interest of the Board of
Directors in recommending the reincorporation may therefore be in conflict with
the interests of the shareholders. See "-- Indemnification and Limitation of
Liability" for a more complete discussion of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. Nonetheless, the Board of Directors believes that the protection
from liability for directors is somewhat greater under the Delaware law than
under the California law and therefore that the Company's objectives in adopting
this type of provision can be better achieved by reincorporation in Delaware.
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<PAGE> 8
The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders begins on page 7 of this Proxy
Statement.
In addition, portions of the reincorporation proposal may have the effect
of deterring hostile takeover attempts. A hostile takeover attempt may have a
positive or a negative effect on the Company and its shareholders, depending on
the circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a corporation
and generally present to the shareholders the risk of terms which may be less
than favorable to all of the shareholders than would be available in a
board-approved transaction. Board approved transactions may be carefully planned
and undertaken at an opportune time in order to obtain maximum value for the
corporation and all of its shareholders with due consideration to matters such
as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great that prudent steps to reduce the likelihood of such takeover
attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board of Directors as to the benefits to
shareholders of the changes, shareholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire control
of the Company which is not presented to and approved by the Board of Directors,
but which a substantial number and perhaps even a majority of the Company's
shareholders might believe to be in their best interests or in which
shareholders might receive a substantial premium for their shares over the
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so.
The proposed reincorporation would be accomplished by merging the Company
into a newly-formed Delaware corporation which, just before the merger, will be
a wholly-owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit A to this Proxy Statement. Upon the effective date of the
merger, the Delaware Company's name will be Applied Digital Access, Inc. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
On the effective date of the proposed reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one share
of Common Stock of the Delaware Company, and shareholders of the Company will
automatically become shareholders of the Delaware Company. On the effective date
of the reincorporation, the number of outstanding shares of Common Stock of the
Delaware Company will be equal to the number of shares of Common Stock of the
Company outstanding immediately prior to the effective date of the
reincorporation. In addition, each outstanding option or right to acquire shares
of Common Stock of the Company will be converted into an option or right to
acquire an equal number of shares of Common Stock of the Delaware Company, under
the same terms and conditions as the original options or rights. All of the
Company's employee benefit plans, including the 1994 Employee Stock Purchase
Plan and the 1994 Stock Option/Stock Issuance Plan will be adopted and continued
by the Delaware Company following the reincorporation. Shareholders should
recognize that approval of the proposed reincorporation will constitute approval
of the adoption and assumption of those plans by the Delaware Company.
5
<PAGE> 9
No action need be taken by shareholders to exchange their stock
certificates now; this will be accomplished at the time of the next transfer by
the shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger.
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock present in person or represented by proxy and voting at the
Annual Meeting is required for approval of the reincorporation. For purposes of
the vote, abstentions and broker non-votes will not be counted for any purpose
in determining whether this matter has been approved. If approved by the
shareholders, it is anticipated that the reincorporation would be completed as
soon thereafter as practicable. The reincorporation may be abandoned or the
Merger Agreement may be amended (with certain exceptions), either before or
after shareholder approval has been obtained, if in the opinion of the Board of
Directors, circumstances arise that make such action advisable; provided, that
any amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding shares of the Common Stock.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the Company's state of incorporation, and by the
Company's Restated Articles of Incorporation, as amended (the "California
Articles") and the Company's Amended and Restated Bylaws (the "California
Bylaws"), which have been adopted pursuant to California law. The California
Articles and California Bylaws are available for inspection during business
hours at the principal executive offices of the Company. In addition, copies may
be obtained by writing to the Company at Applied Digital Access, Inc., 9855
Scranton Road, San Diego, California 92121, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "-- Application of California
Law After Reincorporation"). The California Articles and California Bylaws,
will, in effect, be replaced by the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate") and the bylaws of the Delaware Company (the
"Delaware Bylaws"), copies of which are attached as Exhibits B and C to this
Proxy Statement. Accordingly, the differences among these documents and between
Delaware and California law are relevant to your decision whether to approve the
reincorporation proposal.
A number of significant differences between California and Delaware law and
among the various charter documents are summarized in the chart below.
Shareholders are requested to read the following chart in conjunction with the
discussion following the chart and the Merger Agreement, the Delaware
Certificate and the Delaware Bylaws attached to this Proxy Statement. For each
item summarized in the chart, there is a reference to a page of this Proxy
Statement on which a more detailed discussion appears.
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Limitation of Liability of Delaware law permits the California law contains
Directors and Officers limitation of liability of additional exceptions to the
(see page 9). directors and officers to liability limitations of
the Company except in directors and officers.
connection with (i) breaches
of the duty of loyalty; (ii)
acts or omissions not in
good faith or involving
intentional misconduct or
knowing violations of law;
(iii) the payment of
unlawful dividends or
unlawful stock repurchases
or redemptions; or (iv)
transactions in which a
director received an
improper personal benefit.
</TABLE>
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<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Indemnification of Directors Delaware law permits California Law permits
and Officers somewhat broader indemnification under
(see page 10). indemnification and could certain circumstances,
result in indemnification of subject to certain
directors and officers in limitations.
circumstances where
California law would not
permit indemnification.
Cumulative Voting for Cumulative voting not Cumulative voting is
Directors available under Delaware law mandatory upon notice given
(see page 11). because not provided in the by a shareholder at a
Delaware Certificate. shareholders' meeting at
which directors are to be
elected. California law
permits Nasdaq National
Market System ("Nasdaq")
corporations with over 800
equity security holders to
eliminate cumulative voting.
The California Articles
include such a provision.
Number of Directors Determined solely by Determined by the Board of
(see page 12). resolution of the Board of Directors within a range set
Directors. in the California Bylaws.
Changes in the authorized
range must be approved by
the shareholders.
Removal of Directors by Removal with or without Removal with or without
Shareholders cause by affirmative vote of cause by affirmative vote of
(see page 12). a majority of the a majority of the
outstanding shares. outstanding shares, provided
that shares voting against
removal could not elect such
director under cumulative
voting.
Filling Board Vacancies Delaware law provides for California law permits (a)
(see page 12). the Delaware Court of any older of 5% or more of
Chancery to order an the corporation's voting
election to fill vacancies stock ("Voting Stock") or
or newly created (b) the superior court of
directorships upon the the appropriate county to
application of the holders call a special meeting of
of 10% of the outstanding shareholders to elect the
shares having a right to entire board if, after
vote for such directors if, filling any vacancy, the
at the time of filling such directors then in office who
vacancies or directorships, have been elected by the
the directors then in office shareholders constitute less
constitute less than a than a majority of the
majority of the entire board directors then in office.
as constituted immediately
prior to any increase.
</TABLE>
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<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Who May Call Special The Board of Directors, the The Board of Directors, the
Shareholder Meeting Chairman of the Board or the Chairman of the Board, the
(see page 13). Chief Executive Officer. President, or holders of 10%
of the shares entitled to
vote at the special meeting.
Action by Written Consent of Action by written consent Action by written consent
Shareholders in Lieu of a not permitted by Delaware not permitted by California
Shareholder Vote at Certificate. All shareholder Articles. All shareholder
Shareholder Meeting action must take place by a action must take place by a
(see page 13). shareholder vote at a shareholder vote at a
meeting of shareholders. meeting of shareholders.
Tender Offer Statute Restricts hostile two-step No comparable statute. The
(see page 14). takeovers. California Articles include
a Fair Price provision
similar in effect to the
Delaware statute.
Amendment of Certificate Amendments to provisions Amendments to provisions
(see page 16). relating to the relating to the
establishment of the number establishment of the number
of directors, advance notice of directors, advance notice
of shareholder proposals and of shareholder proposals and
nominations, shareholder nominations, shareholder
action without a meeting and action without a meeting,
cumulative voting require cumulative voting and the
approval by a simple Fair Price provision require
majority of the Voting Stock approval by a majority of
of the Delaware Company. the Voting Stock of the
Company. (See page 16).
Loans to Officers and Board of Directors may Loans must be approved or
Directors authorize if expected to ratified by a majority of
(see page 16). benefit the Company. the outstanding shares.
Class Vote for Reorganizations Generally not required A reorganization transaction
(see page 16). unless a reorganization must generally be approved
adversely affects a specific by a majority vote of each
class of shares. class of shares outstanding.
Right of Shareholders to Permitted for any purpose Permitted for any purpose
Inspect Shareholder List (see reasonably related to such reasonably related to such
page 17). shareholder's interest as a shareholder's interest as a
shareholder. shareholder. Also, an
absolute right to 5%
shareholders and certain 1%
shareholders.
Appraisal Rights Generally available if Available in certain
(see page 17). shareholders receive cash in circumstances if the holders
exchange for the shares and of 5% of the class assert
in certain other such rights.
circumstances.
