<PAGE> 1
DEFINITIVE PROXY STATEMENT
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission Only (as permitted
by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
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Tegal Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
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<PAGE> 2
TEGAL CORPORATION
2201 SOUTH MCDOWELL BOULEVARD
PETALUMA, CALIFORNIA 94955
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
SEPTEMBER 21, 1999
The annual meeting of stockholders of Tegal Corporation, a Delaware
corporation, will be held on Tuesday, September 21, 1999, at 1:30 p.m. local
time, at our headquarters at 2201 South McDowell Boulevard, Petaluma, California
94955 for the following purposes:
1. To elect five directors to serve for one year and until their successors
are duly elected and qualified. The names of the nominees to the board
of directors are set forth in the accompanying proxy statement which is
part of this notice.
2. To approve an amendment to our employee qualified stock purchase plan to
increase the number of shares available for issuance thereunder from
250,000 to 500,000.
3. To approve an amendment to our 1998 equity plan to increase the number
of shares available for issuance thereunder from 600,000 to 900,000.
4. To transact such other business as may properly come before the annual
meeting and any adjournments of the annual meeting.
The board of directors has fixed the close of business on July 30, 1999 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the annual meeting or at any adjournments of the annual meeting.
In order to ensure your representation at the annual meeting, you are
requested to sign and date the enclosed proxy as promptly as possible and return
it in the enclosed envelope (to which no postage need be affixed if mailed in
the United States). If you attend the annual meeting and file with the Secretary
of Tegal Corporation an instrument revoking your proxy or a duly executed proxy
bearing a later date, your proxy will not be used.
All stockholders are cordially invited to attend the annual meeting.
By Order of the Board of Directors
TEGAL CORPORATION
LOGO
DAVID CURTIS
Secretary
Petaluma, California
August 10, 1999
<PAGE> 3
TEGAL CORPORATION
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 21, 1999
------------------------
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies in the form enclosed for use at the annual meeting of stockholders of
Tegal Corporation, a Delaware corporation, to be held at 1:30 p.m. local time on
Tuesday, September 21, 1999 and at any adjournments of the annual meeting for
the purposes of (1) electing five directors, (2) approving an amendment to our
employee qualified stock purchase plan to increase the number of shares
available for issuance thereunder from 250,000 to 500,000, (3) approving an
amendment to our 1998 equity plan to increase the number of shares available for
issuance thereunder from 600,000 to 900,000 and (4) to transact such other
business as may properly come before the annual meeting and any adjournments of
the annual meeting. The approximate date when this proxy statement and
accompanying proxy are first being sent to stockholders is August 10, 1999.
This solicitation is made on behalf of our board of directors. Costs of the
solicitation will be borne by us. Our directors, officers and employees and our
subsidiaries may also solicit proxies by telephone, telegraph, fax or personal
interview. We will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to stockholders.
Holders of record of our common stock, par value $0.01 per share, as of the
close of business on July 30, 1999 are entitled to receive notice of, and to
vote at, the annual meeting. The outstanding common stock constitutes the only
class of our securities entitled to vote at the annual meeting, and each share
of common stock entitles the holder to one vote. At the close of business on
July 15, 1999, there were 10,761,588 shares of common stock issued and
outstanding. Two or more stockholders representing a majority of the outstanding
shares must be present in person or by proxy to constitute a quorum for the
transaction of business at the annual meeting.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted FOR
- the election of all of the directors nominated below;
- the amendment to our employee qualified stock purchase plan to increase
the number of shares available for issuance thereunder from 250,000 to
500,000; and
- the amendment to our 1998 equity plan to increase the number of shares
available for issuance thereunder from 600,000 to 900,000.
With respect to any other business which may properly come before the
annual meeting and be submitted to a vote of stockholders, proxies received by
the board of directors will be voted in accordance with the best judgment of the
designated proxy holders. Any proxy may be revoked at any time before it is
exercised by filing with the Secretary an instrument revoking it or by
submitting prior to the time of the annual meeting a duly executed proxy bearing
a later date. Stockholders who have executed and returned a proxy and who then
attend the annual meeting and desire to vote in person are requested to so
notify the Secretary prior to the time of the annual meeting.
Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the annual meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal or proposals) will be counted as
shares that are present and
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<PAGE> 4
entitled to vote for purposes of determining the presence of a quorum, but are
not considered as votes "cast" for the purpose of determining the outcome of a
proposal.
In voting for the election of directors each share has one vote for each
position to be filled, and there is no cumulative voting, which means that a
simple majority of the shares voting may elect all of the directors. The
amendment to the employee qualified stock purchase plan requires the approval of
a majority of the outstanding shares of Tegal's common stock. The amendment to
the 1998 equity plan requires the approval of a majority of the shares of common
stock present and entitled to vote at the annual meeting.
Our principal executive offices are located at 2201 South McDowell
Boulevard, Petaluma, California 94955. Our telephone number is (707) 763-5600.
GENERAL INFORMATION
We were formed in December 1989 to acquire the operations of the former
Tegal Corporation, a division of Motorola, Inc. The predecessor company was
founded in 1972 and acquired by Motorola in 1978.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Our board of directors is currently comprised of five members. Directors
are elected at each annual meeting and hold office until their successors are
duly elected and qualified at the next annual meeting. Pursuant to our bylaws,
and a resolution adopted by the board of directors, the authorized number of
members of the board of directors has been set at six. Our bylaws require that
there be a minimum of two and maximum of eight members of the board of
directors.
In the absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the election of the
five nominees designated below to serve until the 2000 annual meeting of
stockholders and until their respective successors shall have been elected and
qualified. Messrs. Parodi, Krauss, Mika, Nazem and Dohring are our current
directors. The board of directors expects that each of the nominees will be
available to serve as a director, but if any such nominee should become
unavailable for election, it is intended that the shares represented by the
proxy will be voted for such substitute nominee as may be designated by the
board of directors.
NOMINEES FOR ELECTION AS DIRECTOR
<TABLE>
<CAPTION>
DIRECTOR NEW TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- -----------
<S> <C> <C> <C>
Michael L. Parodi........................................ 51 1997 2000
Jeffrey M. Krauss........................................ 42 1992 2000
Thomas R. Mika........................................... 48 1992 2000
Fred Nazem............................................... 58 1995 2000
Edward A. Dohring........................................ 66 1996 2000
</TABLE>
Michael L. Parodi joined Tegal as director, President and Chief Executive
Officer in December 1997. He was elected to the additional post of Chairman of
the Board in March 1999. From 1991 to 1996, Mr. Parodi was Chairman of the
Board, President and Chief Executive Officer of Semiconductor Systems, Inc., a
manufacturer of photolithography processing equipment sold to the semiconductor
and thin film head markets until Semiconductor Systems, Inc. was merged with FSI
International. Mr. Parodi remained with FSI International as Executive Vice
President and General Manager of Semiconductor Systems, Inc. from the time of
the merger to December 1997, integrating Semiconductor Systems, Inc. into FSI
International. In 1990, Mr. Parodi led the acquisition of Semiconductor Systems,
Inc. from General Signal Corporation. Prior to 1990, Mr. Parodi held various
senior engineering and operations management positions with General Signal
Corporation, Signetics Corporation, Raytheon Company, Fairchild Semiconductor
Corporation and National
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<PAGE> 5
Semiconductor Corporation. Mr. Parodi currently is a member of the Semiconductor
Equipment and Materials International and the U.S. Display Consortium Boards of
Directors.
Jeffrey M. Krauss has served as a director of Tegal since June 1992. Since
1990, Mr. Krauss has been a general partner of the general partner of Nazem &
Company III, L.P. and Nazem & Company IV, L.P., venture capital funds. He is
also a general partner of The Transatlantic Fund, a joint venture between Nazem
& Company and Banque Nationale de Paris of France. Prior to joining Nazem &
Company, Mr. Krauss was a corporate attorney with the law firm of Simpson
Thacher & Bartlett, where he specialized in leveraged buyout transactions.
Thomas R. Mika has served as a director of Tegal since June 1992. Since
January 1982, he has been the Managing Director of International Management
Technology Corporation, a private investment firm active in the management of
several companies. Since January 1995, he has been the President and Chief
Executive Officer of Soupmasters International, Inc. and Vice President of
Pacific Partners -- Royal Oak Ventures, Inc.
Fred Nazem has served as a director of Tegal since March 1995. Since 1981,
he has been President of Nazem Inc. and Managing General Partner of the general
partner of, respectively, Nazem & Company, L.P., Nazem & Company II, L.P., Nazem
& Company III, L.P. and Nazem & Company IV, L.P., which are all affiliated
venture capital funds. He is also a general partner of The Transatlantic Fund, a
joint venture between Nazem & Company and Banque Nationale de Paris of France.
Edward A. Dohring has served as a director of Tegal since September 1996.
From October 1994 through December 1998, he was the President of SVG Lithography
Systems, Inc., a subsidiary of Silicon Valley Group, Inc. From July 1992 to
October 1994 he was President of the Track Division of Silicon Valley Group,
Inc. Prior to joining Silicon Valley Group, Inc., Mr. Dohring was the President
of Advantage Production Technology, Inc. from 1991 to 1992, when it was sold to
Genus. Mr. Dohring was a member of the Semiconductor Equipment and Materials
International board of directors from 1977 to 1989.
All directors hold office until our next annual meeting of the stockholders
or until their successors have been duly elected or qualified. There are no
family relationships between any of our directors or executive officers.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
In fiscal year 1999, the board of directors held eight meetings (including
four written consents in lieu of meetings). Each director attended at least 75%
of the total number of board meetings and meetings of board committees on which
the director served during the time he served on the board or committees.
The board of directors has established an audit committee and a
compensation committee. The audit committee, consisting of Messrs. Dohring,
Krauss and Mika, reviews the adequacy of internal controls and the results and
scope of the audit and other services provided by our independent auditors. The
audit committee meets periodically with management and the independent auditors.
The audit committee held one meeting in fiscal 1999.
For fiscal 1999, the compensation committee was comprised of Messrs.
Dohring, Mika and Krauss. The compensation committee held three meetings in
fiscal 1999. The functions of the compensation committee include establishing
salaries, incentives and other forms of compensation for our officers and other
employees and administering our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Our outside directors currently receive an annual $12,000 retainer for
service on the board of directors, meeting fees of $1,500 per board meeting and
$1,125 per committee meeting. All director compensation has been temporarily
reduced by 10% since September 1998. Furthermore, directors may be reimbursed
for certain expenses in connection with attendance at board and committee
meetings. In addition, we provide the Stock Option Plan for Outside Directors,
pursuant to which non-employee directors receive stock options for serving on
our board of directors.
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<PAGE> 6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For fiscal 1999, the compensation committee was comprised of three
directors: Messrs. Dohring, Mika and Krauss. Mr. Krauss is a General Partner of
Nazem and Associates III, L.P., a venture capital firm, which is the general
partner of Nazem & Company III, L.P. Mr. Mika is the Managing Director of
International Management Technology Corporation. Mr. Dohring is the retired
President of SVG Lithography Systems, Inc., a subsidiary of Silicon Valley
Group, Inc. For a more detailed description of each of these individuals'
backgrounds, see "Election of Directors."
COMPENSATION COMMITTEE REPORT
The information set forth below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent we specifically incorporate this
information by reference, and shall not otherwise be deemed filed under such
Acts.
* * *
The compensation committee of the board of directors has furnished the
following report on executive compensation.
OVERALL POLICY
In formulating the executive compensation program, the compensation
committee's objectives were (1) to attract and retain competent executive talent
and motivate executive officers to perform to the full extent of their
abilities, (2) to tie a significant portion of executive compensation to the
achievement of specified performance goals for Tegal, and (3) to link executive
and stockholder interests through equity based plans.
The key elements of our executive compensation program consist of base
salary, cash bonuses and stock options.
BASE SALARY
Each executive's base salary is reviewed annually, but as a general rule,
significant base salary increases are limited to promotions, while lesser
adjustments are made as appropriate after taking into account such factors as
internal equity, comparable market salaries paid to individuals of comparable
responsibility and company size and increases in levels of responsibility. All
salaries are based on sustained individual performance toward our goals and
objectives.
