SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ELANTEC SEMICONDUCTOR, 1NC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<PAGE>
ELANTEC SEMICONDUCTOR, INC.
675 Trade Zone Boulevard
Milpitas, California 95035
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Elantec Semiconductor, Inc. (the "Company") will be held at the Beverly Heritage
Hotel, 1820 Barber Lane, Milpitas, California 95035 on Friday, January 22, 1999
at 9:00 a.m., local time, for the following purposes:
1. To elect four directors of the Company, with each director to serve
until the next annual meeting of stockholders and until his
successor has been elected and qualified or until his earlier
resignation, death or removal. The Company's Board of Directors has
nominated the following individuals to serve: Chuck K. Chan, James
V. Diller, B. Yeshwant Kamath and Alan V. King.
2. To amend the 1995 Equity Incentive Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 1,000,000
shares.
3. To amend the 1995 Directors Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by
100,000 shares.
4. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the current fiscal year.
5. To transact any other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on November 30, 1998 are entitled to notice of and to vote at the
meeting or any adjournment or postponement thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE AND SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN
POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOUR SHARES WILL BE REPRESENTED AT THE
MEETING.
By Order of the Board of Directors
______________________________________
Jim Diller
Milpitas, California President, Chief Executive Officer and
December 18, 1998 Chairman of the Board
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
675 Trade Zone Boulevard
Milpitas, California 95035
PROXY STATEMENT
December 18, 1998
The accompanying proxy (the "Proxy") is solicited on behalf of the
Board of Directors of Elantec Semiconductor, Inc., a Delaware corporation
("Elantec" or the "Company"), for use at the Annual Meeting of Stockholders of
the Company to be held at the Beverly Heritage Hotel, 1820 Barber Lane,
Milpitas, California 95035 on Friday, January 22, 1999 at 9:00 a.m., local time
(the "Annual Meeting"). This Proxy Statement and the accompanying form of Proxy
were first mailed to stockholders on or about December 18, 1998. An annual
report for the fiscal year ended September 30, 1998 is enclosed with the Proxy
Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's Common Stock at the close of
business on November 30, 1998 will be entitled to vote at the Annual Meeting. At
the close of business on that date, the Company had 9,198,802 shares of Common
Stock outstanding and entitled to vote. A majority, or 4,599,402 of these
shares, will constitute a quorum for the transaction of business. Holders of
Common Stock are entitled to one vote for each share held as of the above record
date. Shares of Common Stock may not be voted cumulatively.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors. Proposal Nos. 2, 3, and 4 require
for approval the affirmative vote of the majority of shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the proposals. All votes will be tabulated by the inspector of election
appointed for the Annual Meeting who will separately tabulate for each proposal,
affirmative and negative votes, abstentions and broker non-votes. Abstentions
will be counted towards a quorum and have the same effect as a negative vote
with respect to Proposal Nos. 2, 3, and 4. In the event that a broker indicates
on a Proxy that it does not have discretionary authority to vote certain shares
on a particular matter, such broker non-votes will also be counted towards a
quorum but will not be counted for any purpose in determining whether a proposal
has been approved.
All Proxies will be voted in accordance with the instructions contained
therein, and if no choice is specified, each valid returned Proxy that is not
revoked will be voted in the election of directors "FOR" the nominees of the
Board of Directors and "FOR" Proposal Nos. 2, 3, and 4 described in this Proxy
Statement, and at the Proxy holder's discretion, on such other matters, if any,
that may come before the Annual Meeting (including any proposal to adjourn or
postpone the Annual Meeting).
In the event that sufficient votes in favor of the proposals are not
received by the date of the Annual Meeting, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitations of proxies. Any such adjournment would require the affirmative
vote of the majority of the outstanding shares present in person or represented
by proxy at the Annual Meeting.
The expenses of soliciting Proxies to be voted at the Annual Meeting
will be paid by the Company. Proxies may also be solicited by the Company and/or
its agents, in person or by mail, telephone or telegram. The Company has
retained a proxy solicitation firm, ChaseMellon Shareholder Services, to aid it
in the solicitation process and will pay a fee of approximately $6,500 to such
firm for such services. Following the original mailing of the Proxies and other
soliciting materials, the Company will request brokers, custodians, nominees and
other record holders to forward copies of the Proxies and other soliciting
materials to persons for whom they hold shares of Common Stock and to request
authority for the exercise of Proxies. In such cases, the Company, upon the
request of the record holders, will reimburse such holders for their reasonable
expenses.
<PAGE>
If your shares are registered in the name of a bank or brokerage firm,
you may be eligible to vote your shares by telephone. A large number of banks
and brokerage firms are participating in the ADP Investor Communication Services
telephone voting program. This program provides eligible stockholders the
opportunity to vote by telephone. If your bank or brokerage firm is
participating in ADP's program, your voting form will provide instructions. If
your voting form does not reference telephone information, please complete and
return the paper proxy card in the self-addressed, postage paid envelope
provided.
REVOCABILITY OF PROXIES
Any person signing a Proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Annual Meeting or at the
Annual Meeting prior to the vote pursuant to the Proxy. A Proxy may be revoked
by a written instrument delivered to the Secretary of the Company stating that
the Proxy is revoked, by a subsequent Proxy that is signed by the person who
signed the earlier Proxy and is presented at the Annual Meeting or by attendance
at the Annual Meeting and voting in person. Please note, however, that if a
stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Annual Meeting, the stockholder must
bring to the Annual Meeting a letter from the broker, bank or other nominee
confirming that stockholder's beneficial ownership of the shares.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board of Directors of the Company (the "Board" or "Board of
Directors") has nominated for election as directors each of the following
persons to serve until the next annual meeting of stockholders and until his
successor has been elected or until his earlier resignation, death or removal:
Chuck K. Chan, James V. Diller, B. Yeshwant Kamath and Alan V. King. Unless
otherwise instructed, the Proxy holders will vote the Proxies received by them
for the Company's nominees named below. The size of the Company's Board is
currently set at four members. Each of the nominees is currently a director of
the Company. In the event that any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable, or will decline, to
serve as a director.
Directors/Nominees
<TABLE>
The names of the nominees for the Board and certain information about
them as of November 30, 1998 are set forth below:
<CAPTION>
- - ----------------------------------------- ----------- -------------------------------------------------- ------------------
Name of Nominee and/or Director Age Principal Occupation Director Since
- - ----------------------------------------- ----------- -------------------------------------------------- ------------------
<S> <C> <C> <C>
President, Chief Executive
James V. Diller (1) 63 Officer, and Chairman of the Board 1986
Chuck K. Chan (2) 48 Director 1992
B. Yeshwant Kamath (2) 50 Director 1993
Alan V. King (1) 63 Director 1997
- - ----------------------------------------- ----------- -------------------------------------------------- ------------------
<FN>
- - ----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</FN>
</TABLE>
Drs. Chan and Kamath and Messrs. Diller and King were re-elected to the
Board at the Company's last annual meeting of stockholders held on February 20,
1998. Vacancies on the Board occurring prior to an annual meeting may be filled
by the Board.
Further information regarding the Company's nominees is as follows:
Mr. Diller has been the Company's interim President and Chief Executive
Officer since November 10, 1998 and Chairman of the Board since 1997 and was
previously a Director of the Company since 1986. Mr. Diller was a Founder of
PMC-Sierra, Inc. a communications semiconductor company, was its President and
Chief Executive Officer from 1983 to 1997 and is currently its Chairman of the
Board. Mr. Diller holds a B.S. degree in physics from the University of Rhode
Island.
<PAGE>
Dr. Chan has been a Director of the Company since January 1992 and also
served as a Director from 1983 to 1984. Dr. Chan has been a Partner in Alpine
Technology Ventures, a venture capital firm, since December 1994 and was a
Partner in Associated Venture Investors, a venture capital firm from 1982 to
1996. Dr. Chan holds B.S., M.S. and Ph.D. degrees in physics from the
Massachusetts Institute of Technology and a M.B.A. degree from Harvard
University.
Dr. Kamath has been a Director of the Company since July 1993. Dr.
Kamath has served as President and Director of Videonics, Inc. since November
1997 and from May 1996 to October 1997 was the Division President of the KUB
Division of Videonics, Inc. KUB Systems, a company that manufactures video
special effects equipment, was founded by Dr. Kamath in February 1992 and
acquired by Videonics in May 1996. Previously, Dr. Kamath was a Founder of
Abekas Video Systems, Inc., a subsidiary of Carlton Communications PLC, where he
was President from 1982 to August 1990. Dr. Kamath is also a Director of
Euphonix, Inc., a company that manufactures digitally controlled analog audio
consoles for the music industry. Dr. Kamath holds a B.Tech. degree in electrical
engineering from the Indian Institute of Technology, and a Ph.D. degree in
electrical engineering from the University of California, Berkeley.
Mr. King was appointed a Director of the Company in December 1997. Mr.
King has been Chairman of the Board and Chief Executive Officer of Volterra
Semiconductor Corporation, a start-up company developing battery management
integrated circuits, since September 1996. Mr. King has also been a Director of
Smartflex Systems, Inc., a turnkey contract assembler, since October 1993 and
Information Storage Devices, Inc., a specialty semiconductor company, since May
1997. Mr. King was President and Chief Executive Officer of Silicon Systems,
Inc., a semiconductor company, from September 1991 to November 1994 and was
President and Chief Executive Officer of Precision Monolithics, Inc., a
semiconductor company, from September 1987 to September 1991, and from September
1986 to September 1987 he was its Executive Vice President. Mr. King holds a
B.S. degree in ceramic engineering from the University of Washington.