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
Dividends Paid from surplus (including Generally limited to the
(see page 17). paid-in and earned surplus greater of (i) retained
or net profits). earnings or (ii) an amount
which would leave the
Company with assets of 125%
of liabilities and current
assets of 100% of current
liabilities.
Other Responsive legislature and
larger body of corporate
case law in Delaware
provides more predictable
corporate legal environment
in Delaware.
</TABLE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATIONS ON DIRECTOR LIABILITY.
Both California and Delaware permit a corporation to limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of certain duties as a director. The California and Delaware
laws adopt a self-governance approach by enabling a corporation to take
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders: (f) interested
transactions between the corporation and a director in which a director has a
material financial interest: and (g) liability for improper distributions, loans
or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with the Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or
9
<PAGE> 13
rescind an action taken or proposed by the Board of Directors, such remedies may
not be timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors to the
Company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The California Bylaws and Delaware Bylaws relating to indemnification
similarly require that the Company and the Delaware Company, respectively,
indemnify its directors and its executive officers and officers to the fullest
extent permitted by the respective state law, provided, that the Company may
modify the extent of such indemnification by individual contracts with its
directors and executive officers, and, provided, further, that the Company will
not be required to indemnify any director or executive officer in connection
with a proceeding initiated by such person, with certain exceptions. Such Bylaws
permit the Company and the Delaware Company to provide indemnification to their
other officers, employees and agents as set forth in the respective state law.
Such indemnification is intended to provide the full flexibility available under
such laws. The Delaware Bylaws contain provisions similar to the California
Bylaws with respect to advances in that the Delaware Company is required to
advance expenses related to any proceeding contingent on such persons'
commitment to repay any advances unless it is determined ultimately that such
persons are entitled to be indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law providing
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law as described above) not opposed to
the best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation. Delaware law requires indemnification of
expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise.
10
<PAGE> 14
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors, officers, employees and other agents, within the limits
established by law and public policy, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes. If the
reincorporation is approved, the Company intends to enter into new
indemnification agreements with its officers and directors to replace those
indemnification agreements entered into under the California Articles and
California law.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the Company made prior to the proposed reincorporation. Nevertheless, the
Board of Directors has recognized in considering this reincorporation proposal
that the individual directors have a personal interest in obtaining the
application of Delaware law to such indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is actually indemnified in circumstances where indemnification would
not be available under California law, would result in expense to the Company
which the Company would not incur if the Company were not reincorporated. The
Board of Directors believes, however, that the overall effect of reincorporation
is to provide a corporate legal environment that enhances the Company's ability
to attract and retain high quality outside directors and thus benefits the
interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened litigation
to which any of its directors is a party in which the rights of the Company or
its shareholders would be affected if the Company currently were subject to the
provisions of Delaware law rather than California law.
California and Delaware corporate law, the California Bylaws and the
Delaware Bylaws, as well as any indemnity agreements, may permit indemnification
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Board of Directors has been advised that, in the opinion of
the Securities and Exchange Commission (the "SEC"), indemnification for
liabilities arising under the Securities Act is contrary to public policy and is
therefore unenforceable, absent a decision to the contrary by a court of
appropriate jurisdiction.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, under non-cumulative voting, the holder or
holders of a majority of the shares entitled to vote in an election of directors
will be able to elect all the directors of the Company.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its articles of incorporation or bylaws, to eliminate cumulative
11
<PAGE> 15
voting when the Company's shares are listed on a national stock exchange or
traded in the Nasdaq and are held by at least 800 equity security holders. The
California Articles include such a provision.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS.
California law allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the board of
directors. California law further provides that, in the case of a variable
board, the maximum number of directors may not exceed two times the minimum
number minus one. The California Bylaws provide for a Board of Directors that
may vary between five and nine members, inclusive, and the Board of Directors
has fixed the exact number of directors at five. California law also requires
that any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
three cannot be adopted if votes cast against its adoption are equal to more
than 16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the vote of 66 2/3% of the outstanding shares to change the range of the
Company's variable Board of Directors; provided, any amendment reducing the
minimum number of directors cannot be adopted if votes cast against are equal to
more than 16 2/3% of the outstanding shares entitled to vote.
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
REMOVAL OF DIRECTORS.
Under California law, a director may be removed with or without cause by
the affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. Under Delaware law, unless the board is classified or
cumulative voting is permitted, a director can be removed from office during his
term by shareholders with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors. The Delaware
Certificate provides that the Company's directors may be removed from office at
any time with or without cause by the affirmative vote of the holders of a
majority of the voting power of the then-outstanding shares of Voting Stock. The
term "cause" with respect to the removal of directors is not defined in the
Delaware General Corporation Law and its meaning has not been precisely
delineated by the Delaware courts.
FILLING BOARD VACANCIES.
Under California law, if, after the filling of any vacancy by the directors
of a corporation, the directors then in office who have been elected by the
corporation's shareholders constitute less than a majority of the directors then
in office, then: (i) any holder of more than 5% of the corporation's Voting
Stock may call a special meeting of shareholders, or (ii) the superior court of
the appropriate county may order a special meeting of the shareholders to elect
the entire board of directors of the corporation. Delaware law provides
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<PAGE> 16
that if, at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the entire board of
directors as constituted immediately prior to any increase, the Delaware Court
of Chancery may, upon application of any shareholder or shareholders holding at
least 10% of the total number of 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 proposed Delaware Certificate and Delaware Bylaws provide that
vacancies shall, unless the Board of Directors determines by resolution that any
such vacancies be filled by the shareholders or as otherwise provided by law, be
filled only by the affirmative vote of a majority of directors then in office,
even if such directors comprise less than a quorum of the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 30,000,000 authorized
shares of Common Stock, no par value, of which 12,255,334 shares issued and
outstanding as of December 31, 1996, and 7,500,000 authorized shares of
Preferred Stock, no par value, none of which are issued and outstanding as of
December 31, 1996.
Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of Common Stock that the Company had
outstanding immediately prior to the reincorporation.
The capitalization of the Delaware Company is identical to the
capitalization of the Company with the addition of a per share par value, with
authorized capital stock of 30,000,000 shares of Common Stock, $.001 par value
and 7,500,000 shares of Preferred Stock, $.001 par value, consistent with
maintaining adequate capitalization for the current needs of the Company. The
Delaware Company's authorized but unissued shares of Preferred Stock will be
available for future issuance.
Under the Delaware Certificate, as under the California Articles, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares constituting any such
series and to determine the designation thereof.
The Board of Directors may authorize the issuance of Preferred Stock for
the purpose of adopting shareholder rights plans or in connection with various
corporate transactions, including corporate partnering arrangements. If the
reincorporation is approved, it is not the present intention of the Board of
Directors to seek shareholder approval prior to any issuance of Preferred Stock,
except as required by law or regulation. See "-- Anti-Takeover Measures."
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors,
(i.e., by the Chairman of the Board of Directors or the Chief Executive Officer)
the Board of Directors shall determine the time and the place of such meeting
which shall be from 35 to 120 days after the receipt of the request for the
meeting.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and Delaware
law permits a corporation to eliminate such actions by
13
<PAGE> 17
written consent in its charter. The Delaware Certificate, like the California
Articles, continues to prohibit actions by written consent of shareholders.
Prohibition of such shareholder written consents may lengthen the amount of
time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirement of a shareholders'
meeting. The prohibition of shareholder written consents may deter hostile
takeover attempts because of the lengthened shareholder approval process.
Without the ability to act by written consent, a holder or group of holders
controlling a majority in interest of the Delaware Company's capital stock will
not be able to amend the Delaware Bylaws or remove directors pursuant to a
written consent. Any such holder or group of holders would have to wait until a
shareholders' meeting was held to take any such action. The Board of Directors
believes this provision, like the other provisions to be included in the
Delaware Certificate and Delaware Bylaws, will enhance the Board of Directors'
opportunity to fully consider and effectively negotiate in the context of a
takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date stated in the proxy
statement released in connection with the previous year's annual meeting.
The Delaware Bylaws provide that, in order for director nominations or
shareholder proposals to be properly brought before the annual meeting, the
shareholder must have delivered timely notice to the Secretary of the
corporation. To be timely under the Delaware Bylaws, notice must be delivered
not less than 120 days prior to the date stated in the Company's proxy statement
released to stockholders in connection with the previous year's annual meeting.
If no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, the Delaware Bylaws will provide
that notice must be given not more than 90 days nor less than 60 days prior to
the annual meeting. Proper notice under the federal securities laws for a
proposal to be included in the Company's proxy materials will constitute proper
notice under the Delaware Bylaws. These notice requirements help ensure that
shareholders are aware of all proposals to be voted on at the annual meeting and
have the opportunity to consider each proposal in advance of the annual meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the elimination of the
right of shareholders to call special shareholders' meetings which is described
above. In addition, certain types of "poison pill" defenses (such as shareholder
rights plans) have been upheld by Delaware courts, while California courts have
yet to decide on the validity of such defenses, thus rendering their
effectiveness in California less certain.