Pursuant to an employment agreement dated December 16, 1997 between Tegal
and Stephen P. DeOrnellas, our Vice President, Technology and Corporate
Development and Chief Technical Officer, Mr. DeOrnellas will receive a base
salary of $165,000, which has been temporarily reduced by 10% since September
1998, and certain other benefits set forth in the DeOrnellas Agreement. The
DeOrnellas employment agreement shall expire on December 16, 2000. See -- "Chief
Executive Officer Compensation" regarding the employment agreement of the Chief
Executive Officer.
On June 11, 1996, the board of directors approved a severance arrangement
in the event of a change of control of Tegal. If an executive officer is
terminated as a result of a change of control, we shall continue to pay such
executive officer's base salary and certain benefits for a period of twelve
months.
BONUS PROGRAMS
In fiscal 1997, our board of directors concluded that we were not providing
competitive compensation packages for a number of our executive and management
employees without offering an annual incentive
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<PAGE> 7
bonus plan. In order to motivate executives and managers in the attainment of
our annual goals and to enhance our ability to attract and retain key managerial
employees through a competitive compensation package, the board approved the
adoption of an annual performance bonus plan for executives and managers
designated by the Chief Executive Officer and approved by the board of
directors. Each designated position has an annual bonus incentive target
expressed as a percentage of that executive's or manager's base salary. The
attainment of the target bonus is determined by the degree to which an
individual achieves specific annual objectives determined annually and reviewed
and approved by the board of directors for all executives who report directly to
the Chief Executive Officer, and by the degree to which we achieve our annual
financial plan. No bonuses are to be paid unless we realize a minimum of 5
percent profit before taxes as a percent of revenue. Incentives are prorated if
we exceed or fall short of our annual financial plan goals, with the incentive
maximums capped at 250% of target bonus amounts.
STOCK OPTIONS
We provide long-term incentive compensation through our equity plan which
generally gives the board of directors authority to grant stock options as well
as other types of awards. Stock options are designed to align the interests of
executives and key personnel with those of the stockholders. The board of
directors believes that significant equity interests in Tegal held by our
management serve to retain and motivate management.
The board of directors' decision whether to grant options and the number of
options are based primarily on the individual executive's responsibility,
performance and existing stock ownership. In fiscal 1999, the board of directors
made awards based on the board of directors' assessment of the individual
executive's contribution to our success in meeting our financial goals. This
assessment was based primarily on our earnings and the level of the executive's
responsibility. The awards also were made based on non-financial performance
measures such as individual performance, the recommendations of the Chief
Executive Officer of Tegal and the success in implementing our long-term
strategic plan. It is expected that most awards under the 1998 equity plan, will
be stock options which will generally be granted with an exercise price equal to
the market price of the common stock on the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation committee is charged with establishing the objectives and
compensation of Michael L. Parodi, the Chief Executive Officer of Tegal, who is
responsible for our strategic and financial performance. Mr. Parodi became the
Chief Executive Officer of Tegal in December 1997. The compensation committee
determines our Chief Executive Officer's compensation package based upon the
general factors discussed above and upon an evaluation of compensation paid to
chief executive officers at comparable public companies and other companies in
our industry.
Pursuant to a three-year employment agreement, Mr. Parodi will receive a
base salary of $250,000 or such higher rate as may from time to time be granted
in accordance with our normal review procedures and policies in return for Mr.
Parodi's services as the Chief Executive Officer. Mr. Parodi's current salary is
$250,000, which has been temporarily reduced by 10% since September 1998. In
addition, Mr. Parodi is eligible to receive a maximum bonus of 50% of his base
salary upon the achievement of certain goals established by the board of
directors at the beginning of each fiscal year. For fiscal 1999, Mr. Parodi did
not receive a bonus. Pursuant to the employment agreement, Mr. Parodi was
granted (1) an option to purchase 260,000 shares of common stock, subject to our
repurchase rights expiring over a four year period and (2) an option to purchase
240,000 shares of common stock, subject to our right of repurchase expiring in
installments of 60,000 when the closing price of our common stock reaches
certain prices for ten or more consecutive trading days. The board of directors
determines the actual bonus payable based upon the recommendation of the
compensation committee. Such recommendation by the compensation committee is
based on our overall performance against specific strategic and financial goals
which are determined at the beginning of the fiscal year.
The compensation committee and Mr. Parodi believe that currently he is
adequately incentivized to enhance profitability and stockholder value through
his compensation package and his ownership of options.
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<PAGE> 8
The compensation committee continues to retain the discretion to change the
amount and form of compensation payable to Mr. Parodi.
CONCLUSION
Through the programs described above, a significant portion of the each
executive's compensation is now linked directly to our financial performance.
The policy of these programs is to award bonuses based on our success as well as
to provide incentives to executives to enhance our financial performance and
long-term stockholder value.
Edward A. Dohring
Thomas R. Mika
Jeffrey Krauss
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended March 31, 1997, 1998
and 1999, the cash compensation paid by us and our subsidiaries as well as
certain other compensation paid or accrued for those years for services in all
capacities to the person serving as the Chief Executive Officer of Tegal during
fiscal 1999 and the other four most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 in fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
--------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS ($)(3)
--------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael L. Parodi(1)......................... 1999 223,348 -- -- 17,109
Chairman of the Board, President and 1998 57,690 9,690 500,000 4,354
Chief Executive Officer 1997 -- -- -- --
David Curtis................................. 1999 156,342 -- 100,000 189
Vice President, Finance and 1998 150,010 -- 50,000 254
Administration, Chief Financial Officer, 1997 150,100 17,325 50,100 254
Secretary and Treasurer
Stephen P. DeOrnellas........................ 1999 156,676 -- 100,000 341
Vice President, Technology and 1998 165,007 -- 50,000 381
Corporate Development, Chief Technical
Officer 1997 148,554 16,975 50,100 409
James D. McKibben............................ 1999 151,073 31,933 100,000 6,776
Vice President, Worldwide 1998 159,994 46,719 50,000 6,938
Marketing and Sales 1997 116,302 26,321 60,100 5,267
Colin C. Tierney(2).......................... 1999 98,722 80,000 120,000 4,274
Vice President, Worldwide 1998 -- -- -- --
Operations and Customer Support 1997 -- -- -- --
</TABLE>
- ---------------
(1) Mr. Parodi joined Tegal on December 17, 1997.
(2) Mr. Tierney joined Tegal on September 17, 1998 and received a signing bonus
of $80,000 in connection with commencement of his employment.
(3) For Messrs. Curtis and DeOrnellas, amounts represent contributions made by
us under our 401(k) plan. Other compensation in fiscal 1999 for Messrs.
Parodi, McKibben and Tierney consists of $16,800, $6,180 and $3,880,
respectively, in car allowance paid by us and $309, $596 and $394,
respectively, in 401(k) plan contributions made by us.
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<PAGE> 9
OPTION GRANTS IN 1999 FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during fiscal 1999 to each of the individuals identified in
the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED IN EXERCISE OPTION TERM(2)
OPTIONS FISCAL PRICE ---------------------
NAME GRANTED(#)(1) 1999 ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ------------- ---------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael L. Parodi............. -- -- -- -- -- --
David Curtis.................. 50,000 6.73% 1.50 10/13/08 169,334 314,061
50,000 6.73% 3.38 12/15/08 75,584 220,311
Stephen P. DeOrnellas......... 50,000 6.73% 1.50 10/13/08 169,334 314,061
50,000 6.73% 3.38 12/15/08 75,584 220,311
James D. McKibben............. 50,000 6.73% 1.50 10/13/08 169,334 314,061
50,000 6.73% 3.38 12/15/08 75,584 220,311
Colin C. Tierney.............. 120,000 16.16% 2.19 9/17/08 323,842 671,187
</TABLE>
- ---------------
(1) Stock acquired pursuant to the exercise of options may be subject to our
right of repurchase upon termination of employment or consulting at the
original exercise price for up to four years from the date the options were
granted, with our right of repurchase partially expiring over that period of
time.
(2) The assumed annual rates of appreciation in the table are shown for
illustrative purposes only pursuant to applicable requirements. Actual
values realized on stock options are dependent on actual future performance
of Tegal's stock, among other factors. Accordingly, the amounts shown may
not necessarily be realized.
AGGREGATED OPTION EXERCISES DURING 1999
FISCAL YEAR AND 1999 FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercise of stock
options during fiscal 1999 by each of the individuals identified in the Summary
Compensation Table and the value of options at the end of fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT IN-THE-MONEY OPTIONS
NAME EXERCISE(#) ($) 1999 YEAR-END(#)(A) AT 1999 YEAR-END($)(A)(B)
---- ----------- -------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Michael L. Parodi................. -- -- 500,000 0
David Curtis...................... -- -- 220,100 75,000
Stephen P. DeOrnellas............. -- -- 322,995 120,562
James D. McKibben................. -- -- 210,100 75,000
Colin C. Tierney.................. -- -- 120,000 97,440
</TABLE>
- ---------------
(a) The options are immediately exercisable, but may be subject to our right of
repurchase upon termination of employment or consulting at the original
exercise price for up to four years from the date of grant.
(b) Potential unrealized value is (1) the fair market value at fiscal 1999
year-end ($3 per share) less the exercise price of "in-the-money,"
unexercised options times (2) the number of shares represented by such
options.
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<PAGE> 10
APPROVAL OF THE AMENDMENT TO
THE EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
(PROPOSAL NO. 2)
THE EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
On July 21, 1999, our board of directors, subject to stockholder approval,
unanimously adopted the amendment to the employee qualified stock purchase plan
increasing the number of shares available for issuance under the plan from
250,000 to 500,000.
The board of directors believes that the employee qualified stock purchase
plan, as amended, is desirable:
- to assist our employees and the employees of our subsidiaries in
acquiring a stock ownership interest in Tegal pursuant to a plan which is
intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423(b) of the Internal Revenue Code of 1986, as
amended; and
- to encourage employees to remain in our employment and the employment of
our subsidiaries.
Through July 15, 1999, 250,000 shares of common stock were reserved for
issuance upon exercise of options under the employee qualified stock purchase
plan as presently in effect. As of July 15, 1999, 834 shares remain issuable
under the employee qualified stock purchase plan.
The principal features of the employee qualified stock purchase plan, as
amended, are summarized below, but the summary is qualified in its entirety by
reference to the employee stock purchase plan, as amended, which is attached as
Appendix A to this proxy statement.
The employee qualified stock purchase plan is administered by a committee
composed of at least two members of the board, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 which has been adopted by the
Securities and Exchange Commission under the Exchange Act. The committee has the
power to interpret the employee qualified stock purchase plan and the terms of
the options issued under the plan and to adopt such rules for the
administration, interpretation and application of the plan as are consistent
with the plan and to interpret, amend or revoke any such rules.
Options will be granted to any eligible employee of Tegal or its
subsidiaries:
- who does not immediately after the option is granted, own stock
possessing five percent or more of the total combined voting power or
value of all classes of stock of Tegal;
- who has been employed by Tegal for at least three months;
- whose customary employment is for more than 20 hours per week; and
- whose customary employment is for more than five months in any calendar
year.
A maximum of 500,000 shares of common stock may be issued upon exercise of
options granted under the employee qualified stock purchase plan. Eligible
employees shall be granted options under the plan in successive six-month
offering periods upon an eligible employee's election to participate in the plan
until the earlier of (1) the date when the number of shares of stock available
under the plan have been sold or (2) the date when the plan is terminated. The
date of grant shall be January 1 or July 1 of each six month plan period. Each
option shall expire on the date of exercise immediately after the automatic
exercise of the option in accordance with the plan. The number of shares of
stock subject to each option shall equal the payroll deductions authorized by
each participant, divided by the option price; provided, however, that the
maximum number of shares subject to any option shall not exceed 2,500.