The Board of Directors recommends a vote FOR the election
of each of the nominated Directors.
Board of Directors' Meetings and Committees
The Board of Directors met five (5) times and acted by unanimous
written consent seven (7) times during the fiscal year ended September 30, 1998
("fiscal 1998"). No incumbent director attended fewer than 75% of the total
number of meetings of the Board of Directors and of the committees of the Board
on which he served. Standing committees of the Board currently include an Audit
Committee and a Compensation Committee. The Board does not have a nominating
committee or a committee performing a similar function.
The Audit Committee did not meet separately from the full Board and
took no actions by written consent during fiscal 1998. No actions were taken by
written consent during fiscal 1998. The Audit Committee exercises the following
powers: (1) nominates the independent auditors of the Company to be approved by
the Board of Directors; (2) meets with the independent auditors to review the
annual audit; (3) assists the full Board in evaluating the auditor's
performance; and (4) reviews internal control procedures, related party
transactions and, where appropriate, potential conflict of interest situations.
Mr. Diller and Mr. King are currently members of the Audit Committee.
The Compensation Committee did not meet separately from the full Board,
but acted by unanimous written consent eleven (11) times during fiscal 1998. The
Compensation Committee administers the Company's cash bonus and profit sharing
plans and sets all stock and other compensation for the Company's officers. Dr.
Chan and Dr. Kamath are currently members of the Compensation Committee. The
Compensation Committee administers the Company's 1995 Equity Incentive Plan and
the Company's 1995 Employee Stock Purchase Plan.
Directors' Compensation
Directors who are not employees of the Company receive cash
compensation of $1,500 for each of the Company's Board of Directors meetings
attended. Members of the committees of the Board of Directors who are not
employees of the Company receive cash compensation of $500 for each committee
meeting attended.
Directors of the Company periodically receive options under the
Company's 1995 Directors Stock Option Plan (the "Directors Plan"). In fiscal
1998 each of the non-employee directors of the Company received 10,000 shares
subject stock options. In addition, Alan King who was newly appointed to
Director in fiscal 1998 received 20,000 shares subject to stock options. For
more information regarding the Directors Plan, see Proposal No. 3.
<PAGE>
Under a consulting arrangement with the Company, Mr. Diller provides
advice to the Company in the areas of operations and strategic planning.
Pursuant to this arrangement, Mr. Diller has received an option for 10,000
shares of Common Stock at an exercise price of $6.625 which became fully vested
and exercisable on December 8, 1998. Mr. Diller also received an option for
30,000 shares of Common Stock at an exercise price of $8.8125 per share that
vest quarterly over a period of four years and will become fully vested and
exercisable on February 25, 2002.
On November 10, 1998, James V. Diller, Chairman of the Board became
interim President and Chief Executive Officer of the Company. Mr. Diller will
receive compensation of $1,500 per day, and 50,000 shares subject to stock
options which will vest ratably over a period of nine months, with any unvested
options to accelerate and become immediately exercisable on the appointment of a
new Chief Executive Officer for the Company.
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT
TO THE 1995 EQUITY INCENTIVE PLAN
Stockholders are being asked to approve an amendment to the Company's
1995 Equity Incentive Plan (the "Equity Incentive Plan") to increase the number
of shares of Common Stock reserved for issuance thereunder from 1,350,000 to
2,350,000, an increase of 1,000,000 shares. The Board of Directors of the
Company approved the proposed amendment described above on November 19, 1998 to
be effective upon stockholder approval. The Board believes this larger than
normal request is required due to the fact the Company is in the process of
recruiting a new Chief Executive Officer. In addition, it is anticipated that
during the fiscal year additional senior management will be recruited as well,
and additional shares will be required to retain current management.
Equity Incentive Plan History
In August 1995, the Board of Directors of the Company adopted the
Equity Incentive Plan and in September 1995 it was approved by the stockholders
of the Company. 550,000 shares of Common Stock were originally reserved for
issuance under the Equity Incentive Plan.
In December 1996, the Board of Directors approved an amendment to the
Equity Incentive Plan to increase the number of shares reserved for issuance
thereunder to 950,000, and on February 21, 1997 it was approved by the
stockholders of the Company.
In December 1997, the Board of Directors approved an amendment to the
Equity Incentive Plan to increase the number of shares reserved for issuance
thereunder to 1,350,000, and on February 20, 1998 it was approved by the
stockholders of the Company.
Description of the 1995 Equity Incentive Plan
Below is a summary of the principal provisions of the Equity Incentive
Plan. The summary is qualified in its entirety by reference to the full text of
the Equity Incentive Plan.
Purpose. The purpose of the Equity Incentive Plan is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company by offering
them an opportunity to participate in the Company's future performance through
awards of options, restricted stock and performance stock bonuses.
Shares Subject to the Equity Incentive Plan. The stock reserved for
issuance pursuant to awards granted under the Equity Incentive Plan consists of
shares of the Company's authorized but unissued Common Stock. As of November 30,
1998, a total of 97,437 shares of Common Stock subject to stock options were
available for grant. The aggregate number of shares that may be issued pursuant
to awards granted under the Equity Incentive Plan is 2,350,000 shares (assuming
approval of the proposal) plus any shares issuable upon exercise of options
granted pursuant to the Company's 1994 Equity Incentive Plan that have or will
expire or become unexercisable for any reason. If any option granted under the
Equity Incentive Plan expires or terminates for any reason without being
exercised in whole or in part, or any award terminates without being issued, the
shares released from such option or award will again become available for grant
and purchase under the Equity Incentive Plan. During the same period, the
following Named Executive Officers (as defined below) were granted options under
the Equity Incentive Plan to purchase the following number of shares of the
Company's Common Stock: David O'Brien - 308,300 shares; Richard E. Corbin -
157,000 shares; Ephraim Kwok - 65,000 and Ralph S. Granchelli - 93,400 shares.
During the same period, all employees and consultants other than the Named
Executive Officers were granted options to purchase an aggregate of 2,980,144
shares under the Equity Incentive Plan.
<PAGE>
Eligibility. The Equity Incentive Plan provides for the grant of stock
options and stock bonuses and the issuance of restricted stock by the Company to
its employees, officers, directors, consultants, independent contractors and
advisers. No person will be eligible to receive more than 100,000 shares in any
calendar year pursuant to grants under the Equity Incentive Plan, except that a
new employee of the Company (including a new employee who is also an officer or
director of the Company) may receive up to a maximum of 400,000 shares in the
calendar year in which the employee commences employment. As of November 30,
1998, approximately 180 persons were eligible to receive awards under the Equity
Incentive Plan. The fair market value of the Common Stock on that date was
$3.75. Subject to the terms of the Equity Incentive Plan, the Compensation
Committee determines the persons who are to receive awards, the number of shares
subject to each such award and the terms and conditions of such awards.
Administration. The Equity Incentive Plan is administered by a
Committee appointed by the Board (the "Compensation Committee") consisting of
Chuck K. Chan and B. Yeshwant Kamath, each of whom is a "non-employee director"
within the meaning of Rule 16b-3 promulgated under the Exchange Act and an
"outside director" within the meaning of Section 162(m) of the Code of 1986, as
amended (the "Code"). The interpretation or construction by the Compensation
Committee of any provision of the Equity Incentive Plan or of any option granted
under it is final and binding on all Participants.
Stock Options. The Equity Incentive Plan permits the granting of
options that are intended to qualify either as Incentive Stock Options ("ISOs")
or Nonqualified Stock Options ("NQSOs"). Subject to the terms of the Equity
Incentive Plan, the Compensation Committee determines for each option whether
the option is to be an ISO or a NQSO, the number of shares for which the option
will be granted, the exercise price of the option, the period during which the
option may be exercised and other terms and conditions. Each option granted
under the Equity Incentive Plan is evidenced by an option grant in such form as
the Compensation Committee approves and is subject to the following conditions:
Limitation on ISOs. A Participant may receive an ISO only if he or she
is an employee of the Company or of a parent or subsidiary of the
Company.
Number of Shares. Each option grant states the number of shares to
which it pertains.
Option Exercise Period. Options granted under the Equity Incentive Plan
are generally exercisable with respect to 25% of the shares annually
elapsed from the date of grant.
Option Exercise Price. The option exercise price of an ISO may not be
less than 100% of the "fair market value" (as defined in the Equity
Incentive Plan) of the shares subject to the ISO on the date of grant.
The option exercise price of a NQSO may not be less than 85% of the
fair market value of the shares subject to the NQSO on the date of
grant. However, any options granted to a holder of more than 10% of the
total combined voting shares of the company may not be less than 110%
of the fair market value of the shares subject to such an option.
Form of Payment. The exercise price of options granted under the Equity
Incentive Plan, plus any applicable income tax withholding, is
typically payable in cash or by check. The option exercise price may
also be payable in shares of fully paid Common Stock of the Company
that have been owned by the Participant for more than six months, by a
full recourse promissory note, by waiver of compensation due or accrued
to the Participant, by tender of property, through a "same day sale,"
through a "margin commitment" or by any combination of the foregoing
that the Compensation Committee may authorize.
Term of Options. Options granted under the Equity Incentive Plan are
permitted to be exercisable for up to ten years, except that an ISO
granted to a holder of greater than 10% of the total combined voting
shares of the Company may not be exercisable for more than five years.