As discussed above, numerous differences between California and Delaware
law, effective without additional action by the Delaware Company, could have a
bearing on unapproved takeover attempts. One such difference is the existence of
a Delaware statute regulating tender offers, which statute is intended to limit
coercive takeovers of companies incorporated in that state. California has no
comparable statute, but the California Articles include a Fair Price provision
similar to the Delaware statute, which prevents potential acquirors who purchase
a controlling interest in the Company for a certain price from acquiring the
remainder of the shares at a lesser price. Delaware law provides that a
corporation may not engage in any business combination with any interested
shareholder for a period of three years following the date that such
14
<PAGE> 18
shareholder became an interested shareholder, unless (i) prior to the date the
shareholder became an interested shareholder the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, or (ii) upon consummation of the transaction
which resulted in the shareholder becoming an interested shareholder, the
interested shareholder owned at least 85% of the Voting Stock, or (iii) the
business combination is approved by the Board of Directors and authorized by
66 2/3% of the outstanding Voting Stock which is not owned by the interested
shareholder. An interested shareholder means any person that is the owner of 15%
or more of the outstanding Voting Stock, however, the statute provides for
certain exceptions to parties who otherwise would be designated interested
shareholders, including an exception for parties that held 15% or more of the
outstanding Voting Stock as of December 23, 1987. Any corporation may decide to
opt out of the statute in its original certificate of incorporation or, at any
time, by action of its shareholders. The Company has no present intention of
opting out of the statute.
There can be no assurance that the Board of Directors would not adopt any
further anti-takeover measures available under Delaware law (some of which may
not require shareholder approval). Moreover, the availability of such measures
under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such
transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the Company.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board of
Directors to fully consider the proposed takeover attempt and actively negotiate
its terms are in the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available
to the Delaware Company after the reincorporation due to the application of
Delaware law, the Delaware Company would retain the rights currently available
to the Company under California law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
reincorporation, shares of authorized and unissued Common Stock and Preferred
Stock of the Delaware Company could (within the limits imposed by applicable
law) be issued in one or more transactions, or Preferred Stock could be issued
with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board of Directors. Accordingly, if the
Delaware Board of Directors so authorizes, the holders of Delaware Preferred
Stock may be entitled to vote separately as a class in connection with approval
of certain extraordinary corporate transactions in circumstances where Delaware
law does not ordinarily require such a class vote, or might be given a
disproportionately large number of votes. Such Delaware Preferred Stock could
also be convertible into a large number of shares of Common Stock of the
Delaware Company under certain circumstances or have other terms which might
make acquisition of a controlling interest in the Delaware Company more
difficult or more costly, including the right to elect additional directors to
the Delaware Board of Directors. Potentially, the Delaware Preferred Stock could
be used to create voting impediments or to frustrate persons seeking to effect a
merger or otherwise to gain control of the Delaware Company. Also, the Delaware
15
<PAGE> 19
Preferred Stock could be privately placed with purchasers who might side with
the management of the Delaware Company in opposing a hostile tender offer or
other attempt to obtain control.
If the reincorporation is approved it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Delaware Preferred Stock or Common Stock of the Delaware Company, except as
required by law or regulation. Frequently, opportunities arise that require
prompt action, and it is the belief of the Board of Directors that the delay
necessary for shareholder approval of a specific issuance would be a detriment
to the Delaware Company and its shareholders. The Board of Directors does not
intend to issue any Preferred Stock except on terms which the Board of Directors
deems to be in the best interests of the Delaware Company and its then existing
shareholders.
AMENDMENT OF CERTIFICATE
Both the California Articles and the Delaware Certificate provide that the
provisions thereof may be amended by the affirmative vote of a simple majority
of the holders of the outstanding Voting Stock of the Company and the Delaware
Company, respectively.
AMENDMENT OF BYLAWS
Both the California Bylaws and the Delaware Bylaws provide that the
provisions relating to the (i) establishment of the number of directors, (ii)
advance notice of shareholder proposals and nominations, (iii) shareholder
action without a meeting, (iv) cumulative voting, (v) filling vacancies on the
Board of Directors, (vi) excessive compensation and (vii) loans to officers can
only be amended by the affirmative vote of the holders of at least 66 2/3% of
the voting power of the Voting Stock of the Company and the Delaware Company,
respectively.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally does
not require class voting for such transactions, except in certain situations
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of a California corporation's
common stock receive nonredeemable common stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its common stock, unless all of the holders of its common stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters
rights. Delaware law has no comparable provision.
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<PAGE> 20
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's Voting
Stock or shareholders holding 1% or more of such shares who have filed a
Schedule 14B with the SEC. Delaware law provides no such absolute right of
shareholder inspection. However, both California and Delaware law permit any
shareholder of record to inspect the shareholder list for any purpose reasonably
related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the reincorporation
proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its stock,
whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (i) retained earnings or (ii)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities. Delaware law allows the payment
of dividends and redemption of stock out of surplus (including paid-in and
earned surplus) or out of net profits for the current and immediately preceding
fiscal years. The Company has never paid cash dividends and has no present plans
to do so.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
17
<PAGE> 21
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Company's shares are traded in the Nasdaq and are held by fewer than
800 equity security holders, as of its most recent annual meeting of
shareholders, then the Delaware Company would become subject to certain
provisions of California law regardless of its state of incorporation. The
Company does not currently meet all of the above requirements.
Because the Company's common stock is traded in the Nasdaq and the
Company's shares are held by at least 800 equity security holders, as of its
most recent annual meeting of shareholders, California law will not initially
apply to the Delaware Company if the reincorporation is approved. The Company
would not be subject to California law as long as it continued to not satisfy at
least one of the above stated requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be
a tax free reorganization under the Internal Revenue Code of 1986, as amended.
Assuming the reincorporation qualifies as a reorganization, no gain or loss will
be recognized to the holders of capital stock of the Company as a result of
consummation of the reincorporation, and no gain or loss will be recognized by
the Company or the Delaware Company. Each former holder of capital stock of the
Company will have the same basis in the capital stock of the Delaware Company
received by such holder pursuant to the reincorporation as such holder has in
the capital stock of the Company held by such holder at the time of consummation
of the reincorporation. Each shareholder's holding period with respect to the
Delaware Company's capital stock will include the period during which such
holder held the corresponding Company capital stock, provided the latter was
held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal Revenue
Service or an opinion of legal or tax counsel with respect to the consequences
of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition, both
California and Delaware law provide that some of the statutory provisions as
they affect various rights of holders of shares may be modified by provisions in
the charter or bylaws of the corporation.
A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, assumption of the
indemnification agreements, the adoption and assumption by the Delaware Company
of each of the Company's stock option, stock purchase and employee benefit plans
and all other aspects of this Proposal 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
REINCORPORATION OF THE COMPANY IN DELAWARE AND RELATED CHANGES TO THE RIGHTS OF
SHAREHOLDERS.
18
<PAGE> 22
PROPOSAL 3
APPROVAL OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Coopers &
Lybrand L.L.P. as the Company's independent public accountants for the year
ending December 31, 1997. In the event that the shareholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and the shareholders' best interest.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting to respond to your questions and will have the opportunity to
make a statement if they desire to do so.
The affirmative vote of the holders of a majority of shares represented and
voting at the Annual Meeting will be required to ratify the selection of Coopers
& Lybrand L.L.P.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
AND APPROVAL OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
19
<PAGE> 23
PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to own
beneficially, as of January 31, 1997, 5% or more of the outstanding shares of
its Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER(1) OWNERSHIP(1) CLASS(2)
------------------------------------------------- ----------------- ----------
<S> <C> <C>
Kopp Investment Advisors, Inc.(3)................ 2,614,341 21.30%
6600 France Avenue South
Suite 672
Edina, MN 55435
Institutional Venture Partners III(4)............ 770,529 6.285
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Share ownership in each
case includes shares issuable upon exercise of certain outstanding options
and warrants as described in the footnotes below. Shares issuable upon
exercise of certain outstanding options by directors of the Company
affiliated with certain principal shareholders are not included. See "Common
Stock Ownership of Management."
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Information reported in the table is based on disclosures made in the
Schedule 13G filed on January 28, 1997 by Kopp Investment Advisors, Inc. and
certain affiliates thereof. Includes 2,403,341 shares held by Kopp
Investment Advisors, Inc. ("KIA"), 181,000 shares held by LeRoy C. Kopp and
30,000 shares held by Kopp Family Foundation. Although KIA exercises
investment discretion as to 2,403,341 of these shares, neither KIA nor LeRoy
C. Kopp (100% owner of KIA) vote the shares and neither is the record owner
of them.
(4) Information reported in the table is based on disclosures made in the
Schedule 13G filed on January 27, 1997 by Institutional Venture Partners.