Eligible employees shall participate in the plan only by means of payroll
deduction. Each eligible employee who elects to participate in the plan shall
deliver during the calendar month preceding a date of grant, no later than five
working days before the date of grant, a completed and executed written payroll
deduction authorization in a form prepared by Tegal. An eligible employee's
authorization shall give notice of the eligible employee's election to
participate in the plan for the next following offering period and subsequent
8
<PAGE> 11
offering periods and shall designate a stated whole dollar amount or percent of
eligible compensation to be withheld on each payday. The amount withheld shall
not be less than $10.00 each payday and the stated amount shall not exceed 10%
of eligible compensation. The cash compensation payable to a participant for an
offering period shall be reduced each payday through a payroll deduction in an
amount equal to the stated withdrawal amount specified in the authorization
payable on such payday, and such amount shall be credited to the participant's
account under the plan. Any authorization shall remain in effect until the
eligible employee amends the authorization, withdraws in accordance with the
plan or ceases to be an eligible employee.
No eligible employee shall be granted an option under the plan which
permits his rights to purchase stock under the plan and under all other employee
stock purchase plans of Tegal, any parent corporation or any subsidiary
corporation subject to Section 423 of the Internal Revenue Code to accrue at a
rate which exceeds $25,000 of fair market value of such stock (determined at the
time the option is granted) for each calendar year. For the purpose of this
limitation, the right to purchase stock under an option accrues when the option
(or any portion of the option) first becomes exercisable during the calendar
year, the right to purchase stock under an option accrues at the rate provided
in the option, but in no case may such rate exceed $25,000 of the fair market
value of such stock (determined at the time the option is granted) for any one
calendar year, and a right to purchase stock which has accrued under an option
may not be carried over to any other option.
During a leave of absence meeting the requirements of Treasury Regulation
Section 1.421-7(h)(2), a participant may continue to participate in the plan by
making cash payments on each payday equal to the amount of the participant's
payroll deductions under the plan for the payday immediately preceding the first
day of the participant's leave of absence.
The option price per share of stock to be paid by a participant upon the
exercise of the participant's option shall be equal to 85% of the lesser of the
fair market value of a share of stock on the date of exercise or the fair market
value of a share of stock on the date of grant. The fair market value of a share
of stock as of a given date shall be:
- the closing price of a share of stock on the principal exchange on which
the stock is then trading, if any, on such date, or, if shares were not
traded on such date, then on the next preceding trading day during which
a sale occurred;
- if the stock is not traded on an exchange but is quoted on Nasdaq or a
successor quotation system, (1) the last sales price (if the stock is
then listed as a National Market Issue under the NASD National Market
System) or (2) the mean between the closing representative bid and asked
prices (in all other cases) for a share of the stock on such date, or, if
shares were not traded on such date, then on the next preceding trading
day during which a sale occurred, as reported by Nasdaq or such successor
quotation system;
- if the stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the mean between the closing bid
and asked prices for a share of stock on such date, or, if shares were
not traded on such date, then on the next preceding trading day during
which a sale occurred, as determined in good faith by the committee; or
- if the stock is not publicly traded, the fair market value of a share of
stock established by the committee acting in good faith.
An option granted under the plan shall not be transferable other than by
will or the laws of descent and distribution, and is exercisable during the
participant's lifetime only by the participant. Except upon the participant's
death, an option may not be exercised to any extent except by the participant.
Tegal shall not recognize and shall be under no duty to recognize any assignment
or alienation of the participant's interest in the plan, the participant's
option or any rights under the participant's option.
9
<PAGE> 12
The board of directors may amend, suspend, or terminate the plan at any
time and from time to time, provided that approval by a vote of the holders of
more than 50% of the outstanding shares of Tegal's capital stock entitled to
vote is required to amend the plan:
- to change the number of shares of stock reserved for sale pursuant to
options under the plan;
- to decrease the option price below a price computed in the manner stated
in the plan;
- to alter the requirements for eligibility to participate in the plan; or
- in any manner that would cause the plan to no longer be an "employee
stock purchase plan" within the meaning of Section 423(b) of the Internal
Revenue Code.
FEDERAL INCOME TAXES
The following discussion is a general summary of the material federal
income tax consequences to participants in the employee qualified stock purchase
plan. The discussion is based on the Internal Revenue Code of 1986, as amended
("Internal Revenue Code" or "Code"), regulations thereunder, rulings and
decisions now in effect, all of which are subject to change. The summary does
not discuss all aspects of federal income taxation that may be relevant to a
particular participant in light of such participant's personal investment
circumstances. Also, state and local income taxes are not discussed and may vary
from locality to locality.
The plan is intended to meet the requirements of an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. Neither the grant
of the right to purchase shares, nor the purchase of shares, under the plan has
a federal income tax effect on the participant or Tegal. Any United States tax
liability to the employee and the tax deductions to Tegal are deferred until the
participant sells the shares, disposes of the shares by gift or dies.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased ("date of grant") or if the participant dies
while owning the shares regardless of how long they were held, gain on the sale
or other disposition of the shares constitutes ordinary income to the
participant (with no corresponding deduction to Tegal) to the extent of the
lesser of (i) the amount by which the fair market value of the shares at the
date of grant exceeds the participant's purchase price, or (ii) the amount by
which the fair market value of the shares on the date of sale, gift or death,
exceeds the participant's purchase price. Any additional gain is capital gain.
If the shares are sold or disposed of prior to meeting both of the holding
periods, the participant recognizes ordinary income (and Tegal receives a
corresponding deduction subject to Section 162(m) of the Internal Revenue Code)
to the extent that the fair market value of the shares at the date of exercise
of the option exceeds the option price. Any appreciation or depreciation after
the date of the participant's purchase is treated as capital gain or loss.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE EMPLOYEE QUALIFIED STOCK PURCHASE PLAN.
10
<PAGE> 13
APPROVAL OF THE AMENDMENT TO
THE 1998 EQUITY PARTICIPATION PLAN
(PROPOSAL NO. 3)
THE 1998 EQUITY PARTICIPATION PLAN
On July 21, 1999, the board of directors, subject to stockholder approval,
unanimously adopted the amendment to the 1998 equity plan increasing the number
of shares available for issuance under the 1998 equity plan from 600,000 to
900,000.
The board of directors believes that the 1998 equity plan, as amended, is
desirable:
- to provide an incentive for key employees and consultants of Tegal to
further the growth, development and financial success of Tegal by
personally benefiting through the ownership of Tegal's stock and/or
rights which recognize such growth, development and financial success;
and
- to enable Tegal to obtain and retain the services of key employee and
consultants considered essential in the long-range success of Tegal by
offering them an opportunity to own stock in Tegal and/or rights which
will reflect the growth, development and financial success of Tegal.
Through July 15, 1999, 600,000 shares of common stock were reserved for
issuance upon exercise of options under the 1998 equity plan as presently in
effect. As of July 15, 1999, all 600,000 shares remain issuable under the 1998
equity plan, and no shares were subject to outstanding options.
The principal features of the 1998 equity plan, as amended, are summarized
below, but the summary is qualified in its entirety by reference to the 1998
equity plan, as amended, which is attached as Appendix B to this proxy
statement.
Under the 1998 equity plan, not more than 900,000 shares of common stock
(or the equivalent in other equity securities) are authorized for issuance upon
exercise of options and stock appreciation rights ("SARs") or upon vesting of
restricted stock awards. Furthermore, the maximum number of shares that may be
subject to any award granted under the 1998 equity plan to any individual in any
calendar year cannot exceed 600,000. The shares available under the 1998 equity
plan upon exercise of options and SARs and for issuance as restricted stock may
be either previously authorized but unissued shares or treasury shares, and may
be equity securities other than common stock. The 1998 equity plan provides for
appropriate adjustments in the number and kind of shares subject to the 1998
equity plan and to outstanding grants thereunder (including acceleration of
vesting in some instances) in the event of a change in control or a
recapitalization such as a stock split or stock dividend. If any portion of an
option, SAR or restricted stock award terminates or lapses unexercised, or is
canceled upon grant of a new option, SAR or restricted stock award (which may be
at a higher or lower exercise price than the option, SAR or restricted stock
award so canceled), the shares which were subject to the unexercised portion of
such option, SAR or restricted stock award, will continue to be available for
issuance under the 1998 equity plan.
The compensation committee or another committee or a subcommittee of the
board assuming the functions of the compensation committee under the 1998 equity
plan administer the 1998 equity plan. The committee consists of two or more
independent directors appointed by and holding office at the pleasure of the
board, each of whom is both a "non-employee director" for purposes of Rule 16b-3
("Rule 16b-3") under the Exchange Act and an "outside director" for purposes of
Section 162(m) of the Internal Revenue Code. Appointment of committee members
shall be effective upon acceptance of appointment. Committee members may resign
at any time by delivering written notice to the board. Vacancies in the
committee may be filled by the board. The committee will have the power to
interpret the 1998 equity plan and to adopt such rules for the administration,
interpretation, and application of the 1998 equity plan as are consistent
therewith, to interpret, amend or revoke any such rules. The board will have
discretion to exercise any and all rights and duties of the committee under the
1998 equity plan except with respect to matters which under Rule 16b-3 or
Section 162(m) of the Internal Revenue Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
committee.
11
<PAGE> 14
Options, restricted stock awards and SARs under the 1998 equity plan may be
granted to committee-selected individuals who are then our employees or
consultants.
The 1998 equity plan provides that we may grant or issue stock options,
restricted stock and SARs or any combination of stock options, restricted stock
and SARs. The terms and conditions of each award will be set forth in a separate
award agreement between the holder of the award and us.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
common stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code, may be less than fair market value on the date of grant
(but not less than 85% of fair market value), and usually will become
exercisable, in the discretion of the committee in one or more installments
after the grant date, subject to the participant's continued provision of
services to us and/or subject to the satisfaction of individual or company
performance targets established by the committee. NQSOs may be granted for any
term specified by the committee.
Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Internal Revenue Code and will be subject to certain
restrictions contained in the Internal Revenue Code. Among such restrictions,
ISOs must have an exercise price not less than the fair market value of a share
of common stock on the date of grant, may only be granted to employees, must
expire within a specified period of time following the optionee's termination of
employment, and must be exercised within the ten years after the date of grant,
but may be subsequently modified to disqualify them from treatment as ISOs. In
the case of an ISO granted to an individual who owns (or is deemed to own) at
least 10% of the total combined voting power of all classes of our stock, the
1998 equity plan provides that the exercise price must be at least 110% of the
fair market value of a share of common stock on the date of grant, and the ISO
must expire upon the fifth anniversary of the date of its grant.
Restricted Stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the board or committee. Restricted stock, typically, may be repurchased by us at
the original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock will have all the rights of a stockholder with respect to such restricted
stock, including the right to receive all dividends and other distributions paid
or made with respect to the shares prior to the time when the restrictions
lapse.
Stock Appreciation Rights ("SARs") may be granted in connection with stock
options, or separately. SARs granted by the committee in connection with stock
options typically will provide for payments to the holder based upon increases
in the price of our common stock over the exercise price of the related option.
SARs granted by the committee independent of a stock option typically will
provide for payments to the holder based upon increases in the price of our
common stock over the exercise price of such independent SAR. Except as required
by Section 162(m) of the Internal Revenue Code with respect to a SAR which is
intended to qualify as performance-based compensation as described in Section
162(m) of the Internal Revenue Code, there are no restrictions specified in the
1998 equity plan on the exercise of SARs or the amount of gain realizable
therefrom, although restrictions may be imposed by the committee in the SAR
agreements. The committee may elect to pay SARs in cash or in common stock or in
a combination of both.
SECURITIES LAWS AND FEDERAL INCOME TAXES
The following discussion is a general summary of the material federal
income tax consequences to participants in the 1998 equity plan. The discussion
is based on the Internal Revenue Code, regulations thereunder, rulings and
decisions now in effect, all of which are subject to change. The summary does
not discuss all aspects of federal income taxation that may be relevant to a
particular participant in light of such participant's personal investment
circumstances. Also, state and local income taxes are not discussed and may vary
from locality to locality. Accordingly, holders should not rely thereon for
individual tax advice, as each taxpayer's situation and the consequences of any
particular transaction will vary depending upon the specific facts and
circumstances involved. Each taxpayer is advised to consult with his or her own
tax advisor for particular federal, as well as state and local, income and any
other tax advice.