Effect of Participant's Termination of Employment. If a Participant
terminates employment with the Company, or any parent, subsidiary or
affiliate of the Company, the Participant typically has three months
(or twelve months in the case of the Participant's death or disability)
to exercise any options exercisable on the date the Participant's
employment with the Company terminates.
<PAGE>
Restricted Stock Awards. The Compensation Committee may grant
Participants restricted stock awards to purchase stock either in addition to, or
in tandem with, other awards under the Equity Incentive Plan, under such terms,
conditions and restrictions as the Compensation Committee may determine. The
purchase price for such awards must be no less than 85% of the fair market value
of the Company's Common Stock on the date of the award, and can be paid for as
described under Option Exercise Price above.
Stock Bonus Awards. The Compensation Committee may grant Participants
stock bonus awards either in addition to or in tandem with, other awards under
the Equity Incentive Plan, under such terms, conditions and restrictions as the
Board may determine.
Mergers, Consolidations, Change of Control. In the event of a merger,
consolidation, dissolution or liquidation of the Company, the sale of
substantially all of the assets of the Company or any other similar corporate
transaction, the successor corporation may assume, replace or substitute
equivalent awards in exchange for those granted under the Equity Incentive Plan
or provide substantially similar consideration, shares or other property subject
to repurchase restrictions no less favorable to the Participants under the
Equity Incentive Plan. In the event that the successor corporation does not
assume or substitute the awards, the awards, including outstanding options,
shall expire on such transaction at such time and upon such conditions as the
Compensation Committee determines.
Amendment of the Equity Incentive Plan. The Board may at any time
terminate or amend the Equity Incentive Plan, including amending any form or
award agreement or instrument to be executed pursuant to the Equity Incentive
Plan. The Board may not amend the Equity Incentive Plan in any manner that
requires stockholder approval pursuant to the Code or the regulations
promulgated thereunder or pursuant to the Exchange Act or Rule 16b-3 promulgated
thereunder (or its successor) without such approval.
Term of the Equity Incentive Plan. Awards may be granted
pursuant to the Equity Incentive Plan from time to time until August 22, 2005,
which is ten years after the date the Equity Incentive Plan was originally
adopted by the Board.
Federal Income Tax Information. THE FOLLOWING IS A GENERAL SUMMARY AS
OF THE DATE OF THIS PROXY STATEMENT OF THE FEDERAL INCOME TAX CONSEQUENCES TO
THE COMPANY AND PARTICIPANTS UNDER THE EQUITY INCENTIVE PLAN. THE FEDERAL TAX
LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY
PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH
PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE EQUITY INCENTIVE
PLAN.
Incentive Stock Options. A Participant recognizes no income upon grant
of an ISO and incurs no tax on its exercise (unless the Participant is
subject to the alternative minimum tax ("AMT")). If the Participant
holds the stock acquired upon exercise of an ISO (the "ISO Shares") for
more than one year after the date the option was exercised and for more
than two years after the date the option was granted, the Participant
generally will realize capital gain or loss (rather than ordinary
income or loss) upon disposition of the ISO Shares. If there is capital
gain, the ISO shares will be taxed at a rate that depends on whether
they were held for more than twelve months (long-term). This gain or
loss will be equal to the difference between the amount realized upon
such disposition and the amount paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), the
gain realized upon such disposition, up to the difference between the
fair market value of the ISO Shares on the date of exercise (or, if
less, the amount realized on a sale of such shares) and the option
exercise price, will be treated as ordinary income. Any additional gain
will be long-term capital gain.
Alternative Minimum Tax. The difference between fair market value of
the ISO Shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the AMT. The AMT (imposed to the
extent it exceeds the taxpayer's regular tax) is 26% of the portion of
an individual taxpayer's alternative minimum taxable income that would
otherwise be taxable as ordinary income (28% in the case of alternative
minimum taxable income in excess of $175,000). A maximum 20% AMT rate
applies with respect to the portion of a taxpayer's alternative minimum
taxable income that would otherwise be taxable as net capital gain.
Alternative minimum taxable income is determined by adjusting regular
taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market
value of the ISO shares on the date of exercise and the exercise price)
and reducing this amount by the applicable exemption amount ($45,000 in
case of a joint return, subject to
<PAGE>
reduction under certain circumstances). If a disqualifying disposition
of the ISO Shares occurs in the same calendar year as exercise of the
ISO, there is no AMT adjustment with respect to those ISO Shares. Also,
upon a sale of ISO Shares that is not a disqualifying disposition,
alternative minimum taxable income is reduced in the year of sale by
the excess of the fair market value of the ISO Shares at exercise over
the amount paid for the ISO Shares.
Non Qualified Stock Options. A Participant will not recognize any
taxable income at the time a NQSO is granted. However, upon exercise of
a NQSO the Participant will include in income as compensation an amount
equal to the difference between the fair market value of the shares on
the date of exercise and the Participant's purchase price. The included
amount will be treated as ordinary income by the Participant and may be
subject to withholding by the Company (either by payment in cash or
withholding out of the Participant's salary). The required flat federal
withholding rate is currently 28%. Upon resale of the shares by the
Participant, any subsequent appreciation or depreciation in the value
of the shares will be treated as capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock
bonus awards will generally be subject to tax at the time of receipt,
unless there are restrictions that enable the Participant to defer tax.
At the time that tax is incurred, the tax treatment will be similar to
that discussed above for NQSOs.
Tax Treatment of the Company. The Company generally will be entitled to
a deduction in connection with the exercise of a NQSO by a Participant
or the receipt of restricted stock or stock bonuses by a Participant to
the extent that the Participant recognizes ordinary income. The Company
will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary
income on a disqualifying disposition of the ISO Shares.
ERISA. The Equity Incentive Plan is not qualified under Section 401(a)
of the Code or subject to any of the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
The Board of Directors recommends a vote FOR amendment
of the Company's 1995 Equity Incentive Plan
<PAGE>
PROPOSAL NO. 3 - AMENDMENT OF THE
1995 DIRECTORS STOCK OPTION PLAN
Stockholders are being asked to approve an amendment to the Company's
1995 Directors Stock Option Plan (the "Directors Plan") to increase the number
of shares of Common Stock reserved for issuance thereunder from 150,000 to
250,000, an increase of 100,000 shares. The Board of Directors of the Company
approved the proposed amendment described above on November 19, 1998 to be
effective upon stockholder approval.
1995 Directors Stock Option Plan History
In August 1995, the Board of Directors of the Company adopted the
Directors Plan and reserved a total of 150,000 shares of the Company's Common
Stock for issuance thereunder. Stockholders approved the Directors Plan in
September 1995. The Plan became effective on October 10, 1995, the effective
date of the initial public offering of the Company's Common Stock.
In December 1997, the Board of Directors approved an amendment to the
Directors Plan to increase the number of shares automatically granted to
non-employee directors from 5,000 to 10,000 shares per year and to remove the
limit of 40,000 shares per non-employee director over the life of the plan, and
on February 20, 1998 it was approved by the stockholders of the Company.
Description of the 1995 Directors Stock Option Plan
Below is a summary of the principal provisions of the Directors Plan.
The summary is qualified in its entirety by reference to the full text of the
Directors Plan.
Purpose. The purpose of the Directors Plan is to provide incentive for
members of the Board of Directors (the "Board") of the Company who are not also
employees of the Company or any parent, subsidiary or affiliate of the Company
("Outside Directors"), by providing such persons with an opportunity to purchase
shares of Common Stock of the Company.
Shares Subject to the Directors Plan. The stock reserved for issuance
pursuant to awards granted under the Directors Plan consists of shares of the
Company's authorized but unissued Common Stock. The aggregate number of shares
that may be issued pursuant to awards granted under the Directors Plan is
250,000 shares (assuming approval of the proposal). If any option granted under
the Directors Plan expires or terminates for any reason without being exercised
in whole or in part, or any award terminates without being issued, the shares
released from such option or award will again become available for grant and
purchase under the Directors Plan. Over the term of the Directors Plan through
November 30, 1998, a total of 100,000 stock options were granted.
Eligibility. The Directors Plan provides for the grant of stock options
by the Company to Outside Directors. Each eligible person who first becomes a
member of the Board on or after October 10, 1995 will automatically be granted
an option for 20,000 shares on the date such eligible person joins the Board.
Each year on the date of the Company's Annual Stockholders Meeting, each Outside
Director will automatically be granted a Succeeding Grant for 10,000 shares
(assuming approval of the proposal). Succeeding Grants will not be granted to an
Outside Director unless he or she is still a member of the Board. As of November
30, 1998, four directors were eligible to receive awards under the Directors
Plan. The fair market value of the Common Stock on that date was $3.75.
Administration. The Directors Plan is administered by the Board. The
Board's interpretation of any provision of the Directors Plan or any option
granted thereunder shall be final and binding upon the Company and all persons
having an interest in any such option or any shares purchased pursuant to such
an option. The members of the Board do not receive any compensation for
administering the Plan. The Company bears all expenses in connection with
administration of the Plan.
Stock Options. The Directors Plan permits the granting of Non Qualified
Stock Options ("NQSOs"). Subject to the terms of the Directors Plan, the Board
determines for each option, the number of shares for which the option will be
granted, the exercise price of the option, the period during which the option
may be exercised and other terms and conditions. Each option granted under the
Directors Plan is evidenced by an option grant in such form as the Board
approves and is subject to the following conditions:
<PAGE>
Limitation on NQSOs. A director may receive an NQSO only if he or she
is an Outside Director of the Company or of a parent or subsidiary of
the Company.
Number of Shares. Each option grant states the number of shares to
which it pertains.