20
<PAGE> 24
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1997 by (i) each
director and nominee named under "Election of Directors," (ii) each of the
Company's officers named under "Executive Compensation and Other
Information -- Summary of Cash and Certain Other Compensation" and (iii)
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
------------------------------------------------- ----------------- ----------
<S> <C> <C>
Kenneth E. Olson................................. 10,000 *
Christopher B. Paisley(3)........................ 3,750 *
Peter P. Savage(4)............................... 359,986 2.90%
Edward F. Tuck(5)................................ 22,994 *
Paul R. Hartmann(6).............................. 181,398 1.50%
Wayne M. Lettiere(7)............................. 109,145 *
Kevin T. Pope(8)................................. 65,516 *
Donald J. O'Connor(9)............................ 24,025 *
Directors and executive officers as a group (11
persons)(10)................................... 898,466 7.00%
</TABLE>
- ---------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable. Share ownership in each case includes
shares issuable on exercise of certain outstanding options as described in
the footnotes below.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Includes 3,750 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(4) Includes 275,551 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(5) Includes 8,625 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(6) Includes 105,885 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(7) Includes 55,114 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(8) Includes 37,244 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(9) Includes 22,917 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
(10) Includes 561,498 shares issuable upon exercise of stock options that are
exercisable within 60 days of January 31, 1997.
21
<PAGE> 25
EXECUTIVE OFFICERS
The following executive officers of the Company held the following
positions as of February 28, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH ADA
- -------------------- --- ----------------------------------------------
<S> <C> <C>
Peter P. Savage 55 President, Chief Executive Officer and
Director
Paul R. Hartmann 54 Vice President, Systems Engineering
James L. Keefe 36 Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Wayne M. Lettiere 57 Vice President, Operations
Donald J. O'Connor 42 Vice President, Customer Support
Kevin Pope 39 Vice President, Development Engineering
Howard J. Rutka 50 Vice President, Sales
</TABLE>
Peter P. Savage is being considered for re-election to the position of
director of the Company. See "Election of Directors" for a discussion of Mr.
Savage's business experience. Mr. Savage received a BS degree from the U.S.
Naval Academy and an MS degree from Columbia University.
Mr. Hartmann has served as Vice President, Systems Engineering of the
Company since July 1988. Prior to joining the Company, Mr. Hartmann served as
Director of Advanced Technology and as Director of Transmission Systems
Technology for the Rockwell Communications Systems Division of Rockwell
International, a manufacturer of telecommunications transmissions equipment,
from September 1984 through July 1988. Mr. Hartmann received BS and MS degrees
from the University of Texas.
Mr. Keefe has served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of the Company since May 1996 and previously
served as Controller of the Company from December 1993 to May 1996 and as
Accounting Manager of the Company from March 1992 to December 1993. Prior to
joining the Company, Mr. Keefe served as Accounting Manager of U.S. Fiberline
Communications, Inc., a privately-held telecommunications service provider, from
January 1990 to October 1991 and as Accounting Manager for Scientific Computer
Systems, Inc., a computer manufacturer, from February 1987 through December
1989. Prior to that, Mr. Keefe held financial accounting positions with
Honeywell, Inc. and Coopers & Lybrand, LLP. Mr. Keefe received a BS degree from
the University of Minnesota.
Mr. Lettiere has served as Vice President, Operations of the Company since
July 1991. Prior to joining the Company, Mr. Lettiere served as Vice President,
Operations of Digital Communication Associates (and its successor corporations),
a manufacturer of telecommunications products, from April 1984 through July
1991. Mr. Lettiere received a BS degree from California Polytechnic State
University.
Mr. O'Connor has served as Vice President, Customer Support since May 1995.
Prior to joining the Company, Mr. O'Conner was with NYNEX Corporation for 14
years where he served as Managing Director, Service Delivery from February 1995
through May 1995, as Director of Operations, Business Customer Service Center
from June 1994 through February 1995, as Director of Operations, Inter-exchange
Carrier Services from March 1992 through June 1994 and as Director of
Operations, Digital Center from August 1990 to March 1992. Mr. O'Conner received
a BS degree from Rochester Institute of Technology and an MBA from Pace
University.
Mr. Pope has served as Vice President, Development Engineering since April
1995. Mr. Pope joined the Company in June 1988. Mr. Pope served as Senior
Director of Development Engineering from December 1994 through March 1995, as
Director of Hardware Development from July 1993 through December 1994 and as
Manager of Circuit Design from April 1990 through July 1993. Prior to joining
the Company, Mr. Pope served as Senior Project Engineer for ASEA HAFO Inc. from
February 1986 through June 1988 and prior to that was a member of the Technical
Staff for Bell Laboratories. Mr. Pope received a BS degree from the University
of Minnesota and an MS from the University of California, Berkeley.
Mr. Rutka has served as Vice President, Sales since January 1990. Prior to
joining the Company, Mr. Rutka served as Vice President, Sales and Marketing of
Siemens Communications Systems, Siemens
22
<PAGE> 26
Transmissions Systems Division, a manufacturer of telecommunications products,
from October 1987 through December 1989. Mr. Rutka received a BS degree from the
University of Kentucky and a MBA from Youngstown State University.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the Named Executive Officers for services rendered in all capacities
to the Company for the years ended December 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION OTHER SECURITIES ALL OTHER
----------------------------- ANNUAL UNDERLYING COMPEN-
NAME AND PRINCIPAL SALARY BONUS COMPEN- OPTIONS/SARS SATION
POSITION YEAR $ ($)(1) SATION($)(2) (#) ($)(2)
- -------------------------- ---- -------- ------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage 1996 $175,000 $17,500 $ -- -- $ 5,477(3)
President, Chief 1995 $175,000 $16,800 $ -- 65,000(4) $ 4,280(3)
Executive Officer, 1994 $172,218 $64,945 $ 33,417(5) -- $ 4,160(3)
Director
Paul R. Hartmann 1996 $134,500 $19,504 $ -- -- $ --
Vice President, 1995 $134,500 $15,535 $ -- 40,000(6) $ --
Systems Engineering 1994 $135,819 $35,471 $ -- -- $ --
Donald J. O'Connor(7) 1996 $125,000 $17,500 $ 23,062(8) -- $ --
Vice President, 1995 $ 73,878 $ 7,188 $ 45,838(9) 50,000 $ --
Customer Support 1994 $ -- $ -- $ -- -- $ --
Wayne M. Lettiere 1996 $120,000 $18,211 $ -- -- $ --
Vice President, 1995 $120,000 $16,020 $ -- 30,000(10) $ --
Operations 1994 $120,891 $32,084 $ -- -- $ --
Kevin T. Pope(11) 1996 $116,480 $16,987 $ -- -- $ --
Vice President, 1995 $114,026 $13,698 $ -- 42,500(12) $ --
Development 1994 $103,463 $14,521 $ -- -- $ --
Engineering
</TABLE>
- ---------------
(1) Amounts were paid pursuant to a management compensation plan approved by
the Company's Compensation Committee. See "Board Compensation Committee
Report on Executive Compensation."
(2) "Other Annual Compensation" includes only amounts totalling more than the
lesser of $50,000 or 10% of the reported salary and bonus for the years
covered.
(3) Amounts paid in connection with reimbursement of premiums on life insurance
and disability insurance policies for Mr. Savage.
(4) Includes an option grant for 35,000 shares, which was originally granted in
August 1994, and was cancelled and regranted in June 1995.
(5) Of the amounts paid to Mr. Savage in 1994, $33,417 was paid in connection
with the reimbursement of relocation expenses and related tax liability
pursuant to his employment arrangement. During 1992, the Company loaned Mr.
Savage $81,500 in connection with his relocation to San Diego. The loan,
with annual interest at 4.95%, was to be forgiven pro-rata over three
years, unless Mr. Savage left the Company, in which case, the unforgiven
balance was to be repaid.
(6) Includes an option grant for 20,000 shares, which was originally granted in
August 1994, and was cancelled and regranted in June 1995.
23
<PAGE> 27
(7) Mr. O'Connor became an employee of the Company in May 1995.
(8) Of the amounts paid to Mr. O'Connor in 1996, $23,062 was paid in connection
with the reimbursement of relocation expenses and related tax liability
pursuant to his employment arrangement.
(9) Of the amounts paid to Mr. O'Connor in 1995, $45,838 was paid in connection
with the reimbursement of relocation expenses and related tax liability
pursuant to his employment arrangement.
(10) Includes an option grant for 15,000 shares, which was originally granted in
August 1994, and was cancelled and regranted in June 1995.
(11) Mr. Pope was promoted to Vice President, Development Engineering during
1995.
(12) Includes an option grant for 7,500 shares, which was originally granted in
August 1994, and was cancelled and regranted in June 1995.