12
<PAGE> 15
Securities Laws. The 1998 equity plan is intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and any
and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including, without limitation, Rule 16b-3. The 1998
equity plan will be administered, and awards will be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the 1998 equity plan and
awards granted thereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
Nonqualified Stock Options. Nonqualified stock options are not intended to
be incentive stock options under Section 422 of the Code. The grant of a
nonqualified stock option is generally not a taxable event either for the
optionee or for Tegal. Upon the exercise of a nonqualified stock option, the
optionee generally will recognize ordinary income in an amount equal to the
excess of the fair market value of the shares acquired upon exercise, determined
at the date of exercise, over the exercise price of such option. Subject to
Section 162(m) of the Code, Tegal will be entitled to a business expense
deduction equal to such amount in the fiscal year of Tegal in which the optionee
exercises the nonqualified stock option. The ordinary income recognized by the
optionee is subject to income and employment tax withholding. The optionee's tax
basis in the shares acquired pursuant to the exercise of a nonqualified stock
option will be equal to the option price paid plus the amount of ordinary income
recognized upon exercise. Any gain or loss on a disposition of the common stock
acquired upon the exercise of a nonqualified stock option will be treated as
short-term or long-term capital gain or loss, subject to income taxation at
short-term or long-term capital gains rates depending on the holding period of
the optionee measured from the date of the exercise of such option. There are
generally no federal income tax consequences to Tegal by reason of the
disposition by an optionee of common stock acquired upon the exercise of a
nonqualified stock option.
If an optionee delivers previously acquired shares of the common stock of
Tegal to pay the option price upon exercise of a non-qualified option, the
shares of common stock so acquired that are equal in fair market value to the
shares surrendered, measured at the date of exercise, generally will qualify for
nonrecognition of gain. The tax basis of such shares will be equal to the
optionee's basis in the shares surrendered and the holding period for purposes
of determining capital gain or loss treatment with respect to subsequent
appreciation or depreciation will be measured to include the optionee's holding
period with respect to the surrendered shares. Shares of common stock of Tegal
so acquired that exceed the fair market value of the shares surrendered will be
taxable as ordinary income to the optionee. Tegal will be subject to a
withholding obligation for income and employment taxes with respect to the
amount of ordinary income recognized by the optionee and will be entitled to a
deduction equal to the amount of such ordinary income. The optionee's basis in
such shares is equal to the amount of ordinary income so recognized and the
holding period for subsequent capital gain (or loss) will be measured from the
exercise date.
Incentive Stock Options. Generally, an optionee recognizes no taxable
income upon the grant or exercise of an incentive stock option that meets the
requirements of Code Section 422. However, the amount by which the fair market
value of the common stock acquired at the time of exercise exceeds the option
exercise price (the "spread") is taken into the account in determining the
amount, if any, of the alternative minimum tax due from the optionee in the year
in which the option is exercised. In addition, if the optionee exercises the
option by paying the option price with shares of common stock, the transfer of
such common stock may result in taxable income to the optionee even though the
transfer itself will not affect the favorable tax treatment of the common stock
received as a result of exercising the option.
If an optionee holds the common stock acquired through the exercise of an
incentive stock option for more than two years from the date on which the option
was granted and more than one year from the date on which the option was
exercised, and if the optionee is an employee of Tegal at all times from the
date of the grant of the incentive stock option through the date that is three
months before the date of exercise, any gain or loss on the subsequent
disposition of such common stock will be taxed to such optionee as long-term
capital gain or loss equal to the difference between consideration received upon
such disposition and the option exercise price.
13
<PAGE> 16
Generally, if an optionee disposes of the common stock received on exercise
of an incentive stock option less than two years after the date the option was
granted or less than one year after the date the option was exercised, it is
considered to be a "disqualifying disposition." At the time of such
disqualifying disposition, the optionee will recognize ordinary income in the
amount equal to the lesser of (i) the fair market value of the common stock on
the date of exercise over the option exercise price; or (ii) the amount received
for the common stock over the option exercise price. Any gain in excess of this
amount will be taxed as capital gain.
To the extent that an optionee recognizes ordinary income by reason of a
disqualifying disposition of common stock acquired upon the exercise of any
incentive stock option, Tegal generally will be entitled to a corresponding
business expense deduction in the fiscal year of Tegal in which the
disqualifying disposition occurs, subject to Section 162(m) of the Code.
Restricted Stock. A holder of restricted stock generally will recognize
ordinary income an amount equal to the excess of the fair market value of the
common stock (determined without regard to any restrictions other than those
that by their terms never lapse) over the amount, if any, paid for the common
stock on the earlier of the date on which: (i) the common stock is no longer
subject to a substantial risk of forfeiture or (ii) is transferable (without the
transferee being subject to a substantial risk of forfeiture). If, as of such
date, the holder cannot sell the common stock without incurring liability under
Section 16(b) of the Exchange Act, the holder generally will not recognize
ordinary income with respect to the receipt of the common stock until such time
as the holder can sell the common stock without incurring liability under
Section 16(b) of the Exchange Act. For purposes of determining the holder's
income resulting from the receipt of the common stock, the fair market value
will be determined as of that date.
In the alternative, if the holder files an election with the Internal
Revenue Service pursuant to Section 83(b) of the Code within 30 days of the
receipt of the common stock pursuant to an award of restricted stock, the holder
will be taxed in the year the common stock is received on the difference between
the fair market value of the common stock at the time of receipt and the amount
paid for the common stock, if any. This amount will be taxed as ordinary income.
If shares with respect to which a Section 83(b) election has been made are later
forfeited, the holder generally will be entitled to a capital loss only in an
amount equal to the amount, if any, that the holder had paid for the forfeited
shares, not the amount that the holder had recognized as income as a result of
the Section 83(b) election. Subject to Section 162(m) of the Code, Tegal is
entitled to a business expense deduction that corresponds to the amount of
ordinary income recognized by the holder in the fiscal year of Tegal in which
such ordinary income is recognized by the holder.
Stock Appreciation Rights. Generally, the holder of a stock appreciation
right recognizes no income upon the grant of a stock appreciation right. Upon
exercise, the holder will recognize as ordinary income the excess of the value
of the stock appreciation right on the date of exercise over the value as of the
date of grant. If the stock appreciation right is paid in cash, the appreciation
is taxable under Section 61 of the Code. If the committee determines to transfer
shares of common stock to the holder in full or partial payment of the
appreciation, the fair market value of the common stock so received over the
amount paid therefor by the holder, if any, is taxable as ordinary income under
Section 83 of the Code as of the date the stock appreciation right is exercised.
Subject to Section 162(m) of the Code, Tegal is entitled to a business expense
deduction that corresponds to the amount of ordinary income recognized by the
holder in the fiscal year of Tegal in which the stock appreciation right is
exercised.
Section 162(m) Limitation. In general, under Section 162(m) of the Internal
Revenue Code, income tax deductions of publicly-held corporations may be limited
to the extent total compensation (including base salary, annual bonus, stock
option exercises, transfers of property and benefits paid under non-qualified
plans) for certain executive officers exceeds $1 million (less the amount of any
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code) in any one year. However, under Section 162(m), the deduction limit does
not apply to certain "performance-based compensation."
Under Section 162(m), stock options and SARs will satisfy the
"performance-based compensation" exception if the award of the options or SARs
are made by a board of directors committee consisting solely of 2 or more
"outside directors," the plan sets the maximum number of shares that can be
granted to any person within a specified period and the compensation is based
solely on an increase in the stock price after the grant
14
<PAGE> 17
date (i.e. the option or SAR exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date). Other types
of awards such as restricted stock may only qualify as "performance-based
compensation" if such awards are only granted or payable to the recipients based
upon the attainment of objectively determinable and pre-established performance
goals which are established by a qualifying committee and which relate to
performance targets which are approved by the corporation's shareholders.
The 1998 equity plan has been designed to permit a committee of outside
directors, within the meaning of Section 162(m), to grant stock options,
restricted stock and SARs that will qualify as "performance-based compensation."
In addition, in order to permit awards other than stock options and SARs to
qualify as "performance-based compensation, the 1998 equity plan provides that
the committee may designate as "Section 162(m) Participants" certain employees
whose compensation for a given fiscal year may be subject to the limit on
deductible compensation imposed by Section 162(m) of the Internal Revenue Code.
The committee may grant awards to Section 162(m) Participants that vest or
become exercisable upon the attainment of performance targets established by the
committee.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE 1998 EQUITY PLAN.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 15, 1999 with respect
to shares of our common stock which are held by persons known by us to be
beneficial owners of more than 5% of such stock based upon information received
from such persons. For purposes of this schedule, beneficial ownership of
securities is defined in accordance with the rules of the Securities and
Exchange Commission and means generally the power to vote or dispose of
securities, regardless of any economic interest therein.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------------------ ------------------------------- ----------
<S> <C> <C>
Nazem & Company, L.P. III(1).................... 3,291,399 30.6%
645 Madison Avenue
New York, New York 10022
Fred Nazem(2)
Jeffrey Krauss(2)
Nierenberg Investment Management Company, 1,175,500 10.9%
Inc...........................................
19605 N.E. 8th Street
Camas, Washington 98607
Dimensional Fund Advisors Inc................... 664,000 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Morgens, Waterfall, Vintiadis & Co. Inc......... 619,800 5.8%
10 East 50th Street
New York, NY 10022
</TABLE>
- ---------------
(1) The general partner of Nazem & Company, L.P. III is Nazem and Associates
III, L.P.
(2) For information regarding Messrs. Nazem and Krauss, see "Ownership of Stock
by Management."
15
<PAGE> 18
OWNERSHIP OF STOCK BY MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of our common stock by our directors, the individuals named
in the Summary Compensation Table, and all directors and executive officers as a
group as of July 15, 1999. An asterisk denotes beneficial ownership of less than
1%.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER POSITION OWNED(1) CLASS(1)
------------------------ -------- ------------ --------
<S> <C> <C> <C>
Fred Nazem(2)....................... Director 3,341,399 31.0%
Jeffrey M. Krauss(3)................ Director 3,307,899 30.7
Thomas R. Mika(4)................... Director 52,100 *
Edward A. Dohring(5)................ Director 15,000 *
Michael L. Parodi(6)................ Chairman of the Board, President, 505,000 4.5
Chief Executive Officer and Director
David Curtis(7)..................... Vice President, Finance and 289,828 2.6
Administration, Chief Financial
Officer, Secretary and Treasurer
Stephen P. DeOrnellas(8)............ Vice President, Technology & New 337,627 3.0
Business Development, Chief
Technical Officer
James D. McKibben(9)................ Vice President, Worldwide Marketing 212,919 1.9
& Sales
Colin C. Tierney(10)................ Vice President, Worldwide Operations 120,000 1.1
and Customer Support
Directors and Executive Officers as
a group (10 persons)(11).......... 5,067,718 40.9%
</TABLE>
- ---------------
(1) Applicable percentage of ownership is based on 10,761,588 shares of common
stock outstanding as of July, 15, 1999. The number of shares of common
stock beneficially owned and calculation of percent ownership of each
person or group of persons named above, in each case, takes into account
those shares underlying stock options that are currently exercisable, but
which may or may not be subject to our repurchase rights held by such
person or persons but not for any other person.
(2) Includes 3,291,399 shares held by Nazem & Company, L.P. III. Mr. Nazem is a
general partner of Nazem and Associates III, L.P., the general partner of
Nazem & Company, L.P. III. Mr. Nazem disclaims beneficial ownership of
shares held by Nazem & Company, L.P. III, except to the extent of his
ownership interest in Nazem & Company, L.P. III. Includes options to
purchase 30,000 shares of common stock which are exercisable within 60 days
and excludes options to purchase 20,000 shares which are not so
exercisable.