Option Exercise Period. Options granted under the Directors Plan are
generally exercisable with respect to 2.0833% of the shares monthly
elapsed from the date of grant.
Option Exercise Price. The exercise price is equal to the "fair market
value" of the shares on the date the option is granted.
Form of Payment. The exercise price of options granted under the
Directors Plan, plus any applicable income tax withholding, is
typically payable in cash or by check. The option exercise price may
also be payable in (i) shares of fully paid Common Stock of the Company
that have been owned by the Outside Director for more than six months
prior to exercise, (ii) waiver of compensation due Outside Director,
(iii) a "same day sale" commitment, (iv) a "margin commitment" or (v)
any combination of the foregoing that the Board may authorize.
Term of Options. Options granted under the Directors Plan are permitted
to be exercisable for up to ten years.
Effect of Director's Termination. In the event that a Outside Director
ceases to be a member of the Board for any reason the stock options
will cease to vest. If the reason that the Outside Director ceased to
be a member of the Board is other than death or disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code, as amended
(the "Code")), the Outside Director will have the right to exercise his
or her options at any time within three months after such termination
to the extent the Outside Director's right to exercise such option was
exercisable at the date of termination of their status as Outside
Director and had not previously been exercised, but in any event no
later than the option expiration date.
Mergers, Consolidations, Change of Control. In the event of a
dissolution or liquidation of the Company, a merger or consolidation in which
the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a re-incorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company and the options granted
under the Directors Plan are assumed or replaced by the successor corporation),
a merger in which the Company is the surviving corporation but after which the
stockholders of the Company cease to own their own shares or other equity
interests in the Company, the sale of all or substantially all of the assets of
the Company or any other transaction which qualifies as a "corporate
transaction" under Section 424 of the Code wherein the stockholders of the
Company give up all of their equity interest in the Company (except for the
acquisition of all or substantially all of the outstanding shares of the
Company), the vesting of Outside Director options granted pursuant to this Plan
will accelerate to become exercisable in full prior to the consummation of the
corporate transaction.
Amendment of the Directors Plan. The Board may not amend or rescind the
provisions of any outstanding options under the Directors Plan. However, the
Board may terminate or amend the Directors Plan in any respect provided it does
not, without stockholder approval, amend the Directors Plan in any manner that
requires stockholder approval. Currently, this means that the Board must have
stockholder approval in order to increase the total number of shares available
under the Directors Plan or change the class of persons eligible to receive
options. Further, provisions of the Directors Plan governing the award formula
and the conditions and terms of options may not be amended more frequently than
once every six months other than to comport with change in applicable federal
tax and benefit plan laws and rules.
Term of the Directors Plan. Awards may be granted pursuant to the
Directors Plan from time to time until August 22, 2005, which is ten years after
the date the Directors Plan was originally adopted by the Board.
Federal Income Tax Information. THE FOLLOWING IS A GENERAL SUMMARY AS
OF THE DATE OF THIS PROXY STATEMENT OF THE FEDERAL INCOME TAX CONSEQUENCES TO
THE COMPANY AND PARTICIPANTS UNDER THE DIRECTORS PLAN. THE FEDERAL TAX LAWS MAY
CHANGE AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT
WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN
AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE
TAX CONSEQUENCES OF PARTICIPATION IN THE DIRECTORS PLAN.
Non Qualified Stock Options. A Participant will not recognize any
taxable income at the time a NQSO is granted.
<PAGE>
However, upon exercise of a NQSO the Participant will include in income
as compensation an amount equal to the difference between the fair
market value of the shares on the date of exercise and the
Participant's purchase price. The included amount will be treated as
ordinary income by the Participant and may be subject to withholding by
the Company (either by payment in cash or withholding out of the
Participant's salary). Upon resale of the shares by the Participant,
any subsequent appreciation or depreciation in the value of the shares
will be treated as capital gain or loss.
Tax Treatment of the Company. The Company generally will be entitled to
a deduction in connection with exercise of a NQSO by a Participant to
the extent that the Participant recognizes ordinary income.
ERISA. The Directors Plan is not qualified under Section 401(a) of the
Code or subject to any of the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
New Plan Benefits
<TABLE>
The following table shows expected fiscal 1999 option grants under the
Directors Plan for the Named Executive Officers and for the groups of people
indicated. No grants will be made to any individuals other than non-employee
directors. Future options and awards under the Equity Incentive Plan are not
included in the table because they cannot be currently determined. Options and
awards under the Equity Incentive Plan are made at the discretion of the
Compensation Committee.
<CAPTION>
- - -------------------------------------------------------------------------------------- ----------------------------------------
Directors Plan
- - -------------------------------------------------------------------------------------- ----------------------------------------
Exercise Price Number
Name (per share) of Shares
- - -------------------------------------------------------------------------------------- --------------------- ------------------
<S> <C> <C>
Chuck K. Chan (1) 10,000
Richard E. Corbin ---- ----
James V. Diller (1) 10,000
Ralph S. Granchelli, Jr. ---- ----
B. Yeshwant Kamath (1) 10,000
Alan V. King (1) 10,000
Ephraim Kwok ---- ----
All directors who are not executive officers as a group (3 persons) (1) 40,000
All executive officers as a group (4 persons) ---- ----
All employees, including officers who are not executive officers as a group ---- ----
- - -------------------------------------------------------------------------------------- --------------------- ------------------
<FN>
- - ------------------
(1) The exercise price for fiscal 1999 grants will be the fair market value of
the Company's Common Stock on the date of grant.
</FN>
</TABLE>
The Board of Directors recommends a vote FOR amendment
of the Company's 1995 Directors Stock Option Plan
<PAGE>
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Company has selected Deloitte & Touche LLP as its independent
auditors to perform the audit of the Company's financial statements for fiscal
1999, and the stockholders are being asked to ratify such selection.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement at the Annual
Meeting if they desire to do so, and will be available to respond to appropriate
questions.
On May 29, 1998, the Board of Directors of the Company approved the
dismissal of the Company's previous independent accountants, Ernst & Young LLP,
and the appointment of Deloitte & Touche LLP for the fiscal year ended 1998. The
report of Ernst and Young LLP for the fiscal years ended 1996 and 1997 contained
no adverse opinion, disclaimer of opinion or qualification or modification as to
uncertainty, audit scope or accounting principles. During the fiscal years ended
1996 and 1997, and the interim period from October 1, 1997 through May 29, 1998,
there were no disagreements between the Company and Ernst & Young LLP on any
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved to the satisfaction of Ernst & Young
LLP would have caused it to make reference to the subject matter of the
disagreement in connection with its report.
The Company did not consult with Deloitte & Touche LLP during the
fiscal years ended 1996 and 1997, and the interim period from October 1, 1997
through May 29, 1998, on any matter which was the subject of any disagreement or
any reportable event or on the application of accounting principles to a
specified transaction, either completed or proposed.
The Board of Directors recommends a vote FOR ratification
of Deloitte & Touche LLP as the Company's independent auditors
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information, as of November 30,
1998 with respect to the beneficial ownership of the Company's Common Stock by:
(a) each stockholder known by the Company to be the beneficial owner of more
than five percent of the Company's Common Stock; (b) each director nominee; (c)
the Named Executive Officers (as defined below) and (d) all current executive
officers and directors as a group.
<CAPTION>
--------------------------------------------------------------------- ----------------------------- -------------------
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership (1) Percent of Class
--------------------------------------------------------------------- ----------------------------- -------------------
<S> <C> <C>
Velocity Capital Management LLC (2) 667,500 7.3%
Sequoia Capital (3) 512,784 5.6
David O'Brien (4) 357,922 3.9
Richard E. Corbin (5) 198.251 2.1
Ralph S. Granchelli, Jr. (6) 79,031 *
Ephraim Kwok (7) 26,250 *
James V. Diller (8) 50,558 *
Chuck K. Chan (9) 42,229 *
B. Yeshwant Kamath (10) 39,331 *
Alan V. King (11) 7,707 *
All current officers and directors as a group (7 persons) (12) 443,357 4.8
--------------------------------------------------------------------- ----------------------------- -------------------
<FN>
-------------
*Less than 1%.
(1) Unless otherwise indicated below, the persons named in the table
have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws
where applicable.
(2) According to a Form 13D filed with the Securities and Exchange
Commission on November 20, 1997, Velocity Capital Management LLC,
261 Hamilton Avenue, Suite 212, Palo Alto, California 94301 was
the beneficial owner of 667,500 shares on November 30, 1998.
(3) According to a Form 13G filed with the Securities and Exchange
Commission on February 5, 1997, Sequoia Capital, 3000 Sand Hill
Road, Building 4, Suite 280, Menlo Park, California 94025 was the
beneficial owner of 482,018 shares held by Sequoia Capital Growth
Fund and 30,766 shares held by Sequoia Technology Partners III.
(4) Represents 254,074 shares held by Dr. O'Brien, 14,299 shares held
by Dr. O'Brien as Custodian and 89,549 shares subject to options
exercisable within 60 days of November 30, 1998.
(5) Represents 61,221 shares held by Richard Corbin as Trustee which
also includes an aggregate of 4,000 shares held by two minor
children of Mr. Corbin, 95,365 shares held by Mr. Corbin and
41,665 shares subject to options exercisable within 60 days of
November 30, 1998.
(6) Represents 19,500 shares held by Mr. Granchelli and 59,531 shares
subject to options exercisable within 60 days of November 30,
1998.