STOCK OPTIONS
There were no stock option grants made to the Named Executive Officers for
the year ended December 31, 1996. The Company granted no stock appreciation
rights ("SARs") to Named Executive Officers during 1996.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning option exercises during
1996 by the Named Executive Officers and the value of unexercised options held
by each of the Named Executive Officers as of December 31, 1996. No SARs were
exercised during 1996 or outstanding as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARs IN-THE-MONEY OPTIONS/SARs AT
SHARES AT DECEMBER 31, 1996(#) DECEMBER 31, 1996(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------ ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage........... 10,000 153,600 267,380 46,048 1,264,458 48,707
Paul R. Hartmann.......... -- -- 99,813 31,252 414,365 42,387
Wayne M. Lettiere......... 13,786 182,110 50,113 23,886 190,431 34,084
Kevin T. Pope............. -- -- 33,115 31,549 93,966 14,798
Donald J. O'Connor........ -- -- 19,792 30,208 -- --
</TABLE>
- ---------------
(1) Value is defined as fair market price of the Company's Common Stock at
December 31, 1996 less exercise price. On December 31, 1996, the closing
selling price of a share of the Company's Common Stock in the Nasdaq was
$5.50.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the Compensation Committee of the
Company's Board of Directors established the levels of compensation for the
Company's executive officers. The members of the Company's Compensation
Committee are Mr. Olson and Mr. Paisley whom were appointed to the Committee in
December and November 1996, respectively. Mr. Tuck also served on the
Compensation Committee for a portion of 1996 and participated in the
deliberations of the Compensation Committee. None of these individuals was at
any time during 1996 an officer or employee of the Company. Mr. Savage, the
Company's President and Chief Executive Officer, participated in the
deliberations of the Compensation Committee regarding executive compensation
that occurred during 1996, but did not take part in the deliberations regarding
his own compensation. Mr. Savage's participation in the deliberations of the
Compensation Committee includes providing information on the performance of
people who work at the Company and advisory recommendations regarding
appropriate levels of compensation for the Company's officers.
24
<PAGE> 28
The Company will not currently extend or guarantee loans to officers,
directors or affiliates of the Company unless such loans are approved by (i) a
majority of the Company's shareholders and (ii) a majority of the disinterested,
outside directors of the Company and may reasonably be expected to benefit the
Company. In addition, all future transactions between the Company and its
officers, directors or principal shareholders will be on terms no less favorable
to the Company than could be obtained from unaffiliated parties, as determined
by a majority of the Company's disinterested directors.
EMPLOYMENT ARRANGEMENTS
In November 1990, the Company entered into an employment arrangement with
Peter P. Savage, the Company's President and Chief Executive Officer. If Mr.
Savage is terminated without cause, the Company has agreed to pay him his
monthly base salary for a period of six months after his termination or until he
commences employment with another company. In addition, he will be entitled to
his pro rata share of any guaranteed bonus or profit sharing plan in which he
participated (for the portion of the year that he was employed by the Company).
During the severance term, Mr. Savage would continue to be treated as a Company
employee for purposes of all Company-provided employee benefits (other than for
purposes of stock option vesting and vacation eligibility). The arrangement does
not have an expiration date and is operative during Mr. Savage's employment by
the Company.
In June 1988, the Company entered into an employment arrangement with Paul
R. Hartmann, the Company's Vice President, Systems Engineering. If Mr. Hartmann
is terminated without cause, the Company has agreed to pay him his monthly base
salary for a period of six months after his termination or until he commences
employment with another company. The arrangement does not have an expiration
date and is operative during Mr. Hartmann's employment by the Company.
In May 1995, the Company entered into an employment arrangement with Donald
J. O'Connor, the Company's Vice President, Customer Support. If Mr. O'Connor is
terminated involuntarily, the Company has agreed to pay him a severance payment
equal to three months of his monthly base salary upon such termination. The
arrangement does not have an expiration date and is operative during Mr.
O'Connor's employment by the Company.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Exchange Act, that might
incorporate future filings, including this Proxy Statement, in whole or in part,
the following report and the Performance Graph on page 28 shall not be
incorporated by reference into any such filings.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee offers this report regarding compensation for
the Company's officers and the Chief Executive Officer of the Company.
GENERAL COMPENSATION POLICY
The Company's primary objective is to maximize the value of the Company's
shares over time. Accomplishing this objective requires developing and marketing
superior products and services that provide cost-effective solutions for the
Company's customers. The overall goal of the Compensation Committee is to
develop compensation practices that will allow the Company to attract and retain
the people needed to define, create, manufacture and market leading-edge
products and services.
The Company compensates its officers with a combination of salary and
incentives designed to focus their efforts on maximizing both the near-term and
long-term financial performance of the Company. In addition, the Company's
compensation structure also rewards individual performance that furthers Company
goals. Elements of each officer's compensation include the following:
- Base Salary
- Annual Incentives
25
<PAGE> 29
- Long-term Incentives
- Benefits
Each officer's compensation package is designed to provide an appropriately
weighted mix of these elements which cumulatively provide a level of
compensation roughly equivalent to that paid by companies of similar size and
complexity.
Base Salary and increases in base salary are determined by individual
performance and the salary levels in effect for companies of similar size in
similar industries. The Compensation Committee attempts to keep the base
salaries of the Company's officers at a level near the median of the salaries of
officers in the comparison companies. The Compensation Committee relies
primarily on survey data on base salary from two salary surveys. One is
published by the American Electronics Association to determine base salaries
paid by other electronics and communication companies. This survey breaks out
salary data by company size and by product line. The Compensation Committee also
uses a second salary survey prepared by a group of four major venture capital
companies. This survey includes a survey of private and public communications
companies of comparable size to the Company. The Compensation Committee does not
have access to performance information of comparison companies because neither
of the surveys used for the comparisons link participating company names with
salary data.
Annual Incentives are paid in accordance with an annual Incentive
Compensation Plan. Potential compensation paid under this plan is set as a
significant percent of each officer's base salary. All of the incentive
compensation is directly tied to Company, department and personal performance.
Each executive officer, other than the Chief Executive Officer, earns incentive
compensation based upon a mix of Company performance (approximately 50%),
departmental performance (approximately 20%) and personal performance
(approximately 30%). Company performance and departmental performance are
measured by financial and other appropriate metrics, such as inventory levels,
quality levels and on-time completion of key projects. Compensation for personal
performance under this plan is awarded by the Compensation Committee based upon
its objective and subjective evaluation of the performance of each officer. No
incentive compensation is paid for Company performance unless specific Company
financial goals are achieved during the fiscal year. Likewise, no incentive
compensation is paid for departmental or personal performance unless specific
goals and objectives are met during the fiscal year. In 1996, if the Company had
met all internal objectives, incentive compensation as a percent of salary would
have been 30% of base salary for officers. If the Company had exceeded internal
objectives by 10% or more, incentive compensation could have reached a maximum
of 38% of base salary for officers. In 1996, incentive compensation earned by
officers ranged from 14% to 16% of base salary. Officers did not earn any
incentive compensation for Company performance in 1996.
The Company also has a Gain Sharing Plan under which eligible employees
(including the Company's executive officers) may receive quarterly payments
based on the Company achieving productivity resulting in financial results
exceeding certain levels. Officers are only eligible to participate after all
other employees have received an annual allocation of $3,000 per person. No
amounts were paid to officers under the Gain Sharing Plan in 1996.
Long-term Incentive compensation in the form of stock options is expected
to be the largest element of total compensation over time. Grants of stock
options are designed to align the long-term interests of each officer with the
long-term interests of the Company and its shareholders. In addition, stock
options vest over time to create financial incentives for the individual officer
to remain with the Company. Stock options provide each officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The size of the option grant to each
officer is based on the officer's current position and expected future
contributions to the business. Awards of stock options are designed to have an
expected aggregate exercise value over time equal to a multiple of salary which
will create a significant opportunity for stock ownership.
26
<PAGE> 30
Benefits offered to the Company's officers serve as a safety net of
protection against the financial catastrophes that can result from illness,
disability or death. Benefits offered to the Company's officers are
substantially the same as those offered to all the Company's regular employees.
CEO COMPENSATION
In setting compensation payable to the Company's Chief Executive Officer,
Mr. Savage, we have sought to be competitive with companies of similar size in
our industry. In 1996, the largest portion of Mr. Savage's incentive
compensation under the Company's annual Incentive Compensation Plan was entirely
dependent upon the Company's performance and the smaller portion is related to
the Board of Director's evaluation of his personal performance. No incentive
compensation is paid to Mr. Savage for Company performance or personal
performance unless specific Company financial goals and personal performance
goals are achieved during the fiscal year.
In 1996 Mr. Savage earned incentive compensation based upon a mix of
Company performance (approximately 70%) and personal performance (approximately
30%). In 1996, if the Company had met all internal objectives, incentive
compensation as a percent of salary would have been 40% of base salary for Mr.