(3) Includes 3,291,399 shares held by Nazem & Company, L.P. III. Mr. Krauss is
a general partner of Nazem and Associates III, L.P., the general partner of
Nazem & Company, L.P. III. Mr. Krauss disclaims beneficial ownership of
shares held by Nazem & Company, L.P. III, except to the extent of his
ownership interest in Nazem & Company, L.P. III. Includes options to
purchase 15,000 shares of common stock which are exercisable within 60 days
and excludes options to purchase 35,000 shares which are not so
exercisable.
(4) Includes options to purchase 30,000 shares of common stock which are
exercisable within 60 days and excludes options to purchase 20,000 shares
which are not so exercisable.
(5) Includes options to purchase 15,000 shares of common stock which are
exercisable within 60 days and excludes options to purchase 35,000 shares
which are not so exercisable.
(6) Includes options to purchase 500,000 shares of common stock which are
currently exercisable, 435,000 shares of which were subject to repurchase
rights as of July 15, 1999.
(7) Includes 220,100 shares issuable pursuant to stock options which are
currently exercisable, 161,875 of which were subject to repurchase rights
as of July 15, 1999.
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<PAGE> 19
(8) Includes 322,995 shares issuable pursuant to stock options which are
currently exercisable, 167,500 of which were subject to repurchase rights
as of July 15, 1999.
(9) Includes 210,100 shares issuable pursuant to stock options which are
currently exercisable, 152,500 of which were subject to repurchase rights
as of July 15, 1999.
(10) Includes 120,000 shares issuable pursuant to stock options which are
currently exercisable, all of which were subject to repurchase rights as of
July 15, 1999.
(11) Includes 1,638,395 shares issuable pursuant to stock options which are
currently exercisable, 1,170,402 of which were subject to repurchase rights
as of July 15, 1999. Excludes options to purchase 110,000 shares of common
stock which are not exercisable within 60 days.
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<PAGE> 20
PERFORMANCE GRAPH
The information set forth below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act or under the Exchange Act,
except to the extent we specifically incorporate this information by reference,
and shall not otherwise be deemed filed under such Acts.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3) AMONG TEGAL CORPORATION,
THE NASDAQ STOCK MARKET -- US INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
NASDAQ STOCK
TEGAL CORPORATION PEER GROUP MARKET (U.S.)
----------------- ---------- -------------
<S> <C> <C> <C>
10/19/1995 100.00 100.00 100.00
3/96 61.00 65.00 105.00
3/97 44.00 85.00 117.00
3/98 55.00 113.00 178.00
3/99 24.00 178.00 239.00
</TABLE>
(1) The graph covers the period from October 19, 1995, the date our initial
public offering commenced trading through the fiscal year ended March 31,
1999.
(2) The graph assumes that $100 was invested on October 19, 1995 in our common
stock, the Nasdaq Stock Market -- U.S. Index and a peer group, and that all
dividends were reinvested. No cash dividends have been declared on our
common stock.
(3) The peer group chosen by us consists of the following corporations: Applied
Materials Inc., Gasonics International Corp., Genus Inc., KLA-Tencor Corp.,
Lam Research Corp., Mattson Technology Inc., Novellus Systems Inc.,
Submicron Systems Corp. and Trikon Technologies Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership (Forms 3, 4
and 5) with the Securities and Exchange Commission. Officers, directors and
greater-than-ten-percent holders are required to furnish us with copies of all
such forms which they file.
To our knowledge, based solely on our review of such reports or written
representations from certain reporting persons, we believe that all of the
filing requirements applicable to our officers, directors, greater-
than-ten-percent beneficial owners and other persons subject to Section 16 of
the Exchange Act during fiscal 1999 were complied with, except for the one late
filing by Colin C. Tierney, Vice President, Worldwide Operations and Customer
Support, on Form 3 in connection with Mr. Tierney's commencement of employment
with Tegal.
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<PAGE> 21
CERTAIN TRANSACTIONS
We extended a $230,000 loan in fiscal 1999 to James D. McKibben for a term
of six months to help him move his residence closer to our offices; Mr. McKibben
has repaid that loan in full in April 1999. It is our policy that all
transactions by us with officers, directors, 5% stockholders and their
affiliates will be entered into only if such transactions are on terms no less
favorable to us than could be obtained from unaffiliated parties, and are
reasonably expected to benefit us. For further information regarding certain
additional transactions with directors, see "Director Compensation."
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 2000 ANNUAL MEETING
New Securities and Exchange Commission rules regarding shareholder
proposals became effective on June 29, 1998. Pursuant to these new rules, if we
have not received notice prior to June 21, 2000 of any matter a shareholder
intends to propose for a vote at the 2000 annual meeting of shareholders, then a
proxy solicited by the board of directors may be voted on such matter in the
discretion of the proxy holder, without discussion of the matter in the proxy
statement soliciting such proxy and without such matter as a separate item on
the proxy card.
The proxy rules adopted by the Securities and Exchange Commission provide
that certain stockholder proposals must be included in the proxy statement for
our annual meetings of stockholders. A proposal to be presented at the 2000
annual meeting must be received at our principal executive offices no later than
April 7, 2000 in order to be considered for inclusion in the proxy materials to
be disseminated by the board of directors for such annual meeting. To be
eligible for inclusion in such proxy materials, such proposals must conform to
the requirements set forth in Regulation 14A under the Exchange Act as well as
in our bylaws.
OTHER MATTERS
We are not aware of any matters that may come before the meeting other than
those referred to in the notice of annual meeting of stockholders. If any other
matter shall properly come before the annual meeting, however, the persons named
in the accompanying proxy intend to vote all proxies in accordance with their
best judgment.
Our 1999 annual report for the fiscal year ended March 31, 1999 has been
mailed with this proxy statement.
By Order of the Board of Directors
TEGAL CORPORATION
/s/ DAVID CURTIS
DAVID CURTIS
Secretary
Petaluma, California
August 10, 1999
STOCKHOLDERS OF RECORD ON JULY 30, 1999 MAY OBTAIN COPIES OF TEGAL'S ANNUAL
REPORT ON FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION BY WRITING TO INVESTOR RELATIONS, TEGAL CORPORATION, 2201 SOUTH
MCDOWELL BOULEVARD, PETALUMA, CALIFORNIA 94955.
19
<PAGE> 22
APPENDIX A
TEGAL CORPORATION
AMENDED AND RESTATED EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
Tegal Corporation, a Delaware corporation (the "Company"), hereby adopts
the Tegal Corporation Amended and Restated Employee Qualified Stock Purchase
Plan (the "Plan"). The purposes of the Plan are as follows:
(1) To assist employees of the Company and its Subsidiary Corporations
(as defined below) in acquiring a stock ownership interest in the Company
pursuant to a plan which is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423(b) of the Internal Revenue
Code of 1986, as amended.
(2) To encourage employees to remain in the employment of the Company
and its Subsidiary Corporations.
1. DEFINITIONS
As used herein, the terms shall have the following meanings unless the
context clearly indicates to the contrary (such definitions to be equally
applicable to both the singular and the plural forms of the terms defined):
(a) "Authorization" has the meaning assigned to that term in Section
3(b) hereof.
(b) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 12 hereof.
(e) "Date of Exercise" means, with respect to any Option, the last day
of the Offering Period for which the Option was granted.
(f) "Date of Grant" means, with respect to any Option, the date upon
which the Option is granted, as set forth in Section 3(a) hereof.
(g) "Eligible Compensation" means the employee's base pay.
(h) "Eligible Employee" means an employee of the Company or any
Subsidiary Corporation (1) who does not, immediately after the Option is
granted, own stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company, a Parent
Corporation or a Subsidiary Corporation; (2) who has been employed by the
Company or any Subsidiary Corporation for not less than three months; (3)
whose customary employment is for more than 20 hours per week; and (4)
whose customary employment is for more than five months in any calendar
year. For purposes of paragraph (i), the rules of Section 424(d) of the
Code with regard to the attribution of stock ownership shall apply in
determining the stock ownership of an individual, and stock which an
employee may purchase under outstanding options shall be treated as stock
owned by the employee. During a leave of absence meeting the requirements
of Treasury Regulation 1.421-7(h)(2), an individual shall be treated as an
employee of the Company or Subsidiary Corporation employing such individual
immediately prior to such leave. "Eligible Employee" shall not include any
director of the Company or any Subsidiary Corporation who does not render
services to the Company in the status of an employee within the meaning of
Section 3401(c) of the Code.
(i) "Offering Period" shall mean the six-month periods commencing
January 1 and July 1 of each Plan Year as specified in Section 3(a) hereof.
Options shall be granted on the Date of Grant and exercised on the Date of
Exercise as provided in Sections 3(a) and 4(a) hereof.
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(j) "Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of the Company's Stock.
(k) "Option Period" means, with respect to any Option, the period
beginning upon the Date of Grant and ending upon the Date of Exercise.
(l) "Option Price" has the meaning set forth in Section 4(b) hereof.
(m) "Parent Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if,
at the time of the granting of the Option, each of the corporations other
than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
(n) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3(b) hereof.
(o) "Payday" means the regular and recurring established day for
payment of cash compensation to employees of the Company or any Subsidiary
Corporation.
(p) "Plan" means the Tegal Corporation Amended and Restated Employee
Qualified Stock Purchase Plan.
(q) "Plan Year" means the calendar year.
(r) "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, including as such Rule may be
amended or superseded in the future.
(s) "Stock" means the shares of the Company's common stock, $0.01 par
value.
(t) "Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company
if, at the time of the granting of the Option, each of the corporations
other than the last corporation in an unbroken chain owns stock possessing
50% or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
2. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 9 hereof (relating to adjustments upon
changes in the Stock) and Section 11 hereof (relating to amendments of the
Plan), the Stock which may be sold pursuant to Options granted under the Plan
shall not exceed in the aggregate 500,000 shares, and may be unissued shares or
treasury shares or shares bought on the market for purposes of the Plan.
3. GRANT OF OPTIONS
(a) General Statement. The Company shall offer Options under the Plan to
all Eligible Employees in successive six-month Offering Periods until the
earlier of (i) the date when the number of shares of Stock available under the
Plan have been sold or (ii) the date when the Plan is terminated. Date of Grant
shall be January 1 and July 1 of each Plan Year. Each Option shall expire on the
Date of Exercise immediately after the automatic exercise of the Option pursuant
to Section 4(a) hereof. The number of shares of Stock subject to each Option
shall equal the payroll deductions authorized by each Participant in accordance
with subsection (b) hereof for the Option Period, divided by the Option Price,
except as provided in Section 4(a); provided, however, that the maximum number
of shares subject to any Option shall not exceed 2,500.
(b) Election to Participate; Payroll Deduction Authorization. Except as
provided in subsection (d) hereof, an Eligible Employee shall participate in the
Plan only by means of payroll deduction. Each Eligible Employee who elects to
participate in the Plan shall deliver to the Company during the calendar month
preceding a Date of Grant, no later than five (5) working days before such Date
of Grant, a completed and executed written payroll deduction authorization in a
form prepared by the Company (the "Authorization"). An Eligible Employee's
Authorization shall give notice of such Eligible Employee's election to
participate in the Plan for the next following Offering Period and subsequent
Offering Periods and shall designate a stated
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<PAGE> 24
whole dollar amount or percent of Eligible Compensation to be withheld on each
Payday. The amount withheld shall not be less than $10.00 each Payday and the
stated amount shall not exceed 10% of Eligible Compensation. The cash
compensation payable to a Participant for an Offering Period shall be reduced
each Payday through a payroll deduction in an amount equal to the stated
withdrawal amount specified in the Authorization payable on such Payday, and
such amount shall be credited to the Participant's account under the Plan. Any
Authorization shall remain in effect until the Eligible Employee amends the same
pursuant to this subsection, withdraws pursuant to Section 5 or ceases to be an
Eligible Employee pursuant to Section 6.