(7) Represents 10,000 shares held by Mr. Kwok and 16,250 shares
subject to options exercisable within 60 days of November 30,
1998.
(8) Represents 4,615 shares held by Mr. Diller, 16,500 shares held by
James V. and June P. Diller Trust and 29,443 shares subject to
options exercisable within 60 days of November 30, 1998.
(9) Represents 25,981 shares held by Dr. Chan and 16,248 shares
subject to options exercisable within 60 days of November 30,
1998.
(10) Represents 11,000 shares held by Mr. Kamath and 28,331 shares
subject to options exercisable within 60 days of November 30,
1998.
(11) Represents 7,707 shares subject to options exercisable within 60
days of November 30, 1998.
(12) Includes the shares subject to options exercisable within 60 days
of November 30, 1998 described in footnotes (5) through (11) and
excludes shares and options held by David O'Brien who resigned
from the Company on November 10, 1998.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth all compensation awarded to, or earned
or paid for services rendered in all capacities to the Company and its
subsidiaries during each of fiscal 1996, 1997 and 1998 by (i) the Company's
Chief Executive Officer and (ii) the Company's three most highly compensated
executive officers other than the Chief Executive Officer who were serving as
executive officers at the end of fiscal 1998 and whose total salary and bonus
was more than $100,000 in fiscal 1998 (together, the "Named Executive
Officers"). This information includes the dollar values of base salaries and
bonus awards, the number of shares subject to stock options granted and certain
other compensation, if any, whether paid or deferred. The Company does not grant
SARs and has no long-term compensation benefits other than stock options.
<CAPTION>
Summary Compensation Table
- - --------------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation(1) Awards
-------------------------------------------------
Securities
Underlying All Other
Options Compensation
Name and Principal Position Year Salary ($) Bonus ($)(2) (No. of Shares) ($)(3)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David O'Brien (4) 1998 $189,515 $65,000 75,000 $5,179
President, Chief Executive Officer 1997 175,381 ---- 100,000(5) 2,265
And Chief Financial Officer 1996 187,218 42,000 ------- 1,350
Ephraim Kwok (6) 1998 100,958 $19,800 65,000 2,763
Vice President of Finance and Admin.
And Chief Financial Officer
Richard E. Corbin 1998 158,785 $21,600 25,000 4,436
Vice President of Technology 1997 135,588 ---- 77,000(5) 3,045
1996 127,477 26,600 ------ 2,045
Ralph S. Granchelli, Jr. 1998 131,907 $25,200 20,000 343
Vice President of Marketing 1997 121,442 ---- 33,000(5) 398
1996 121,281 21,000 ------ 296
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
- - ----------------------
(1) Perquisites are excluded as their aggregate value did not meet the
reporting threshold of the lesser of $50,000 or 10% of the
individual's salary plus bonus.
(2) Represents bonuses earned for services rendered during the fiscal
year listed, even if paid after the end of the fiscal year.
(3) Represents insurance premiums paid by the Company with respect to
term life insurance for the benefit of the Named Executive
Officers and 401(k) employer matched contributions totaling 2.5%
of plan participant's base salary.
(4) Dr. O'Brien resigned from the Company as of November 10, 1998.
(5) Represents an option for 100,000 shares granted in fiscal 1995 and
repriced in fiscal 1997 for Mr. O'Brien; an option for 45,000
shares granted in fiscal 1995 and repriced in fiscal 1997 and an
option for 16,000 shares granted in fiscal 1997 and repriced in
fiscal 1997 for Mr. Corbin; and an option for 25,000 shares
granted in fiscal 1995 and repriced in fiscal 1997 and an option
for 8,000 shares granted in fiscal 1997 that was not repriced for
Mr. Granchelli.
(6) Mr. Kwok joined the Company on January 5, 1998.
</FN>
</TABLE>
<PAGE>
Option Grants in Fiscal 1998
<TABLE>
The following table sets forth information concerning individual stock
option grants during the fiscal year ended September 30, 1998 to each of the
Named Executive Officers. In accordance with the rules of the Securities and
Exchange Commission (the "SEC"), the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
ten-year terms. These gains are based on assumed rates of annual compound stock
appreciation of 5% and 10% from the date the option was granted to the end of
the option terms. Actual gains, if any, on option exercises are dependent on the
future performance of the Company's Common Stock and overall market conditions.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
<CAPTION>
Option Grants Table
- - -------------------------------------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------
% of Total Potential Realizable Value
Number of Options Granted at Assumed Annual Rates of
Securities to Employees in Exercise Stock Price Appreciation
Underlying Fiscal Year Price Expiration for Option Term (1)
Name Options Granted 1998 (3) ($/Share) Date -------------------------------
(#) (2) 5%($) 10%($)
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David O'Brien 75,000 10.1% $6.8750 11/04/07 $324,277 $821,752
Ephraim Kwok 65,000 8.8 6.4375 01/05/08 263,155 666,864
Richard E. Corbin 25,000 3.4 6.8750 11/04/07 108,092 273,917
Ralph S. Granchelli, Jr. 20,000 2.7 6.8750 11/04/07 86,474 219,134
- - -------------------------------------------------------------------------------------------------------------------------------
<FN>
- - ---------------
(1) The 5% and 10% assumed rates of annual compound stock price
appreciation are mandated by rules of the SEC and do not represent
the Company's estimate or projection of future Common Stock
prices.
(2) Stock options are granted with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant
and become exercisable at a rate of 25% annually.
(3) The Company granted options to purchase 741,956 shares in fiscal
1998. Excluded from the options granted total of 741,956 were
453,900 shares repriced during fiscal 1998.
</FN>
</TABLE>
<TABLE>
The following table sets forth information concerning the number of
shares acquired on exercise of stock options, the value realized on such
exercise, and the number and value of unexercised stock options held at
September 30, 1998 by each of the Named Executive Officers.
<CAPTION>
Aggregated Option Exercises in Fiscal 1998 and
September 30, 1998 Option Values
- - ------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Realized Options at 9/30/98 at 9/30/98 ($)(2)
Name Exercise (1) ------------------------------ -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David O'Brien ---- ---- 62,466 145,834 ---- ----
Richard E. Corbin ---- ---- 30,331 68,209 $ 4,445 ----
Ralph S. Granchelli, Jr. 15,000 $116,375 52,109 46,522 77,089 ----
Ephraim Kwok ---- ---- ---- 65,000 ----
----
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
- - -----------------------
(1) "Value Realized" represents the fair market value of the shares
underlying the option on the date of exercise less the aggregate
exercise price.
(2) These values, unlike the amounts set forth in the column entitled
"Value Realized," have not been and may never be realized. They
are based on the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of
the Company's Common Stock on September 30, 1998 ($2.75 per
share).
</FN>
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into Executive Compensation Agreements (the
"Agreements"), dated as of March 22, 1991, with Messrs. Granchelli and Corbin.
The Agreements provide for severance payments and benefits following termination
of their employment, other than for cause or disability, in the event of a
change in control of the Company. The Company must provide each of these
officers with at least three months advance notice of such termination and
severance payments equal to three months base salary at the end of the notice
period. In each case, any unvested stock options that are held by the officer
that would have become vested within twelve months after the end of the notice
period will become fully vested.
SEVERANCE
In November 1998, David O'Brien, former President, Chief Executive
Officer and Director resigned from the Company. Dr. O'Brien is a party to an
Executive Compensation Agreement (the "Agreement") with the Company. The
Agreement states that Dr. O'Brien will continue to make himself available to the
Company as a consultant and in consideration for these consultancy services, the
Company agrees to pay Dr. O'Brien $14,362 per month for a twenty-one month
period that began in November 1998. In addition, the Company will continue to
provide medical, dental and life insurance benefits during the twenty-one month
payment period. Dr. O'Brien's stock options will continue to vest over a
twenty-four month period and as of November 30, 1998, Dr. O'Brien has stock
options outstanding for 208,300 shares of Common Stock, of which 85,382 shares
are fully vested and exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Drs.
Chan and Kamath, neither of whom has been or is an officer or an employee of the
Company. No member of the Compensation Committee served on the Compensation
Committee of another entity or has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This Compensation Committee Report is required by the SEC and shall not
be deemed to be 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 the Securities Exchange Act of
1934, as amended (the "Exchange Act"), except to the extent the Company
specifically incorporates this information by referencing and shall not
otherwise be deemed soliciting material or filed under such Acts.
The Compensation Committee establishes the general compensation policy
of the Company. The role of the Compensation Committee is to review, establish
guidelines, and approve salaries, cash bonuses, stock options and other
compensation of the executive officers. As discussed, the Compensation Committee
consists solely of directors Chuck K. Chan and B. Yeshwant Kamath. David
O'Brien, President, Chief Executive Officer of the Company, attended certain of
the meetings of the Compensation Committee and makes recommendations regarding
executive compensation. Dr. O'Brien did not attend any Compensation Committee
meetings where Dr. O'Brien's compensation package was being discussed by the
Compensation Committee. The Compensation Committee also administers the 1995
Equity Incentive Plan and the 1995 Stock Purchase Plan.
General Compensation Policy
The Compensation Committee has set forth the following as criteria for
total executive compensation:
o The Company's total executive compensation package must be
competitive in the marketplace so as to enable the Company to
attract and retain top caliber executive talent.
o The Company's executive compensation must be linked to the
Company's overall performance. The philosophy of the Compensation
Committee is that base salary should be on par with industry
averages for comparable companies; however, the executive officers
should have significant cash bonus incentives if the Company meets
or exceeds the goals committed to the Board, particularly in view
of the Board's opinion of the relative difficulty in reaching
these goals given competitive market conditions and other factors
affecting the Company's performance.