Savage. If the Company had exceeded internal objectives by 10% or more,
incentive compensation could have reached a maximum of 54% of base salary for
Mr. Savage. In 1996, incentive compensation earned by Mr. Savage was 10% of base
salary. Mr. Savage did not earn any incentive compensation for Company
performance in 1996.
As with the Company's other officers, stock options are expected to be the
largest element of Mr. Savage's total compensation over time. It is expected
that these options will provide a direct link between the largest element of Mr.
Savage's compensation and the Company's performance.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries.
COMPENSATION COMMITTEE
KENNETH E. OLSON
CHRISTOPHER B. PAISLEY
27
<PAGE> 31
PERFORMANCE GRAPH
The following graph compares total shareholder returns since the Company
became a reporting company under the Exchange Act to the S&P 500 Index (the "S&P
500") and a self-constructed peer group of telecommunication companies, which
includes the following companies but from which the Company has been excluded:
ADC Telecommunications Inc., Broadband Technologies Inc., DSC Communications
Corp., ECI Telecommunications Ord., Pairgain Technologies Inc., Summa Four Inc.,
Telco Systems Inc. and Tellabs Inc. (the "Peer Group"). The total shareholder
returns of the companies comprising the Peer Group have been weighted in
accordance with their respect market capitalizations. The total return for each
of the Company's Common Stock, the S&P 500 and the Peer Group assumes the
reinvestment of dividends, although dividends have not been declared on the
Company's Common Stock. The shareholder return shown on the graph below is not
necessarily indicative of future performance and the Company will not make or
endorse any predictions as to future shareholder returns.
<TABLE>
<CAPTION>
Measurement Period APPLIED DIGITAL
(Fiscal Year Covered) ACCESS INC. S&P 500 INDEX PEER GROUP
<S> <C> <C> <C>
3/29/94 100 100 100
12/31/94 211.46 103.75 134.78
12/31/95 97.92 142.74 168.36
12/31/96 45.83 175.51 136.90
</TABLE>
DIRECTOR COMPENSATION
Directors are not compensated for serving on the Board of Directors, but
the Company will reimburse directors who are not also full-time employees of the
Company for reasonable travel expenses incurred in attending meetings of the
Board or committees of the Board. Outside Directors are eligible to participate
in the automatic option grant program.
CERTAIN TRANSACTIONS
Peter P. Savage, the President and Chief Executive Officer and a director
of the Company, entered into an employment arrangement with the Company in
November 1990. See "Executive Compensation and Other Information -- Employment
Arrangements."
28
<PAGE> 32
Paul R. Hartmann, the Vice President, System Engineering, entered into an
employment arrangement with the Company in June 1988. See "Executive
Compensation and Other Information -- Employment Arrangements."
Donald J. O'Connor, the Vice President, Customer Support, entered into an
employment arrangement with the Company in May 1995. See "Executive Compensation
and Other Information -- Employment Arrangements."
Executive officers, directors, principal shareholders and affiliates of
such individuals or entities holding approximately 1,201,228 shares of Common
Stock or their permitted transferees (the "Holders") are entitled to certain
rights with respect to the registration of such shares under the Securities Act
(taking into account the exercise of outstanding options). Under the terms of
agreements between the Company and such Holders, if the Company proposes to
register any of its securities under the Securities Act for its own account,
such Holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein, provided, among other conditions,
that the underwriters of any such offering have the right to limit the number of
shares included in such registration. In addition, Holders of at least 66 2/3%;
or approximately 770,529 shares of Common Stock with demand registration rights
may require the Company to prepare and file a registration statement under the
Securities Act with respect to the shares entitled to demand registration
rights, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is not
obligated to effect more than one of these shareholder-initiated registrations
nor to effect such a registration within 90 days following an offering of the
Company's securities, including the offering made hereby. The Holders of
approximately 770,529 shares of Common Stock may also request the Company to
register such shares on Form S-3 provided the shares registered have an
aggregate market value of at least $500,000. Generally, the Company is required
to bear the expense of all such registrations. The registration rights of the
Holders expire in April 1999.
Officers and directors of the Company are indemnified pursuant to certain
provisions of the California General Corporation Law and the Company's charter
documents to the fullest extent permitted under California law. Officers and
directors will have similar indemnification arrangements in the event Proposal 2
is adopted.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq. Officers, directors and greater than 10%
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company
or written representations from certain reporting persons that no Forms 5 were
required, the Company believes that, during the 1996 calendar year, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
SHAREHOLDER PROPOSALS
Under the present rules of the SEC and the Bylaws of the Company, the
deadline for shareholders to submit proposals to be considered for inclusion in
the Company's Proxy Statement for next year's Annual Meeting of Shareholders is
expected to be 120 days prior to May 20, 1998. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the SEC and the procedure set forth in the Bylaws of the Company.
The date by which shareholders must submit proposals will be January 20, 1998.
29
<PAGE> 33
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF CHIEF FINANCIAL
OFFICER, AT COMPANY'S EXECUTIVE OFFICES LOCATED AT 9855 SCRANTON ROAD, SAN
DIEGO, CALIFORNIA 92121.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth in this Proxy
Statement. Should any other matter requiring a vote of the shareholders arise,
the persons named as proxies on the enclosed proxy card will vote the shares
represented thereby in accordance with their best judgment in the interest of
the Company. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy card.
By Order of the Board of Directors
JAMES L. KEEFE
Secretary
Dated: April 8, 1997
30
<PAGE> 34
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
APPLIED DIGITAL ACCESS, INC.
(a Delaware corporation)
AND
APPLIED DIGITAL ACCESS, INC.
(a California corporation)
THIS AGREEMENT AND PLAN OF MERGER dated as of , 1997 (this
"Agreement") is between Applied Digital Access, Inc., a Delaware corporation
("ADA Delaware"), and Applied Digital Access, Inc., a California corporation
("ADA California"). ADA Delaware and ADA California are sometimes referred to
herein as the "Constituent Corporations."
RECITALS
A. ADA Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has a total authorized capital stock of
37,500,000 shares. The number of shares of Preferred Stock authorized to be
issued is 7,500,000, par value $.001. No shares of Preferred Stock were
outstanding as of the date hereof and prior to giving effect to the transactions
contemplated hereby. The number of shares of Common Stock authorized to be
issued is 30,000,000, par value $.001. As of the date hereof, and before giving
effect to the transactions contemplated hereby, shares of Common Stock were
issued and outstanding, all of which were held by ADA California.
B. ADA California is a corporation duly organized and existing under the
laws of the State of California and has an authorized capital stock of
37,500,000 shares. The number of shares of Preferred Stock authorized to be
issued is 7,500,000, no par value, none of which are currently outstanding. The
number of shares of Common Stock authorized to be issued is 30,000,000, no par
value.
C. The Board of Directors of ADA California has determined that, for the
purpose of effecting the reincorporation of ADA California in the State of
Delaware, it is advisable and in the best interests of ADA California that ADA
California merge with and into ADA Delaware upon the terms and conditions herein
provided.
D. The respective Boards of Directors of ADA Delaware and ADA California
have approved this Agreement and have directed that this Agreement be submitted
to a vote of their respective stockholders and executed by the undersigned
officers.
E. ADA Delaware is a wholly-owned subsidiary of ADA California.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, ADA Delaware and ADA California hereby agree, subject to the terms
and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the General Corporation Law of the State of
California, ADA California shall be merged with and into ADA Delaware (the
"Merger"), the separate existence of ADA California shall cease and ADA Delaware
shall be, and is herein sometimes referred to as, the "Surviving Corporation,"
and the name of the Surviving Corporation shall be Applied Digital Access, Inc.
A-1
<PAGE> 35
1.2 Filing and Effectiveness. The Merger shall not become effective until
the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and approved
by the stockholders of ADA California and the sole stockholder of ADA
Delaware in accordance with the requirements of the Delaware General
Corporation Law and the General Corporation Law of the State of California;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the Delaware General Corporation
Law shall have been filed with the Secretary of State of the State of
Delaware; and
(d) An executed counterpart of this Agreement, a Certificate of
Ownership or any other document filed with the Secretary of State of the
State of Delaware pursuant to section (c) above, shall have been filed with
the Secretary of State of the State of California.