(c) $25,000 Limitation. No Eligible Employee shall be granted an Option
under the Plan which permits his rights to purchase stock under the Plan and
under all other employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation subject to the Section 423 of the Code
to accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined at the time the Option is granted) for each calendar year in which
the Option is outstanding at any time. For purpose of the limitation imposed by
this subsection, the right to purchase stock under an Option accrues when the
Option (or any portion thereof) first becomes exercisable during the calendar
year, the right to purchase stock under an Option accrues at the rate provided
in the Option, but in no case may such rate exceed $25,000 of the fair market
value of such stock (determined at the time such Option is granted) for any one
calendar year, and a right to purchase stock which has accrued under an Option
may not be carried over to any other Option.
(d) Leaves of Absence. During a leave of absence meeting the requirements
of Treasury Regulation Section 1.421-7(h)(2), a Participant may continue to
participate in the Plan by making cash payments to the Company on each Payday
equal to the amount of the Participant's payroll deductions under the Plan for
the Payday immediately preceding the first day of such Participant's leave of
absence.
4. EXERCISE OF OPTIONS; OPTION PRICE
(a) General Statement. Each Participant automatically and without any act
on such Participant's part shall be deemed to have exercised such Participant's
Option on the Date of Exercise to the extent that the balance then in the
Participant's account under the Plan is sufficient to purchase at the Option
Price whole shares of the Stock subject to the Option. The Company will pay to
the Participant any cash in lieu of fractional shares of Stock remaining after
the purchase of whole shares of Stock upon exercise of an Option without any
interest thereon. Certificates representing fractional shares will not be
issued.
(b) Option Price Defined. The option price per share of Stock (the "Option
Price") to be paid by a Participant upon the exercise of the Participant's
Option shall be equal to 85% of the lesser of the fair market value of a share
of Stock on the Date of Exercise or the fair market value of a share of Stock on
the Date of Grant. The fair market value of a share of Stock as of a given date
shall be: (i) the closing price of a share of Stock on the principal exchange on
which the Stock is then trading, if any, on such date, or, if shares were not
traded on such date, then on the next preceding trading day during which a sale
occurred; (ii) if the Stock is not traded on an exchange but is quoted on Nasdaq
or a successor quotation system, (1) the last sales price (if the Stock is then
listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for a share of the Stock on such date, or, if shares were not traded on
such date, then on the next preceding trading day during which a sale occurred,
as reported by Nasdaq or such successor quotation system; (iii) if the Stock is
not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the mean between the closing bid and asked prices for a share
of Stock on such date, or, if shares were not traded on such date, then on the
next preceding trading day during which a sale occurred, as determined in good
faith by the Committee; or (iv) if the Stock is not publicly traded, the fair
market value of a share of Stock established by the Committee acting in good
faith.
(c) Delivery of Share Certificate. As soon as practicable after the
exercise of any Option, the Company will deliver to the Participant or his or
her nominee the whole shares of Stock purchased by the Participant from funds
credited to the Participant's account under the Plan. Any fractional shares of
Stock or cash in lieu of fractional shares of Stock remaining after the purchase
of whole shares of Stock upon exercise of an Option will be credited to such
Participant's account and carried forward and, in the case of cash in lieu of
fractional
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shares, applied toward the purchase of whole shares of Stock pursuant to the
Option, if any, granted to such Participant for the next following Offering
Period. Certificates representing fractional shares will not be issued. In the
event the Company is required to obtain authority from any commission or agency
to issue any such certificate, the Company shall seek to obtain such authority.
The inability of the Company to obtain authority from any such commission or
agency which the Committee, in its absolute discretion, deems necessary for the
lawful issuance of any such certificate shall relieve the Company from liability
to any Participant except to pay to the Participant the amount of the balance in
the Participant's account in cash in one lump sum without any interest thereon.
(d) Pro Rata Allocations. If the total number of shares of Stock for which
Options are to be exercised on any date exceeds the number of shares remaining
unsold under the Plan (after deduction of all shares for which Options have
theretofore been exercised), the Committee shall make a pro rata allocation of
the available remaining shares in as nearly a uniform manner as shall be
practicable and any balance of payroll deductions credited to the accounts of
Participants which have not been applied to the purchase of shares of Stock
shall be paid to such Participants in cash in one lump sum within sixty (60)
days after the Date of Exercise, without any interest thereon.
5. WITHDRAWAL FROM THE PLAN
(a) General Statement. Any Participant may withdraw from participation
under the Plan at any time except that no Participant may withdraw during the
last ten (10) days of any Offering Period. A Participant who wishes to withdraw
from the Plan must deliver to the Company a notice of withdrawal in a form
prepared by the Company (the "Withdrawal Election") not later than ten (10) days
prior to the Date of Exercise during any Offering Period. Upon receipt of a
Participant's Withdrawal Election, the Company shall pay to the Participant the
amount of the balance in the Participant's account under the Plan in cash in one
lump sum within sixty (60) days, without any interest thereon. Upon receipt of a
Participant's Withdrawal Election by the Company, the Participant shall cease to
participate in the Plan, and the Participant's Option shall terminate.
(b) Eligibility Following Withdrawal. A Participant who withdraws from the
Plan and who is still an Eligible Employee shall be eligible to participate
again in the Plan as of any subsequent Date of Grant by delivering to the
Company an Authorization pursuant to Section 3(b) hereof.
6. TERMINATION OF EMPLOYMENT
(a) Termination of Employment Other than by Death. If the employment of a
Participant terminates other than by death, the Participant's participation in
the Plan automatically and without any act on the Participant's part shall
terminate as of the date of the termination of the Participant's employment. As
soon as practicable after such termination of employment, the Company will pay
to the Participant the amount of the balance in the Participant's account under
the Plan without any interest thereon. Upon a Participant's termination of
employment covered by this Section 6(a), the Participant's Authorization,
interest in the Plan and Option under the Plan shall terminate.
(b) Termination By Death. If the employment of a participant is terminated
by the Participant's death, the executor of the Participant's will or the
administrator of the Participant's estate by written notice to the Company may
request payment of the balance in the Participant's account under the Plan, in
which event the Company shall make such payment without any interest thereon as
soon as practicable after receiving such notice; upon receipt of such notice the
Participant's Authorization, interest in the Plan and Option under the Plan
shall terminate. If the Company does not receive such notice prior to the next
Date of Exercise, the Participant's Option shall be deemed to have been
exercised on such Date of Exercise.
7. RESTRICTION UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution, and is exercisable during the
Participant's lifetime only by the Participant. Except as provided in Section
6(b) hereof, an Option may not be exercised to any extent except by the
Participant. The Company
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shall not recognize and shall be under no duty to recognize any assignment or
alienation of the Participant's interest in the Plan, the Participant's Option
or any rights under the Participant's Option.
8. NO RIGHTS OF STOCKHOLDERS UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant shall
not be deemed to be a stockholder of the Company, and the Participant shall not
have any of the rights or privileges of a stockholder, until such shares have
been issued to the Participant or his or her nominee following exercise of the
Participant's Option. No adjustments shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distribution
or other rights for which the record date occurs prior to the date of such
issuance, except as otherwise expressly provided herein.
9. CHANGES IN THE STOCK; ADJUSTMENTS OF AN OPTION
Whenever any change is made in the Stock or to Options outstanding under
the Plan, by reason of a stock split, stock dividend, recapitalization or other
subdivision, combination, or reclassification of shares, appropriate action
shall be taken by the Committee to adjust accordingly the number of shares of
Stock subject to the Plan and the number and the Option Price of shares of Stock
subject to the Options outstanding under the Plan to preserve, but not increase,
the rights of Participants hereunder.
10. USE OF FUNDS; NO INTEREST PAID
All funds received or held by the Company under the Plan shall be included
in the general funds of the Company free of any trust or other restriction and
may be used for any corporate purpose. No interest will be paid to any
Participant or credited to any Participant's account under the Plan with respect
to such funds.
11. AMENDMENT OF THE PLAN
The Board of Directors may amend, suspend, or terminate the Plan at any
time and from time to time, provided that approval by a vote of the holders of
more than 50% of the outstanding shares of the Company's capital stock entitled
to vote shall be required to amend the Plan (i) to change the number of shares
of Stock reserved for sale pursuant to Options under the Plan, (ii) to decrease
the Option Price below a price computed in the manner stated in Section 4(b)
hereof, (iii) to alter the requirements for eligibility to participate in the
Plan or (iv) in any manner that would cause the Plan to no longer be an
"employee stock purchase plan" within the meaning of Section 423(b) of the Code.
12. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS
(a) Appointment of Committee. The Plan shall be administered by the
Committee, which shall be composed of not less than two members of the Board of
Directors, none of whom shall be eligible to serve on the Committee unless such
member is then a "disinterested person" within the meaning of Rule 16b-3 which
has been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, if and as such rule is then in effect. Each
member of the Committee shall serve for a term commencing on a date specified by
the Board of Directors and continuing until the member dies or resigns or is
removed from office by the Board of Directors. The Committee at its option may
utilize the services of an agent to assist in the administration of the Plan
including establishing and maintaining an individual securities account under
the Plan for each Participant.
(b) Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with the
provisions of the Plan. The Committee shall have the power to interpret the Plan
and the terms of the Options and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith and to
interpret, amend or revoke any such rules. In its absolute discretion, the Board
may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan.
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(c) Majority Rule. The Committee shall act by a majority of its members in
office. The Committee may act either by vote at a meeting or by a memorandum or
other written instrument signed by a majority of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions. All expenses
and liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination or interpretation.
13. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employment of the
Company, a Parent Corporation or a Subsidiary Corporation or to affect the right
of the Company, any Parent Corporation or any Subsidiary Corporation to
terminate the employment of any person (including any Eligible Employee or
Participant) at any time, with or without cause.
14. MERGER, ACQUISITION OR LIQUIDATION OF THE COMPANY
In the event of the merger or consolidation of the Company into another
corporation, the acquisition by another corporation of all or substantially all
of the Company's assets or 50% or more of the Company's then outstanding voting
stock, the liquidation or dissolution of the Company or any other reorganization
of the Company, the Date of Exercise with respect to outstanding Options shall
be the business day immediately preceding the effective date of such merger,
consolidation, acquisition, liquidation, dissolution, or reorganization unless
the Committee shall, in its sole discretion, provide for the assumption or
substitution of such Options in a manner complying with Section 424(a) of the
Code.
15. EFFECTIVE DATE; APPROVAL BY STOCKHOLDERS; TERM
The effective date of the Plan shall be January 1, 1996; provided, however,
that the effectiveness of the Plan is conditioned upon the completion of the
Company's initial public offering (the "IPO"); provided, further, that the Plan
shall be submitted for the approval of the majority of holders of the
outstanding Stock and the holders of more than 66 2/3% of the outstanding Series
A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of the
Company within twelve months after the date of the Board's adoption of the Plan.
If the IPO is not completed and/or such stockholder approval is not obtained,
the Plan shall have no force or effect. Options may be granted prior to such
stockholder approval under the circumstances and to the extent provided in the
Plan; provided, however, that Options so granted shall be conditioned upon the
stockholders' approval and shall provide that if such approval is not obtained,
the Options shall be null and void and of no further force or effect. No Option
may be granted during any period of suspension of the Plan or after termination
of the Plan.
16. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary Corporation. Nothing in this Plan shall be construed to limit the
right of the Company, any Parent Corporation or any Subsidiary Corporation (a)
to establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary Corporation or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose, including, without limitation, the grant or assumption of
options in connection
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with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
17. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of Options prior to
fulfillment of all the following conditions:
(a) The admission of such shares to listing or quotation on all stock
exchanges or automated quotation services on which such class of stock is
then listed or quoted, as the case may be; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may from time to time establish for reasons
of administrative convenience.
18. NOTIFICATION OF DISPOSITION
Each Participant shall give prompt notice to the Company of any disposition
or other transfer of any shares of Stock purchased upon exercise of an Option if
such disposition or transfer is made (a) within two (2) years from the Date of
Grant of the Option or (b) within one (1) year after the transfer of such shares
to such Participant upon exercise of such Option. Such notice shall specify the
date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Participant in such disposition or other transfer.