<PAGE>
o The Compensation Committee believes that stock options play an
important role in attracting and retaining qualified personnel in
that stock options provide personnel with a reward directly tied
to increased stock values.
The Committee's philosophy in compensating executive officers,
including the CEO, is to relate compensation directly to corporate performance.
Thus, the Company's compensation policy, which applies to management and other
employees of the Company, relates a portion of each individual's total
compensation to the Company's corporate objectives set forth at the beginning of
the Company's fiscal year, as well as to individual contributions. Consistent
with this policy, a designated portion of the compensation of the executive
officers of the Company is contingent on corporate performance and adjusted
based on the individual officer's performance as measured against established
personal objectives. Long-term equity incentives for executive officers are
effected through the granting of stock options under the 1995 Equity Incentive
Plan. Stock options generally have value for the executive only if the price of
the Company's stock increases above the fair market value on the grant date and
the executive remains in the Company's employ for the period required for the
shares to vest.
In preparing the performance graph for this Proxy Statement, the
Company used the Nasdaq Composite Stock Market Index ("Nasdaq Index") as its
published line of business index as the Company believes that the Nasdaq Index
is a good indicator of stock price performance with respect to the Company's
industry. The Company further believes that the data contained in the executive
compensation survey described in the foregoing paragraph, which includes certain
companies on the Nasdaq Index, is a good benchmark with respect to executive
compensation practices in the Company's industry.
1998 Executive Compensation
Base Salaries. The base salary for each executive officer for fiscal
1998 was determined by the Compensation Committee after considering the relative
compensation for comparable positions at comparable companies from various
available industry sources.
Incentive Compensation. Once base salaries were determined, an
additional portion of total compensation was awarded to Company executives based
upon the actual pre-tax income of the Company.
Stock Options. Stock options granted by the Compensation Committee take
into consideration the anticipated future contribution and ability to impact
corporate business results of each affected executive officer. In fiscal 1998,
the Committee determined that each executive officer should have an approximate
equal number of shares of Company stock that can be exercised, each year,
through 2000. The number and vesting of stock options for each executive officer
was based on the foregoing criteria, as well as the Compensation Committee's
determination that stock option grants are an effective technique to enhance
executive officer performance and retention.
1998 CEO Compensation
In fiscal 1998, Dr. O'Brien's base salary was $189,515 (as compared to
$175,381 in fiscal 1997). Dr. O'Brien received a $65,000 bonus related to fiscal
1998 and 75,000 stock options were granted.
Compliance with Section 162(m) of the Internal Revenue Code of 1986
The Company intends to comply with the requirements of Section 162(m)
of the Internal Revenue Code of 1986 (the "Code") for fiscal 1998. The 1995
Equity Incentive Plan is currently in compliance with Section 162(m) of the
Code. The Company does not expect cash compensation for fiscal 1998 to be
affected by the requirements of Section 162(m).
1998 Option Repricing Program
Competition for skilled engineers and other key employees in the
semiconductor industry is intense and the use of significant stock options for
retention and motivation of such personnel is widespread in the high technology
industries. The Compensation Committee believes that stock options are a
critical component of the compensation offered by the Company to promote
long-term retention of key employees, motivate high levels of performance and
recognize employee contributions in the success of the Company. The market price
of the Company's common stock decreased from a high of $10.75 in April 1998 to a
low of $3.625 in the fourth quarter of fiscal 1998. In light of this substantial
decline in the market price, the Compensation Committee believed that the large
numbers of outstanding stock options with an exercise price in excess of the
actual market price were no longer an effective tool to encourage employee
retention or to motivate high levels of performance.
Employees and Consultants. The Compensation Committee approved, on
August 18, 1998, an option repricing
<PAGE>
program for all employees and consultants to the Company who were not executive
officers of the Company.
Under this program, the eligible optionees were permitted to exchange
one or more of their existing stock options ("Old Options") for new stock
options ("Repriced Options") covering a number of shares equal to the number of
unexercised shares covered by the applicable Old Option under the Elantec
Semiconductor, Inc. 1995 Equity Incentive Plan that (a) was exercisable at a per
share price that was greater than the last reported sales price of the Company's
Common Stock on the Nasdaq National Market on August 28, 1998 and (b) was held
by an optionee who was not an executive officer. In consideration of receiving a
Repriced Option, the optionee forfeited all accrued vesting on Old Options and
recommenced vesting on August 28, 1998 as to 25% of the shares subject to such
Repriced Options at the end of each full succeeding year thereafter. Each
exchanged Old Option was cancelled. The exercise price of the Repriced Options
was equal to the closing market price ($3.625) on August 28, 1998.
COMPENSATION COMMITTEE
Chuck K. Chan
B. Yeshwant Kamath
<PAGE>
<TABLE>
PERFORMANCE GRAPH
The stock price performance graph below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
the Company specifically incorporates this information by referencing and shall
not otherwise be deemed soliciting material or filed under such acts.
The following graph shows a comparison of cumulative total stockholder
return, calculated on a dividend reinvested basis, for the Company, the Nasdaq
Composite Stock Market Index (US) and the Hambrecht and Quist Semiconductor
Sector Index. The graph assumes that $100 was invested in the Company's Common
Stock, the Nasdaq Composite Stock Market (US) and the Hambrecht and Quist
Semiconductor Sector Index from the date of the Company's initial public
offering on October 10, 1995 through September 30, 1998. Note that historic
stock price performance is not necessarily indicative of future stock price
performance.
Elantec Semiconductor, Inc.
H&Q Semiconductor Sector Index
Nasdaq Stock Market--U.S. Index
[The following description data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<CAPTION>
IPO Through Fiscal 1996
Cumulative Total Return
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/10/95 12/30/95 3/30/96 6/30/96 9/30/96
Elantec Semiconductor, Inc. 100 146.43 128.57 128.57 100
H&Q Semiconductor Sector Index 100 74.08 69.96 67.05 76.12
Nasdaq Stock Market - U.S. Index 100 107.42 112.43 121.61 125.93
Fiscal 1997
Cumulative Total Return
--------------------------------------------------
12/30/96 3/30/97 6/30/97 9/30/97
Elantec Semiconductor, Inc. 62.73 44.64 58.03 91.07
H&Q Semiconductor Sector Index 95.94 107.83 121.6 152.01
Nasdaq Stock Market - U.S. Index 132.12 124.96 147.87 172.87
Fiscal 1998
Cumulative Total Return
--------------------------------------------------
12/30/97 3/30/98 6/30/98 9/30/98
Elantec Semiconductor, Inc. 88.39 125.00 80.36 51.79
H&Q Semiconductor Sector Index 101.18 116.01 99.67 86.90
Nasdaq Stock Market - U.S. Index 161.87 189.35 194.82 176.44
-----------------------------
$100 Invested on October 10, 1995 in Stock or Index.
Fiscal Year Ending September 30.
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
From October 1, 1997 to the present, there have been no (and there are
no currently proposed) transactions in which the amount involved exceeded
$60,000 to which the Company or any of its subsidiaries was (or is to be) a
party and in which any executive officer, director, 5% beneficial owner of the
Company's Common Stock or member of the immediate family of any of the foregoing
persons had (or will have) a direct or indirect material interest.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's Common
Stock ("10% Stockholders"), to file with the SEC initial reports of ownership on
a Form 3 and reports of changes in ownership of Common Stock and other equity
securities of the Company on a Form 4 or Form 5. Such executive officers,
directors and 10% Stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on its
reviews of the copies of such forms furnished to the Company and written
representations from the executive officers and directors, the Company believes
that all of the Company's directors, officers and 10% stockholders made all the
necessary filings under Section 16(a) during fiscal 1998, except that Mr. Chan
filed a Form 4 late related to an option grant and exercise of 1,500 shares.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Company's Proxy Statement
and form of proxy relating to the Company's annual meeting of stockholders to be
held in 2000 must be received by September 23, 1999. Stockholders wishing to
bring a proposal before the annual meeting for 2000 (but not include it in the
Company's proxy materials) must provide written notice of such proposal to the
Secretary of the Company at the principal executive offices of the Company by
November 23, 1999.
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other
business before the Annual Meeting and, so far as is known to the Board, no
matters are to be brought before the Annual Meeting except as specified in the
notice of such meeting. As to any business that may properly come before the
Meeting, or any adjournment or postponement thereof, however, it is intended
that Proxies, in the form enclosed, will be voted in the respect thereof in
accordance with the judgment of the persons voting such Proxies.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE AND SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN
POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOUR SHARES WILL BE REPRESENTED AT THE
MEETING.
By Order of the Board of Directors
______________________________________
Jim Diller
President, Chief Executive Officer and
Chairman of the Board
<PAGE>
APPENDIX A
Please mark
your votes as [X]
indicated in
this example
<TABLE>
The Board of Directors recommends a vote
FOR all nominees and for Items 2, 3 and 4
<CAPTION>
WITHHELD
FOR FOR ALL FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C>
Item 1 - ELECTION OF DIRECTORS [ ] [ ] Item 2 - AMENDMENT TO
Nominees: 1995 EQUITY [ ] [ ] [ ]
INCENTIVE PLAN
Chuck K. Chan
James V. Diller Item 3 - AMENDMENT TO
B. Yeshwant Kamath 1995 DIRECTORS [ ] [ ] [ ]
Alan V. King STOCK OPTION
PLAN
Item 4 - RATIFICATION OF
WITHHELD FOR: (Write that nominee's name in the space SELECTION OF [ ] [ ] [ ]
provided below). INDEPENDENT
AUDITORS
</TABLE>
- - --------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment or postponement there
of to the extent authorized by Rule 14a-4(c) promulgated by the Securities and
Exchange Commission.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated:
---------------------------------------
---------------------------------------
---------------------------------------
Signature(s)
Note: Please sign exactly as your name(s) appear on your stock certificate. If
shares are held of record in the names of two or more persons or in the name of
the husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
[FOLD AND DETACH HERE]
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ELANTEC SEMICONDUCTOR, INC.