The date and time when the Merger shall become effective as aforesaid, is
herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of ADA California shall cease and ADA Delaware, as the
Surviving Corporation (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and ADA
California's Board of Directors, (iii) shall succeed, without other transfer, to
all of the assets, rights, powers and property of ADA California in the manner
more fully set forth in Section 259 of the General Corporation Law of the State
of Delaware, (iv) shall continue to be subject to all of the debts, liabilities
and obligations of ADA Delaware as constituted immediately prior to the
Effective Date of the Merger, and (v) shall succeed, without other transfer, to
all of the debts, liabilities and obligations of ADA California in the same
manner as if ADA Delaware had itself incurred them, all as more fully provided
under the applicable provisions of the General Corporation Law of the State of
Delaware and the General Corporation Law of the State of California.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of ADA
Delaware as in effect immediately prior to the Effective Date of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.2 Bylaws. The Bylaws of ADA Delaware as in effect immediately prior to
the Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of ADA Delaware
immediately prior to the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until their successors shall have been
duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 ADA California Common Shares. Upon the Effective Date of the Merger,
each share of ADA California Common Stock, no par value, issued and outstanding
immediately prior thereto shall by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such share or any other person,
be converted into and exchanged for one (1) fully paid and nonassessable share
of Common Stock, par value $.001 per share, of the Surviving Corporation.
A-2
<PAGE> 36
3.2 ADA California Options and Stock Purchase Rights. Upon the Effective
Date of the Merger, the Surviving Corporation shall assume and continue the
stock option plans (including the 1994 Employee Stock Purchase Plan and the 1994
Stock Option/Stock Issuance Plan) and all other employee benefit plans of ADA
California. Each outstanding and unexercised option, or other right to purchase
ADA California Common Stock shall become an option, or right to purchase the
Surviving Corporation's Common Stock on the basis of one (1) share of the
Surviving Corporation's Common Stock for each share of ADA California Common
Stock issuable pursuant to any such option, or stock purchase right on the same
terms and conditions and at an exercise price per share equal to the exercise
price per share applicable to any such ADA California option or stock purchase
right at the Effective Date of the Merger. There are no options or purchase
rights for Preferred Stock of ADA California.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options and stock purchase rights
equal to the number of shares of ADA California Common Stock so reserved
immediately prior to the Effective Date of the Merger.
3.3 ADA Delaware Common Stock. Upon the Effective Date of the Merger, each
share of Common Stock, par value $.001 per share, of ADA Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by ADA Delaware, the holder of such shares or any other person, be
cancelled and returned to the status of authorized but unissued shares.
3.4 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of ADA California
Common Stock may be asked to surrender the same for cancellation to an exchange
agent, whose name will be delivered to such holders prior to any requested
exchange (the "Exchange Agent"), and each such holder shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of shares of the Surviving Corporation's Common Stock into which the
surrendered shares were converted as herein provided. Until so surrendered, each
outstanding certificate theretofore representing shares of ADA California Common
Stock shall be deemed for all purposes to represent the number of shares of the
Surviving Corporation's Common Stock into which such shares of ADA California
Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of ADA California so
converted and given in exchange therefore, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws, or other such additional legends as agreed upon by the holder and the
Surviving Corporation.
If any certificate for shares of ADA Delaware stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and comply with applicable
securities laws and that the person requesting such transfer pay to the Exchange
Agent any transfer or other taxes payable by reason of issuance of such new
certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of ADA Delaware that
such tax has been paid or is not payable.
A-3
<PAGE> 37
IV. GENERAL
4.1 Covenants of ADA Delaware. ADA Delaware covenants and agrees that it
will, on or before the Effective Date of the Merger:
4.1.1 Qualify to do business as a foreign corporation in the State of
California.
4.1.2 File any and all documents with the California Franchise Tax
Board necessary for the assumption by ADA Delaware of all of the franchise tax
liabilities of ADA California.
4.1.3 Take such other actions as may be required by the General
Corporation Law of the State of California.
4.2 Further Assurances. From time to time, as and when required by ADA
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of ADA California such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by ADA Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of ADA California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of ADA Delaware are fully authorized
in the name and on behalf of ADA California or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either ADA California or of ADA
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of ADA California.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholder or shareholders of either Constituent Corporation
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of capital stock of
any Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation
in the State of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent
and the registered agent of the Surviving Corporation at such address is Corp
America, Inc.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 9855 Scranton Road,
San Diego, CA 92121, and copies thereof will be furnished to any stockholder or
shareholder of either Constituent Corporation, upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
4.8 Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
A-4
<PAGE> 38
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Boards of Directors of ADA Corporation, a Delaware
corporation, and ADA Corporation, a California corporation, is hereby executed
on behalf of each of such two corporations and attested by their respective
officers thereunto duly authorized.
ADA CORPORATION, a Delaware corporation
By:
----------------------------------------
Peter P. Savage
President and Chief Executive Officer
ATTEST:
- -----------------------------------
James L. Keefe
Secretary
ADA CORPORATION, a Delaware corporation
By:
----------------------------------------
Peter P. Savage
President and Chief Executive Officer
ATTEST:
- -----------------------------------
James L. Keefe
Secretary
[COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER]
A-5
<PAGE> 39
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF APPLIED DIGITAL ACCESS, INC.,
A DELAWARE CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
ARTICLE I
The name of this corporation is Applied Digital Access, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two classes
of stock, denominated Common Stock and Preferred Stock. The Common Stock shall
have a par value of $0.001 per share and the Preferred Stock shall have a par
value of $0.001 per share. The total number of shares of Common Stock which the
Corporation is authorized to issue is thirty million (30,000,000), and the total
number of shares of Preferred Stock which the Corporation is authorized to issue
is seven million five hundred thousand (7,500,000), which shares of Preferred
Stock shall be undesignated as to series.
(B) Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby authorized,
by filing one or more certificates pursuant to the Delaware General Corporation
Law (each, a "Preferred Stock Designation"), to fix or alter from time to time
the designations, powers, preferences and rights of each such series of
Preferred Stock and the qualifications, limitations or restrictions thereof,
including without limitation the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
wholly-unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
(C) Rights, Preferences, Privileges and Restrictions of Common Stock.
1. Dividend Rights. Subject to the prior or equal rights of holders of all
classes of stock at the time outstanding having prior or equal rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
B-1
<PAGE> 40
2. Redemption. The Common Stock is not redeemable upon demand of any holder
thereof or upon demand of this corporation.
3. Voting Rights. The holder of each share of Common Stock shall have the
right to one vote, and shall be entitled to notice of any stockholders' meeting
in accordance with the Bylaws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) Exculpation. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a director of the
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
(B) Indemnification. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) Effect of Repeal or Modification. Any repeal or modification of any of
the foregoing provisions of this Article V shall be prospective and shall not
adversely affect any right or protection of a director, officer, agent or other
person existing at the time of, or increase the liability of any director of the
corporation with respect to any acts or omissions of such director occurring
prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. The number of directors shall
be as specified in the Bylaws of the corporation. In no event will the number of
directors be less than three. Directors need not be stockholders.
ARTICLE VII
Newly created directorships resulting from any increase in the authorized
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office until such director's successor shall have been elected and
qualified.
ARTICLE VIII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any
B-2
<PAGE> 41
shares of any class, or series thereof, of stock may be issued or disposed of by
the Board of Directors to such persons, and on such terms and for such lawful
consideration as in its discretion it shall deem advisable or as the corporation
shall have by contract agreed.
ARTICLE IX
The corporation is to have a perpetual existence.
ARTICLE X
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate of Incorporation and/or any provision
contained in any amendment to or restatement of this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE XI
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XII
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XIII
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE XIV
The name and the mailing address of the Sole Incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
- ------------------- --------------------------------------------------
<S> <C>
Ross L. Burningham Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
</TABLE>
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed this
day of , 1997 by the undersigned who affirms that the statements
made herein are true and correct.
--------------------------------------
Ross L. Burningham, Sole Incorporator
[SIGNATURE PAGE TO CERTIFICATE OF INCORPORATION
OF APPLIED DIGITAL ACCESS, INC.]
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EXHIBIT C
BYLAWS
OF
APPLIED DIGITAL ACCESS, INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office shall be in the City of
Dover, County of Kent, State of Delaware.
SECTION 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation no later than the date specified
in the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders, which date shall be not less
than one hundred twenty (120) calendar days in advance of the date of such proxy
statement; provided, however, that in the event that no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than thirty (30) days from the date contemplated at the time of the previous
year's proxy statement, notice by the stockholder to be timely must be so
received a reasonable time before the solicitation is made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and
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(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal. In
addition to the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act to the extent such regulations
require notice that is different from the notice required above. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b) of this Section 2. The chairman of the annual meeting shall, if
the facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation that are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to subitems (ii), (iii) and (iv) of
paragraph (b) of this Section 2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
SECTION 3. Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
SECTION 4. Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare and make, or have prepared and made, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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SECTION 5. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the Chief Executive Officer or Chairman of the
Board and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. The place, date and time of any
special meeting shall be determined by the Board of Directors. Such
determination shall include the record date for determining the stockholders
having the right of and to vote at such meeting.
SECTION 6. Notice of Special Meeting. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
SECTION 7. Action at Special Meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
SECTION 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation, as amended. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
(b) When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the Certificate of
Incorporation, as amended, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
SECTION 9. Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, as amended, each stockholder shall at every meeting of the
stockholders be entitled to one (1) vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy provides
for a longer period.