19. NOTICES
Any notice to be given under the terms of the Plan to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
any Eligible Employee or Participant shall be addressed to such Employee at such
Employee's last address as reflected in the Company's records. By a notice given
pursuant to this Section 19, either party may designate a different address for
notices to be given to it, him or her. Any notice which is required to be given
to an Eligible Employee or a Participant shall, if the Eligible Employee or
Participant is then deceased, be given to the Eligible Employee's or
Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 19. Any notice shall have been deemed duly given if enclosed in a
properly sealed envelope or wrapper addressed as aforesaid at the time it is
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
20. HEADINGS
Headings are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
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APPENDIX B
THE AMENDED AND RESTATED 1998 EQUITY PARTICIPATION PLAN
OF
TEGAL CORPORATION
Tegal Corporation, a Delaware corporation, has adopted The Amended and
Restated 1998 Equity Participation Plan of Tegal Corporation (the "Plan") for
the benefit of its eligible employees and consultants.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for key Employees and
Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of key
Employees and Consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company
and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan, they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the entity that conducts
the general administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to any Award granted under the Plan, the
term "Administrator" shall refer to the Committee unless the Board has assumed
the authority for administration of the Plan generally as provided in Section
9.1.
1.3. Award. "Award" shall mean an Option, a Restricted Stock award or a
Stock Appreciation Right which may be awarded or granted under the Plan
(collectively, "Awards").
1.4. Award Agreement. "Award Agreement" shall mean a written agreement
executed by an authorized officer of the Company and the Holder which shall
contain such terms and conditions with respect to an Award as the Administrator
shall determine, consistent with the Plan.
1.5. Award Limit. "Award Limit" shall mean 600,000 shares of Common Stock,
as adjusted pursuant to Section 10.3 of the Plan.
1.6. Board. "Board" shall mean the Board of Directors of the Company.
1.7. Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through any of the following
transactions:
(i) any person or related group of persons (other than the Company or
a person that, prior to such transaction, directly or indirectly controls,
is controlled by, or is under common control with, the Company) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company (or a successor of the
Company) possessing more than twenty-five percent (25%) of the total
combined voting power of the then outstanding securities of the Company or
such successor; or
(ii) at any time that the Company has registered shares under the
Exchange Act, at least 40% of the directors of the Company constitute
persons who were not at the time of their first election to the Board,
candidates proposed by a majority of the Board in office prior to the time
of such first election; or
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(iii) (w) the dissolution of the Company or liquidation of more than
75% in value of the Company or a sale of assets involving 75% or more in
value of the assets of the Company, (x) any merger or reorganization of the
Company whether or not another entity is the survivor, (y) a transaction
pursuant to which the holders, as a group, of all of the shares of the
Company outstanding prior to the transaction hold, as a group, less than
50% of the combined voting power of the Company or any successor company
outstanding after the transaction, or (z) any other event which the Board
determines, in its discretion, would materially alter the structure of the
Company or its ownership.
1.8. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.9. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 9.1.
1.10. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock.
1.11. Company. "Company" shall mean Tegal Corporation, a Delaware
corporation.
1.12. Consultant. "Consultant" shall mean any consultant or adviser if:
(a) the consultant or adviser renders bona fide services to the
Company;
(b) the services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or adviser is a natural person who has contracted
directly with the Company to render such services.
1.13. Director. "Director" shall mean a member of the Board.
1.14. DRO. "DRO" shall mean a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
1.15. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.16. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.17. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be (a) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (b) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator acting in good faith.
1.18. Holder. "Holder" shall mean a person who has been granted or awarded
an Award.
1.19. Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Administrator.
1.20. Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
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1.21. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the
Administrator.
1.22. Option. "Option" shall mean a stock option granted under Article IV
of the Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Consultants shall be
Non-Qualified Stock Options.
1.23. Performance Criteria. "Performance Criteria" shall mean the
following business criteria with respect to the Company, any Subsidiary or any
division or operating unit: (a) net income, (b) pre-tax income, (c) operating
income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return
on invested capital or assets, (h) cost reductions or savings, (i) funds from
operations, (j) appreciation in the fair market value of Common Stock and (k)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
1.24. Plan. "Plan" shall mean The Amended and Restated 1998 Equity
Participation Plan of Tegal Corporation.
1.25. Restricted Stock. "Restricted Stock" shall mean Common Stock awarded
under Article VII of the Plan.
1.26. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.
1.27. Section 162(m) Participant. "Section 162(m) Participant" shall mean
any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.28. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.29. Stock Appreciation Right. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article VIII of the Plan.
1.30. Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
1.31. Substitute Award. "Substitute Award" shall mean an Option granted
under this Plan upon the assumption of, or in substitution for, outstanding
equity awards previously granted by a company or other entity in connection with
a corporate transaction, such as a merger, combination, consolidation or
acquisition of property or stock.
1.32. Termination of Consultancy. "Termination of Consultancy" shall mean
the time when the engagement of a Holder as a Consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Consultancy. Notwithstanding any other provision of
the Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate a Consultant's service at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
1.33. Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between a Holder and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge,
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death, disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether a particular leave of absence constitutes a
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, unless otherwise determined by the Administrator in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section. Notwithstanding any other provision of
the Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate an Employee's service at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Awards shall be Common Stock, initially
shares of the Company's Common Stock, par value $.01 per share. The aggregate
number of such shares which may be issued upon exercise of such Options or
rights or upon any such awards under the Plan shall not exceed 900,000. The
shares of Common Stock issuable upon exercise of such Options or rights or upon
any such awards may be either previously authorized but unissued shares or
treasury shares.
(b) The maximum number of shares which may be subject to Awards, granted
under the Plan to any individual in any fiscal year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other right
to acquire shares of Common Stock under any other Award under the Plan, expires
or is canceled without having been fully exercised, or is exercised in whole or
in part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 10.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
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ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
Award Agreements evidencing Incentive Stock Options shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
(a) The Committee, in its discretion, may determine whether an Award is to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the Committee may
grant any Award to a Section 162(m) Participant, including Restricted Stock the
restrictions with respect to which lapse upon the attainment of performance
goals which are related to one or more of the Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
any Award granted under Article VII which may be granted to one or more Section
162(m) Participants, no later than ninety (90) days following the commencement
of any fiscal year in question or any other designated fiscal period or period
of service (or such other time as may be required or permitted by Section 162(m)
of the Code), the Committee shall, in writing, (i) designate one or more Section
162(m) Participants, (ii) select the Performance Criteria applicable to the
fiscal year or other designated fiscal period or period of service, (iii)
establish the various performance targets, in terms of an objective formula or
standard, and amounts of such Awards, as applicable, which may be earned for
such fiscal year or other designated fiscal period or period of service and (iv)
specify the relationship between Performance Criteria and the performance
targets and the amounts of such Awards, as applicable, to be earned by each
Section 162(m) Participant for such fiscal year or other designated fiscal
period or period of service. Following the completion of each fiscal year or
other designated fiscal period or period of service, the Committee shall certify
in writing whether the applicable performance targets have been achieved for
such fiscal year or other designated fiscal period or period of service. In
determining the amount earned by a Section 162(m) Participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designated fiscal period or period of
service.
(d) Furthermore, notwithstanding any other provision of the Plan or any
Award which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent
necessary to conform to such requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
3.4. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any
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Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS
4.1. Eligibility. Any Employee or Consultant selected by the Committee
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option.
4.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
4.4. Granting of Options to Employees and Consultants.
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select from among
the key Employees or Consultants (including Employees or Consultants who
have previously received Awards under the Plan) such of them as in its
opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
Consultants;
(iii) Subject to Section 4.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with the Plan; provided, however, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of a key Employee or Consultant to be granted an
Option, the Committee shall instruct the Secretary of the Company to issue the
Option and may impose such conditions on the grant of the Option as it deems
appropriate.
(c) Any Incentive Stock Option granted under the Plan may be modified by
the Committee, with the consent of the Holder, to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the Code.
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ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each
Option granted to Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than 85% of the Fair Market
Value of a share of Common Stock on the date the Option is granted and:
(a) in the case of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price
shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date the Option is granted;
(b) in the case of Incentive Stock Options such price shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code); and
(c) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than
10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning
of Section 422 of the Code), such price shall not be less than 110% of the
Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Employee or
consultant shall be set by the Committee in its discretion; provided, however,
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code). Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Holder, or amend any other term or condition
of such Option relating to such a termination.
5.3. Option Vesting
(a) The period during which the right to exercise, in whole or in part, an
Option granted to an Employee or a Consultant vests in the Holder shall be set
by the Committee and the Committee may determine that an Option may not be
exercised in whole or in part for a specified period after it is granted;
provided, however, that, unless the Committee otherwise provides in the terms of
the Award Agreement or otherwise, no Option shall be exercisable by any Holder
who is then subject to Section 16 of the Exchange Act within the period ending
six months and one day after the date the Option is granted. At any time after
grant of an Option, the Committee may, in its sole and absolute discretion and
subject to whatever terms and conditions it selects, accelerate the period
during which an Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant which is
unexercisable at Termination of Employment or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Award Agreement or by action of the
Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by a Holder during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or subsidiary
corporation, within the meaning of Section 422 of the Code) of the Company,
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 5.3(c),
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the Fair Market Value of stock shall be determined as of the time the Option
with respect to such stock is granted.
5.4. Substitute Awards. Notwithstanding the foregoing provisions of this
Article V to the contrary, in the case of an Option that is a Substitute Award,
the price per share of the shares subject to such Option may be less than the
Fair Market Value per share on the date of grant, provided, that the excess of:
(a) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over
(b) the aggregate exercise price thereof; does not exceed the excess
of;
(c) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the grant assumed or substituted
for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules established
by the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or
state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock which have been owned by the Holder for
at least six months, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price
of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable
upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery
of a full recourse promissory note bearing interest (at no less than such
rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator; (vi)
allow payment, in whole or in part, through the delivery of a notice that
the Holder has placed a market sell order with a broker with respect to
shares of Common Stock then issuable upon exercise of
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the Option, and that the broker has been directed to pay a sufficient
portion of the net proceeds of the sale to the Company in satisfaction of
the Option exercise price, provided that payment of such proceeds is then
made to the Company upon settlement of such sale; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory
note, the Administrator may also prescribe the form of such note and the
security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by law.
6.3. Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder or (b) one year after the transfer of such shares to such
Holder.
6.6. Additional Limitations on Exercise of Options. Holders may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee who the Committee determines is a key Employee or any
Consultant who the Committee determines should receive such an Award.
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7.2. Award of Restricted Stock
(a) The Committee may from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from among
the key Employees or Consultants (including Employees or Consultants who
have previously received other awards under the Plan) such of them as in
its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the Plan.
(b) The Committee shall establish the purchase price, if any, and form of
payment for Restricted Stock; provided, however, that such purchase price shall
be no less than the par value of the Common Stock to be purchased, unless
otherwise permitted by applicable state law. In all cases, legal consideration
shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a key Employee or Consultant to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company to
issue such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided by the Committee, all the rights of
a stockholder with respect to said shares, subject to the restrictions in his
Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that
in the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions set forth in Section
7.4.
7.4. Restriction. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; provided, however,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
however, that the Committee in its sole and absolute discretion may provide that
such rights shall not lapse in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's death or disability; provided, further,
except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
no such lapse or surrender shall occur in the event of a Termination of
Employment, or a Termination of Consultancy, without cause or following any
Change in Control of the Company or because of the Holder's retirement, or
otherwise.
7.5. Repurchase of Restricted Stock. The Committee shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement immediately upon a Termination of Employment or, if
applicable, upon a Termination of Consultancy between the Holder and the
Company, at a cash price per share equal to the price paid by the Holder for
such Restricted Stock; provided, however, that the Committee
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in its sole and absolute discretion may provide that no such right of repurchase
shall exist in the event of a Termination of Employment following a "change of
ownership or control" (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Holder's death or disability; provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants,
the Committee in its sole and absolute discretion may provide that no such right
of repurchase shall exist in the event of a Termination of Employment or a
Termination of Consultancy without cause or following any Change in Control of
the Company or because of the Holder's retirement, or otherwise.