The undersigned hereby appoints Ephraim Kwok and Ralph Granchelli proxies, with
power to act without the other and with power of substitution, and hereby
authorizes them to represent and vote, as designated on the other side, all the
shares of stock of Elantec Semiconductor, Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Stockholders of the Company to be held at the Beverly
Heritage Hotel at 1820 Barber Lane, Milpitas, California 95035 on January 22,
1999 or any adjournment or postponement thereof.
(Continued, and to be marked, dated and signed, on the other side)
[FOLD AND DETACH HERE]
<PAGE>
ELANTEC SEMICONDUCTOR, INC.
1995 EQUITY INCENTIVE PLAN
As Adopted August 23, 1995 and Amended
Through November 19, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THIS PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,350,000 Shares plus any Shares that are made
available for grant and issuance under this Plan pursuant to the following
sentence. Any shares remaining unissued and not subject to outstanding options
or other awards under the 1994 Equity Incentive Plan (the "Prior Plan") adopted
by Elantec, Inc., a California corporation, that is the Company's predecessor
("Elantec California") on the Effective Date (as defined below) and any shares
issuable upon exercise of options granted pursuant to the Prior Plan that expire
or become unexercisable for any reason without having been exercised in full,
will no longer be available for grant and issuance under the Prior Plan, but
will also be available for grant and issuance under this Plan. Subject to
Sections 2.2 and 18, Shares that: (a) are subject to issuance upon exercise of
an Option but cease to be subject to such Option for any reason other than
exercise of such Option; (b) are subject to an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; or (c)
are subject to an Award that otherwise terminates without Shares being issued;
will again be available for grant and issuance in connection with future Awards
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee; and
provided, further, that the Exercise Price of any Option may not be decreased to
below the par value of the Shares.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All other
Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company; provided such consultants, contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. No person will be eligible to
receive more than 100,000 Shares in any calendar year under this Plan pursuant
to the grant of Awards hereunder, other than new employees of the Company or of
a Parent, Subsidiary or Affiliate of the Company (including new employees who
are also officers and directors of the Company or any Parent, Subsidiary or
Affiliate of the Company) who are eligible to receive up to a maximum of 400,000
Shares in the calendar year in which they commence their employment. A person
may be granted more than one Award under this Plan.
<PAGE>
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by
the Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant
to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or
as alternatives to, other Awards under this Plan or any
other incentive or compensation plan of the Company or
any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile
any inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
4.3 Exchange Act Requirements. If two or more members of the
Board are Outside Directors, the Committee will be comprised of at least two (2)
members of the Board, all of whom are Outside Directors and Disinterested
Persons. During all times that the Company is subject to Section 16 of the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested administration requirements of Section 16(b) of the Exchange Act,
which will consist of the appointment by the Board of a Committee consisting of
not less than two (2) members of the Board, each of whom is a Disinterested
Person.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"),
-2-
<PAGE>
and will be in such form and contain such provisions (which need not be the same
for each Participant) as the Committee may from time to time approve, and which
will comply with and be subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options will be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided, further, that no ISO granted to a person who directly
or by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("Ten Percent Stockholder") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise
such Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to
be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of the
Participant's death or Disability (or the Participant
dies within three (3) months after a Termination other
than because of Participant's death or disability),
then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by
Participant on the Termination Date and must be
exercised by Participant (or Participant's legal
representative or authorized assignee) no later than
twelve (12) months after the Termination Date (or such
shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or
-3-
<PAGE>
(b) twelve (12) months after the Termination Date when
the Termination is for Participant's death or
Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If the
Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price; and provided, further, that the Exercise Price will not be
reduced below the par value of the Shares.
5.10 No Disqualification. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISOs will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee and
will be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case
-4-
<PAGE>
the Purchase Price will be 100% of the Fair Market Value. Payment of the
Purchase Price may be made in accordance with Section 8 of this Plan.
6.3 Restrictions. Restricted Stock Awards will be subject to
such restrictions (if any) as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company (provided that the Participant pays the
Company the par value of the Shares awarded by such Stock Bonus in cash)
pursuant to an Award Agreement (the "Stock Bonus Agreement") that will be in
such form (which need not be the same for each Participant) as the Committee
will from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of
such performance goals as are set out in advance in the Participant's individual
Award Agreement (the "Performance Stock Bonus Agreement") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Stock Bonuses may vary from Participant to Participant
and between groups of Participants, and may be based upon the achievement of the
Company, Parent, Subsidiary or Affiliate and/or individual performance factors
or upon such other criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant and whether such Shares will
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee will determine: (a) the nature, length and starting date of any period
during which performance is to be measured (the "Performance Period") for each
Stock Bonus; (b) the performance goals and criteria to be used to measure the
performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may
be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
-5-
<PAGE>
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use
of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not
employees or directors of the Company will not be
entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral
other than the Shares; provided, further, that the
portion of the Purchase Price equal to the par value of
the Shares must be paid in cash;
(d) by waiver of compensation due or accrued to the
Participant for services rendered; provided that the
portion of the Purchase Price equal to the par value of
the Shares must be paid in cash;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in
the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise
Price directly to the Company; or
(g) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to
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satisfy the minimum withholding tax obligation by electing to have the Company
withhold from the Shares to be issued that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld, determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by a Participant to have Shares withheld for this purpose will be
made in writing in a form acceptable to the Committee and will be subject to the
following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
will be irrevocable as to the particular Shares as to
which the election is made;
(c) all elections will be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the
date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act,
and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election
may be revoked at any time at least six (6) months
prior to the Tax Date) or (B) the exercise of the
Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third
day following the release of the Company's quarterly or
annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section
83(b) of the Code, the Participant will receive the
full number of Shares with respect to which the
exercise occurs, but such Participant will be
unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of
the rights of a stockholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant will be a stockholder and have all the rights of a stockholder with
respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares; provided, that if
such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's original Purchase
Price pursuant to Section 12.
10.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as consistent with the
specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a
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Participant (or a subsequent transferee) may propose to transfer to a third
party, and/or (b) a right to repurchase a portion of or all Shares held by a
Participant following such Participant's Termination at any time within ninety
(90) days after the later of Participant's Termination Date and the date
Participant purchases Shares under this Plan, for cash and/or cancellation of
purchase money indebtedness, at: (A) with respect to Shares that are "Vested"
(as defined in the Award Agreement), the higher of: (l) Participant's original
Purchase Price, or (2) the Fair Market Value of such Shares on Participant's
Termination Date, provided, that such right of repurchase (i) must be exercised
as to all such "Vested" Shares unless a Participant consents to the Company's
repurchase of only a portion of such "Vested" Shares and (ii) terminates when
the Company's securities become publicly traded; or (B) with respect to Shares
that are not "Vested" (as defined in the Award Agreement), at the Participant's
original Purchase Price, provided, that the right to repurchase at the original
Purchase Price lapses at the rate of at least 20% per year over five (5) years
from the date the Shares were purchased (or from the date of grant of options in
the case of Shares obtained pursuant to a Stock Option Agreement and Stock
Option Exercise Agreement), and if the right to repurchase is assignable, the
assignee must pay the Company, upon assignment of the right to repurchase, cash
equal to the excess of the Fair Market Value of the Shares over the original
Purchase Price.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any
time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award
will not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
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17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company (other than any stockholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the stockholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the stockholders of the Company), any or all outstanding Awards may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Options will expire on such transaction at such time and
on such conditions as the Board will determine.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either: (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective at the effective time of the merger of Elantec California with the
Company (the "Effective Date"). This Plan will be approved by the stockholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the
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number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; and (c) in the event that stockholder approval of such increase is not
obtained within the time period provided herein, all Awards granted hereunder
will be cancelled, any Shares issued pursuant to any Award will be cancelled and
any purchase of Shares hereunder will be rescinded. So long as the Company is
subject to Section 16(b) of the Exchange Act, the Company will comply with the
requirements of Rule 16b-3 (or its successor), as amended, with respect to
stockholder approval.
20. TERM OF PLAN. Unless earlier terminated as provided herein,
this Plan will terminate ten (10) years from the date this Plan is adopted by
the Board or, if earlier, the date of stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this
Plan by the Board, the submission of this Plan to the stockholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
23. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
"Award" means any award under this Plan, including any
Option, Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"Company" means Elantec Semiconductor, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.
"Disability" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee.
"Disinterested Person" means a director who has not, during
the period that person is a member of the Committee and for one year prior to
commencing service as a member of the Committee, been
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granted or awarded equity securities pursuant to this Plan or any other plan of
the Company or any Parent, Subsidiary or Affiliate of the Company, except in
accordance with the requirements set forth in Rule 16b-3(c)(2)(i) (and any
successor regulation thereto) as promulgated by the SEC under Section 16(b) of
the Exchange Act, as such rule is amended from time to time and as interpreted
by the SEC.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exercise Price" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a
share of the Company's Common Stock, par value $0.01, determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its last reported sale price on the
Nasdaq National Market or, if no such reported sale
takes place on such date, the average of the closing
bid and asked prices;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, the last
reported sale price or, if no such reported sale takes
place on such date, the average of the closing bid and
asked prices on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on such
date, as reported by The Wall Street Journal, for the
over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"Insider" means an officer or director of the Company or
any other person whose transactions in the Company's Common Stock, par value
$0.01, are subject to Section 16 of the Exchange Act.