SECTION 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
SECTION 11. Inspectors of Election. Before any meeting of stockholders, the
Board of Directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may, and on the request
of any stockholder or a stockholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more stockholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the chairman of the meeting may, and upon the
request of any stockholder or a stockholder's proxy shall, appoint a person to
fill that vacancy.
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These inspectors shall:
(A) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(B) Receive votes, ballots, or consents;
(C) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(D) Count and tabulate all votes or consents;
(E) Determine when the polls shall close;
(F) Determine the result; and
(G) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Number, Term of Office and Qualification. The number of
directors which shall constitute the whole Board shall be fixed by resolution of
the Board of Directors, with the number initially fixed at five (5). The number
of directors shall be determined by resolution of a simple majority of the
directors then in office and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
SECTION 2. Vacancies. Vacancies may be filled only by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier death, resignation or removal. 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, the
directors then in office shall constitute less than a majority of the whole
Board of Directors (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 (10%) 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 to replace the directors
chosen by the directors then in office.
SECTION 3. Powers. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation, as amended, or by these Bylaws directed
or required to be exercised or done by the stockholders.
SECTION 4. Regular and Special Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of California.
SECTION 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held without notice other than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. In the
event the annual meeting of any newly elected Board of Directors shall not be
held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
SECTION 6. Notice of Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
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SECTION 7. Notice of Special Meetings. Special meetings of the Board of
Directors may be called by the Chief Executive Officer or President on no less
than forty-eight (48) hours notice to each director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two directors unless the Board of Directors
consists of only one director, in which case special meetings shall be called by
the Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of the sole director. A written waiver of notice,
signed by the person entitled thereto, whether before or after the time of the
meeting stated therein, shall be deemed equivalent to notice.
SECTION 8. Quorum. At all meetings of the Board of Directors a majority of
the directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation, as amended, or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
SECTION 11. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, as amended,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation, as amended, expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
SECTION 12. Fees and Compensation. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of
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Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 13. Removal. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended, the Board of Directors, or any
individual director, may be removed from office at any time only with cause by
the affirmative vote of the holders of at least a majority of shares entitled to
vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Notice. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation, as amended, or of these Bylaws, notice is required
to be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone, telegram and facsimile.
SECTION 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation, as
amended, or of these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. Enumeration. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a Chief Financial
Officer and a Secretary. The Board of Directors may elect from among its members
a Chairman of the Board. The Board of Directors may also choose a President, one
or more Vice Presidents and one or more Assistant Secretaries. Any number of
offices may be held by the same person, unless the Certificate of Incorporation,
as amended, or these Bylaws otherwise provide.
The compensation of all officers and agents of the corporation shall be
fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his also being a director of the
corporation.
SECTION 2. Election or Appointment. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chief Executive
Officer, Chief Financial Officer and a Secretary and may choose a President, one
or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
SECTION 3. Tenure, Removal and Vacancies. The officers of the corporation
shall hold office until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the corporation shall be filled by the Board of Directors.
SECTION 4. Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. He shall have and may exercise
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such powers as are, from time to time, assigned to him by the Board of Directors
and as may be provided by law.
SECTION 5. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a Chairman of the Board at all meetings of the
Board of Directors. He shall have the general powers and duties of management
usually vested in the Chief Executive Officer of a corporation, including
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
SECTION 6. President. Subject to such supervisory powers as may be given by
these Bylaws or the Board of Directors to the Chairman of the Board or the Chief
Executive Officer, if there be such officers, the President shall have general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws. In the event a Chief
Executive Officer shall not be appointed, the President shall have the duties of
such office.
SECTION 7. Vice Presidents. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence or disability of the President, act with all of the powers
and be subject to all the restrictions of the President. The Vice Presidents
shall also perform such other duties and have such other powers as the Board of
Directors, the President or these Bylaws may, from time to time, prescribe.
SECTION 8. Secretary. The Secretary shall attend all meetings of the Board
of Directors, all meetings of the committees thereof and all meetings of the
stockholders and record all the proceedings of the meetings in a book or books
to be kept for that purpose. Under the Chief Executive Officer's or President's
supervision, the Secretary shall give, or cause to be given, all notices
required to be given by these Bylaws or by law; shall have such powers and
perform such duties as the Board of Directors, the Chief Executive Officer, the
President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
SECTION 9. Assistant Secretary. The Assistant Secretary, if any, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, shall, in the absence, disability or refusal to act of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer, the President, the Secretary or these Bylaws may,
from time to time, prescribe.
SECTION 10. Chief Financial Officer. The Chief Financial Officer shall act
as Treasurer and shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors.
He shall disburse the funds of the corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
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If required by the Board of Directors, he shall give the corporation a bond
(which shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
SECTION 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
SECTION 12. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. Certificates of Stock. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the Chairman of the Board of Directors, or the President or a
Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Execution of Certificates. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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SECTION 4. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5. Fixing Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholder
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, and (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
SECTION 2. Indemnification of Other Officers, Employees and Other
Agents. The corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation Law.
SECTION 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a director or
executive officer shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe that his conduct was unlawful, if his action is
based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the corporation whom the
director or executive officer believed to be reliable and competent in the
matters presented;
(2) counsel, independent accountants or other persons as to matters
which the director or executive officer believed to be within such person's
professional competence; and
(3) with respect to a director, a committee of the Board of Directors
upon which such director does not serve, as to matters within such
committee's designated authority, which committee the director
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believes to merit confidence; so long as, in each case, the director or
executive officer acts without knowledge that would cause such reliance to
be unwarranted.
(b) The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth by the Delaware General
Corporation Law.
SECTION 4. Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 4 of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
SECTION 5. Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
SECTION 6. Non-Exclusivity of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
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SECTION 7. Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 8. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
SECTION 9. Amendments. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
SECTION 10. Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
SECTION 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the
testimony in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(d) References to a "director," "officer," "employee," or "agent" of
the corporation shall include, without limitation, situations where such
person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Bylaw.
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ARTICLE VIII
LOANS TO OFFICERS
SECTION 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IX
EXCESSIVE COMPENSATION
If the Internal Revenue Service disallows as a business deduction to the
corporation any part of the salary or other compensation paid by it to any
officer, director or employee, as being excessive compensation, that part
disallowed shall be repaid to the corporation by the officer, director or
employee.
ARTICLE X
GENERAL PROVISIONS
SECTION 1. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
as amended, if any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation, as amended.
SECTION 2. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 3. Execution of Corporate Instruments. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
SECTION 4. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SECTION 5. Corporate Seal. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
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ARTICLE XI
AMENDMENTS
SECTION 1. Amendments.
(a) Except as otherwise set forth in Section 9 of Article VII of these
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of a majority of the voting power of all of the then-
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended, to adopt, amend or
repeal Bylaws by a vote of the majority of the Board of Directors unless a
greater or different vote is required pursuant to the provisions of the Bylaws,
the Certificate of Incorporation or any applicable provision of law.
(b) Notwithstanding any other provisions of these Bylaws or any provision
of law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
Voting Stock required by law, the Certificate of Incorporation, as amended, or
any Preferred Stock Designation (as the term is defined in the Certificate of
Incorporation, as amended), the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this paragraph (b) or Section 2,
Section 5 or Section 10 of Article II or Section 1, Section 2 or Section 13 of
Article III or Article VIII or Article IX of these Bylaws.
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PROXY
APPLIED DIGITAL ACCESS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter P. Savage and James L. Keefe
jointly and severally, as proxies, with full power of substitution, to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of Applied Digital Access, Inc., to be held on Tuesday, May 20,
1997 or at any postponements or adjournments thereof, as specified below, and
to vote in his discretion on such other business as may properly come before
the Annual Meeting and any adjournments thereof.
(Please sign and date on reverse side)
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2 AND 3
1. Election of Directors:
Nominees: Kenneth E. Olson, Christopher B. Paisley, Peter P. Savage,
Edward F. Tuck.
[ ] Vote FOR all nominees (except as withheld in the space below)
[ ] Vote WITHHELD from all nominees
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below:
----------------------------------------------------------------------
2. Approval of reincorporation in Delaware.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification and approval of the selection of Coopers & Lybrand L.L.P., as
independent accountants for the fiscal year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Unless otherwise specified by the undersigned, this proxy will be voted
FOR Proposals 1, 2 and 3 and will be voted by the proxyholder at his discretion
as to any other matters properly transacted at the Meeting or any adjournments
thereof. To vote in accordance with the Board of Directors' recommendations
just sign below, no boxes need be checked.
Dated: , 19
------------------------ -----
---------------------------------------
Signature(s)
---------------------------------------
Printed Name(s)
---------------------------------------
Title(s)
Please sign exactly as name appears
hereon. If signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such, and, if signing for a corporation,
give your title. When shares are in the
names of more than one person, each
should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [ ]