7.6. Escrow. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
7.7. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election. If a Holder makes an election under Section
83(b) of the Code, or any successor section thereto, to be taxed with respect to
the Restricted Stock as of the date of transfer of the Restricted Stock rather
than as of the date or dates upon which the Holder would otherwise be taxable
under Section 83(a) of the Code, the Holder shall deliver a copy of such
election to the Company immediately after filing such election with the Internal
Revenue Service.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee or Consultant selected by the Committee. A Stock
Appreciation Right may be granted (a) in connection and simultaneously with the
grant of an Option, (b) with respect to a previously granted Option, or (c)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
8.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of
shares subject to the simultaneously or previously granted Option to which it is
coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to exercise
the Option pursuant to the Plan) to surrender to the Company unexercised a
portion of the Option to which the CSAR relates (to the extent then exercisable
pursuant to its terms) and to receive from the Company in exchange therefor an
amount determined by multiplying the difference obtained by subtracting the
Option exercise price from the Fair Market Value of a share of Common Stock on
the date of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any limitations
the Committee may impose.
8.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to
any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that unless the Committee otherwise provides in the terms of
the ISAR or otherwise, no ISAR granted to a person subject to Section 16 of the
Exchange Act shall be exercisable until at least six
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months have elapsed from (but excluding) the date on which the Option was
granted. The exercise price per share of Common Stock subject to each ISAR shall
be set by the Committee. An ISAR is exercisable only while the Holder is an
Employee or Consultant; provided that the Committee may determine that the ISAR
may be exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a Change in Control, or because of the
Holder's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to exercise
the ISAR pursuant to the Plan) to exercise all or a specified portion of the
ISAR (to the extent then exercisable pursuant to its terms) and to receive from
the Company an amount determined by multiplying the difference obtained by
subtracting the exercise price per share of the ISAR from the Fair Market Value
of a share of Common Stock on the date of exercise of the ISAR by the number of
shares of Common Stock with respect to which the ISAR shall have been exercised,
subject to any limitations the Committee may impose.
8.4. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 8.2(c) and 8.3(b) above
shall be in cash, in Common Stock (based on its Fair Market Value as of the date
the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock, it shall be made subject to satisfaction of all provisions of Section 6.3
above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to comply with any
timing or other restrictions with respect to the settlement or exercise of a
Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Committee.
ARTICLE IX.
ADMINISTRATION
9.1. Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
9.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee.
9.3. Majority Rule; Unanimous Written Consent. The Committee shall act by
a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
9.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the
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Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company with respect to any such action,
determination or interpretation.
9.5. Delegation of Authority to Grant Awards. The Committee may, but need
not, delegate from time to time some or all of its authority to grant Awards
under the Plan to a committee consisting of one or more members of the Committee
or of one or more officers of the Company; provided, however, that the Committee
may not delegate its authority to grant Awards to individuals (i) who are
subject on the date of the grant to the reporting rules under Section 16(a) of
the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 9.5 shall serve in such capacity at the pleasure of the
Committee.
ARTICLE X.
MISCELLANEOUS PROVISIONS
10.1. Not Transferable. No Award under the Plan may be sold, pledged,
assigned or transferred in any manner unless and until such Award has been
exercised, or the shares underlying such Award have been issued, and all
restrictions applicable to such shares have lapsed; provided, however, that the
restrictions set forth in the foregoing clause shall not apply to transfers (i)
by will or the laws of descent and distribution, (ii) subject to the consent of
the Administrator, pursuant to a DRO or (iii) subject to the consent of the
Administrator, by gift of an Option by an Employee to a Permitted Transferee (as
defined below) subject to the following terms and conditions: (a) an Option
transferred to a Permitted Transferee shall not be assignable or transferable by
the Permitted Transferee other than by DRO or by will or the laws of descent and
distribution; (b) any Option which is transferred to a Permitted Transferee
shall continue to be subject to all the terms and considerations of the Option
as applicable to the original holder (other than the ability to further transfer
the Option); (c) the Employee and the Permitted Transferee shall execute any and
all documents reasonably requested by the Administrator, including, without
limitation, documents to (A) confirm the status of the transferee as a Permitted
Transferee, (B) satisfy any requirements for an exemption for the transfer under
applicable federal and state securities laws and (C) provide evidence of the
transfer; (d) the shares of Common Stock acquired by a Permitted Transferee
through exercise of an Option have not been registered under the Securities Act,
or any state securities act and may not be transferred, nor will any assignee or
transferee thereof be recognized as an owner of such shares of Common Stock for
any purpose, unless a registration statement under the Securities Act and any
applicable state securities act with respect to such shares shall then be in
effect or unless the availability of an exemption from registration with respect
to any proposed transfer or disposition of such shares shall be established to
the satisfaction of counsel for the Company. As used in this Section 10.1,
"Permitted Transferee" shall mean (i) one or more of the following family
members of an Employee: spouse, former spouse, child (whether natural or
adopted), stepchild, any other lineal descendant of the Employee, (ii) a trust,
partnership or other entity established and existing for the sole benefit of, or
under the sole control of, one or more of the above family members of the
Employee, or (iii) any other transferee specifically approved by the
Administrator after taking into account any state or federal tax or securities
laws applicable to transferable Options.
No Award or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect,
except to the extent that such disposition is permitted by the preceding
sentence.
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Unless an Option has been transferred in accordance with this Section 10.1,
(i) during the lifetime of the Holder, only he may exercise an Option or other
Award (or any portion thereof) granted to him under the Plan and (ii) after the
death of the Holder, any exercisable portion of an Option or other Award may,
prior to the time when such portion becomes unexercisable under the Plan or the
applicable Award Agreement, be exercised by his personal representative or by
any person empowered to do so under the deceased Holder's will or under the then
applicable laws of descent and distribution.
10.2. Amendment, Suspension or Termination of the Plan. Except as
otherwise provided in this Section 10.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
10.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination of
the Plan shall, without the consent of the Holder, alter or impair any rights or
obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Awards may be granted or awarded
during any period of suspension or after termination of the Plan, and in no
event may any Incentive Stock Option be granted under the Plan after the first
to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 10.4.
10.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 10.3(d), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion, affects
the Common Stock such that an adjustment is determined by the Administrator to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Award, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Awards may be granted or awarded
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event of any
transaction or event described in Section 10.3(a), or of changes in applicable
laws, regulations, or accounting principles, the Administrator, in its sole and
absolute discretion, and on such terms and conditions as it deems appropriate,
either by the terms of the Award or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the Holder's request,
is hereby authorized to take any one or more of the following actions whenever
the Administrator determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Award under
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the Plan, to facilitate such transactions or events or to give effect to such
changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award for an amount
of cash equal to the amount that could have been attained upon the exercise
of such Award or realization of the Holder's rights had such Award been
currently exercisable or payable or fully vested or the replacement of such
Award with other rights or property selected by the Administrator in its
sole discretion;
(ii) To provide that the Award cannot vest, be exercised or become
payable after such event;
(iii) To provide that such Award shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in Section 5.3 or
the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of
the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices; and
(v) To make adjustments in the number and type of shares of Common
Stock (or other securities or property) subject to outstanding Awards, and
in the number and kind of outstanding Restricted Stock and/or in the terms
and conditions of, and the criteria included in, outstanding options,
rights and awards and options, rights and awards which may be granted in
the future.
(vi) To provide that, for a specified period of time prior to such
event, the restrictions imposed under an Award Agreement upon some or all
shares of Restricted Stock may be terminated, and some or all shares of
such Restricted Stock may cease to be subject to repurchase under Section
7.5 or forfeiture under Section 7.4 after such event.
(vii) Notwithstanding any other provision of the Plan, in the event of
a Change in Control, each outstanding Award shall, immediately prior to the
effective date of the Change in Control, automatically become fully
exercisable for all of the shares of Common Stock at the time subject to
such rights and may be exercised for any or all of those shares as
fully-vested shares of Common Stock.
(c) Subject to Sections 10.3(d), 3.2 and 3.3, the Administrator may, in its
discretion, include such further provisions and limitations in any Award,
agreement or certificate, as it may deem equitable and in the best interests of
the Company.
(d) With respect to Awards which are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 10.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 10.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Award is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Award shall always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the Company becomes a
party to a transaction that is intended to qualify for "pooling of interests"
accounting treatment and, but for one or more of the provisions of this Plan or
any Award Agreement would so qualify, then this Plan and any Award Agreement
shall be interpreted so as to preserve such accounting treatment, and to the
extent that any provision of the Plan or any Award Agreement would disqualify
the transaction from pooling of interests accounting treatment (including, if
applicable, an entire Award Agreement), then such provision shall be null and
void. All determinations to be made in connection with the preceding sentence
shall be made by the independent accounting firm whose opinion with respect to
"pooling of interests" treatment is required as a condition to the Company's
consummation of such transaction.
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(f) The existence of the Plan, the Award Agreement and the Awards granted
hereunder shall not affect or restrict in any way the right or power of the
Company or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
10.4. Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of the Plan. Awards may be granted or awarded prior
to such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void. In
addition, if the Board determines that Awards other than Options or Stock
Appreciation Rights which may be granted to Section 162(m) Participants should
continue to be eligible to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to
and approved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved the Performance Criteria.
10.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld.
10.6. Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock awarded
under the Plan. The terms and conditions of any such loan shall be set by the
Committee.
10.7. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument, that
(a)(i) any proceeds, gains or other economic benefit actually or constructively
received by the Holder upon any receipt or exercise of the Award, or upon the
receipt or resale of any Common Stock underlying the Award, must be paid to the
Company, and (ii) the Award shall terminate and any unexercised portion of the
Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment or Termination of Consultancy occurs prior to a specified date, or
within a specified time period following receipt or exercise of the Award, or
(ii) the Holder at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Administrator
or (iii) the Holder incurs a Termination of Employment or Termination of
Consultancy for cause.
10.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees or Consultants of the Company or any Subsidiary or
(b) to grant or assume options or other rights or awards otherwise than under
the Plan in connection with any proper corporate purpose including but not by
way of limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
B-16
<PAGE> 45
10.9. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
10.10. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
10.11. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
B-17
<PAGE> 46
APPENDIX C
PROXY TEGAL CORPORATION PROXY
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON SEPTEMBER 21, 1999.
The undersigned hereby appoints Michael L. Parodi and David Curtis, and
each of them, with full power of substitution in each, as proxies, and hereby
authorizes them to represent and to vote, as designated below, all shares of
common stock of Tegal Corporation which the undersigned may be entitled to vote
at the annual meeting of stockholders to be held on September 21, 1999, and any
and all adjournments of the annual meeting.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES
LISTED BELOW.
The board of directors recommends that you vote FOR the nominees in
Proposal 1, and FOR adoption of Proposals 2 and 3.
1. Election of directors: Michael L. Parodi, Jeffrey M. Krauss,
Thomas R. Mika, Fred Nazem and Edward A. Dohring.
<TABLE>
<CAPTION>
<S> <C> <C>
FOR all nominees listed WITHHOLD AUTHORITY to vote INSTRUCTIONS: To withhold authority to vote
(except as marked to the contrary) for all nominees listed for any individual nominee, strike a line
[ ] [ ] through the nominee's name in the list above.
</TABLE>
2. Proposal to adopt the amendment to the employee qualified stock
purchase plan to increase the number of shares available for
issuance thereunder from 250,000 to 500,000 which is being
proposed by the board of directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to adopt the amendment to the 1998 equity plan to increase
the number of shares available for issuance thereunder from 600,000 to
900,000 which is being proposed by the board of directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the annual meeting and
adjournments of the annual meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 47
ANY PREVIOUS PROXY EXECUTED BY THE
UNDERSIGNED IS HEREBY REVOKED.
Receipt of the notice of the annual
meeting and the proxy statement is
hereby acknowledged.
Dated ____________________________, 1999
________________________________________
________________________________________
Signature of Stockholder
Note: Please sign exactly as addressed
hereon. Joint owners should each sign.
Executors, administrators, trustees,
guardians and attorneys should so
indicate when signing. Attorneys should
submit powers of attorney. Corporations
and partnerships should sign in full
corporate or partnership name by an
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