"Outside Director" means any director who is not: (a) a
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company; (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan); (c) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company; or
(d) currently receiving compensation for personal services in any capacity,
other than as a director, from the Company or any Parent, Subsidiary or
Affiliate of the Company; provided, however, that at such time as the term
"Outside Director", as used in Section 162(m) of the Code is defined in
regulations promulgated under Section 162(m) of the Code, "Outside Director"
will have the meaning set forth in such regulations, as amended from time to
time and as interpreted by the Internal Revenue Service.
"Option" means an award of an option to purchase Shares
pursuant to Section 5.
"Parent" 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 an Award under this Plan, each of such 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.
"Participant" means a person who receives an Award under
this Plan.
"Plan" means this Elantec Semiconductor, Inc. 1995 Equity
Incentive Plan, as amended from time to time.
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"Restricted Stock Award" means an award of Shares pursuant
to Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means shares of the Company's Common Stock, par
value $0.01, reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 18, and any successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Award, each of the corporations other than the last
corporation in the 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.
"Termination" or "Terminated" means, for purposes of this
Plan with respect to a Participant, that the Participant has for any reason
ceased to provide services as an employee, director, consultant, independent
contractor or advisor to the Company or a Parent, Subsidiary or Affiliate of the
Company, except in the case of sick leave, military leave, or any other leave of
absence approved by the Committee, provided that such leave is for a period of
not more than ninety (90) days, or reinstatement upon the expiration of such
leave is guaranteed by contract or statute. The Committee will have sole
discretion to determine whether a Participant has ceased to provide services and
the effective date on which the Participant ceased to provide services (the
"Termination Date").
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ELANTEC SEMICONDUCTOR, INC.
1995 DIRECTORS STOCK OPTION PLAN
As Adopted August 23, 1995 and
Amended November 19, 1998
1. Purpose. This 1995 Directors Stock Option Plan (this "Plan") is
established to provide equity incentives for non-employee members of the Board
of Directors of Elantec Semiconductor, Inc. (the "Company"), who are described
in Section 6.1 below, by granting such persons options to purchase shares of
stock of the Company.
2. Adoption and Stockholder Approval. After this Plan is adopted by the
Board of Directors of the Company (the "Board"), this Plan will become effective
on the time and date (the "Effective Date") on which the registration statement
filed by the Company with Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC; provided, however, that if the Effective Date does not occur on or
before December 31, 1995, this Plan will terminate as of December 31, 1995
having never become effective. This Plan shall be approved by the stockholders
of the Company, consistent with applicable laws, within twelve (12) months after
the date this Plan is adopted by the Board. Options ("Options") may be granted
under this Plan after the Effective Date; provided that, in the event that
stockholder approval is not obtained within the time period provided herein,
this Plan, and all Options granted hereunder, shall terminate. No Option that is
issued as a result of any increase in the number of shares authorized to be
issued under this Plan shall be exercised prior to the time such increase has
been approved by the stockholders of the Company and all such Options granted
pursuant to such increase shall similarly terminate if such stockholder approval
is not obtained. So long as the Company is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
will comply with the requirements of Rule 16b-3 with respect to stockholder
approval.
3. Types of Options and Shares. Options granted under this Plan shall
be nonqualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of the Company's Common Stock, par value $0.01.
4. Number of Shares. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 250,000 Shares, subject to
adjustment as provided in this Plan. If any Option is terminated for any reason
without being exercised in whole or in part, the Shares thereby released from
such Option shall be available for purchase under other Options subsequently
granted under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options granted under this Plan.
5. Administration. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "Committee"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
<PAGE>
6. Eligibility and Award Formula.
6.1 Eligibility. Options may be granted only to directors of the
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
an "Optionee").
6.2 Initial Grant. Each Optionee who first becomes a member of
the Board on or after the Effective Date will automatically be granted an Option
for 20,000 Shares on the date such Optionee joins the Board (the "Initial
Grant").
6.3 Succeeding Grants. Each year following the Effective Date,
on the date of the Company's Annual Stockholders' Meeting, each Optionee,
including Optionees who received an Initial Grant, who is still a member of the
Board, will automatically be granted an Option for 10,000 Shares (a "Succeeding
Grant").
6.4 Maximum Shares. No grant will be made if such grant will
cause the number of Shares issued or subject to outstanding Options under this
Plan to exceed the number specified in Section 4 above.
7. Terms and Conditions of Options. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. Options granted under this Plan shall be
exercisable as they vest. The date an Optionee is granted an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option. Each Initial Grant granted under the Plan will vest as to one
forty-eighth (1/48) of the Shares subject to it on the last day of the month
following the Initial Grant's Start Date and as to an additional one
forty-eighth (1/48) of the Shares on the last day of each month thereafter, so
long as the Optionee continuously remains a member of the Board. Each Succeeding
Grant granted under the Plan will vest as to one forty-eighth (1/48) of the
Shares subject to it on the last day of the month following the Succeeding
Grant's Start Date and as to an additional one forty-eighth (1/48) of the Shares
on the last day of each month thereafter, so long as the Optionee continuously
remains a member of the Board.
7.3 Exercise Price. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"Expiration Date"). The Option shall cease to vest if the Optionee ceases to be
a member of the Board. The date on which the Optionee ceases to be a member of
the Board shall be referred to as the "Termination Date". An Option may be
exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
member of the Board for any reason except death or disability, then each Option
then held by such Optionee, to the extent (and only to the extent) that it would
have been exercisable by the Optionee on the Termination Date, may be exercised
by the Optionee within three (3) months after the Termination Date, but in no
event later than the Expiration Date.
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(b) Death or Disability. If the Optionee ceases to be a
member of the Board because of the death of the Optionee or the disability of
the Optionee within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code"), then each Option then held by such Optionee,
to the extent (and only to the extent) that it would have been exercisable by
the Optionee on the Termination Date, may be exercised by the Optionee (or the
Optionee's legal representative) within twelve (12) months after the Termination
Date, but in no event later than the Expiration Date.
8. Exercise of Options.
8.1 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee, stating
the number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.2 Payment. Payment for the Shares purchased upon exercise of
an Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.4 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) An Option shall not be exercisable until such time as
this Plan (or, in the case of Options granted pursuant to an amendment
increasing the number of shares that may be issued pursuant to this Plan such
amendment) has been approved by the stockholders of the Company in accordance
with Section 15 hereof.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise.
(c) The Committee may specify a reasonable minimum number
of Shares that may be purchased upon any exercise of an Option, provided that
such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
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9. Nontransferability of Options. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
10. Privileges of Stock Ownership. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its stockholders.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be ignored; and
provided, further, that the exercise price per Share subject to a Option may not
be decreased to below the par value.
12. No Obligation to Continue as Director. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. Compliance With Laws. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. Acceleration of Options. In the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company or their relative stock holdings and the Options
granted under this Plan are assumed, converted or replaced by the successor
corporation, which assumption will be binding on all Optionees), (c) a merger in
which the Company is the surviving corporation but after which the stockholders
of the Company (other than any stockholder which merges (or which owns or
controls another corporation which merges) with the Company in such merger)
cease to own their shares or other equity interests in the Company, (d) the sale
of substantially all of the assets of the Company, or (e) any other transaction
which qualifies as a "corporate transaction" under Section 424(a) of the Code
wherein the stockholders of the Company give up all of their equity interests in
the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by the
stockholders of the Company), the vesting of all options granted pursuant to the
this Plan will accelerate and the options will become exercisable in full prior
to the consummation of such event at such times and on such conditions as the
Committee determines, and if such options are not exercised prior to the
consummation of the corporate transaction, they shall terminate in accordance
with the provisions of this Plan.
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<PAGE>
15. Amendment or Termination of Plan. The Committee may at any time
terminate or amend this Plan (but may not terminate or amend the terms of any
outstanding option); provided, however, that the Committee shall not, without
the approval of the stockholders of the Company, increase the total number of
Shares available under this Plan (except by operation of the provisions of
Sections 4 and 11 above) or change the class of persons eligible to receive
Options. Further, the provisions in Sections 6 and 7 of this Plan shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act or the rules
thereunder. In any case, no amendment of this Plan may adversely affect any then
outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. Term of Plan. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date this Plan is
adopted by the Board.
17. Certain Definitions. As used in this Plan, the following terms
shall have the following meanings:
17.1 "Parent" 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 such corporations other than the Company 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.
17.2 "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain 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.
17.3 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "Fair Market Value" shall mean, as of any date, the value
of a share of the Company's Common Stock determined as follows: (a) if such
Common Stock is then quoted on the Nasdaq National Market, its last reported
sale price on the Nasdaq National Market or, if no such reported sale takes
place on such date, the average of the closing bid and asked prices; (b) if such
Common Stock is publicly traded and is then listed on a national securities
exchange, the last reported sale price or, if no such reported sale takes place
on such date, the average of the closing bid and asked prices on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading; (c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on such
date, as reported by The Wall Street Journal, for the over-the-counter market;
or (d) if none of the foregoing is applicable, by the Board in good faith.
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