SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant X
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Filed by a Party other than the Registrant
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only(as permitted by Rule 14a-6(e(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SIERRA SEMICONDUCTOR CORPORATION
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(Name of Registrant as specified in its charter)
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(Name of person(s) filing proxy statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14a.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11: (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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SIERRA SEMICONDUCTOR CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held June 5, 1997
The 1997 Annual Meeting of Shareholders of Sierra Semiconductor
Corporation (the "Company"), will be held on Thursday, June 5, 1997 at 3:00 p.m.
local time, at the Clarion Hotel Villa located at 4331 Dominion Street, Burnaby,
British Columbia, Canada, to act on the following matters:
1. To elect directors of the Company to serve until the
next Annual Meeting or the election of their
successors.
2 To approve a change in the Company's state of
incorporation from California to Delaware.
3. To change the Company's name to PMC-Sierra, Inc.
4. To approve the elimination of cumulative voting in
the election of directors as part of the
reincorporation into Delaware.
5. To approve the elimination of the ability of
shareholders to act by written consent as part of the
reincorporation into Delaware.
6. To approve an amendment to the Company's 1994
Incentive Stock Plan to increase the number of shares
reserved for issuance by 500,000 shares.
7. To approve the 1996 Stock Option Plan of PMC-Sierra,
Inc. (Portland), including a reserve of 450,000
shares of the Company's Common Stock for issuance
upon exercise of options under the plan.
8. To confirm the appointment of Deloitte & Touche LLP
as the Company's independent auditors for the 1997
fiscal year.
9. To transact such other business as may properly
come before the meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on April 9, 1997
are entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
James V. Diller, Chief Executive Officer
San Jose, California
April 28, 1997
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IMPORTANT
To ensure your representation at the meeting, please mark, sign, date
and return the enclosed proxy card as soon as possible in the enclosed
postage-paid envelope. If you attend the meeting, you may vote in
person even if you returned a proxy.
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SIERRA SEMICONDUCTOR CORPORATION
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PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Sierra Semiconductor Corporation (the "Company") for use at the Annual Meeting
of Shareholders of the Company to be held on Thursday, June 5, 1997 at 3:00
p.m., local time, or at any adjournments thereof. The Annual Meeting will be
held at the Clarion Hotel Villa, which is located at 4331 Dominion Street,
Burnaby, British Columbia, Canada. The Company's principal office is located at
2222 Qume Drive, San Jose, California 95131. Its telephone number at that
location is (408) 434-9300. The Company's principal subsidiary is a Canadian
corporation named PMC-Sierra, Inc. ("PMC"). References in this proxy statement
to "Sierra" or the Company" mean Sierra Semiconductor Corporation.
References to "PMC" mean Sierra's principal Canadian subsidiary.
This proxy statement is being mailed to shareholders on or about April
28, 1997.
Record Date and Share Ownership
Only holders of Common Stock of record at the close of business on
April 9, 1997 (the "Record Date") are entitled to notice of and vote at the
Annual Meeting of Shareholders. At the Record Date, 29,152,950 shares of the
Company's Common Stock were issued and outstanding.
Shareholders' Proposals for 1998 Annual Meeting
Proposals to be presented by shareholders of the Company at the 1998
Annual Meeting must be received by the Company no later than December 27, 1997
in order that they may be included in the proxy statement and form of proxy
relating to that meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by (i) delivering to the Company's
Secretary at 2222 Qume Drive, San Jose, California 95131, a written notice of
revocation or a duly executed proxy bearing a later date or (ii) attending the
meeting and voting in person.
Voting and Solicitation
Each share of Common Stock outstanding on the Record Date is entitled
to one vote. In addition, every shareholder, or the shareholder's proxy, who is
entitled to vote upon the election of directors may cumulate such shareholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of shares held by such shareholder, or
distribute the shareholder's votes on the same principle among as many
candidates as the shareholder may select, provided that votes cannot be cast for
more than six candidates. No shareholder or proxy, however, shall be entitled to
cumulate votes for a candidate unless such candidate's name has been placed in
nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting, prior to the voting, of the shareholder's
intention to cumulate votes. If any shareholder gives such notice, all
shareholders may cumulate their votes for candidates in nomination.
The six nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to vote shall be elected as
directors. Approval of each other matter requires the affirmative vote of a
majority of the Votes Cast. For this purpose, the "Votes Cast" are defined under
California law to be the shares of the Company's Common Stock represented and
voting in person or by proxy at the Annual Meeting. In addition, the affirmative
votes must constitute at least a majority of the required quorum, which is a
majority of the shares outstanding on the record date. Votes that are cast
against a proposal will be counted for purposes of determining (i) the presence
or absence of a quorum and (ii) the total number of Votes Cast with respect to
the proposal. While there is no definitive statutory or case law authority in
California as to the proper treatment of abstentions in the counting of votes
with respect to a proposal, the Company believes that abstentions should be
counted for purposes of determining both (i) the presence or absence of a quorum
and (ii) the total number of Votes Cast with respect to the proposal. In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal. Broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to a proposal.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Inspector of Elections (the "Inspector") with the assistance of
the Company's transfer agent. The Inspector will also determine whether a quorum
is present.
The cost of soliciting proxies will be borne by the Company. The
Company may retain the services of Boston EquiServe, L.P. to solicit proxies,
for which the Company estimates that it would pay a fee not to exceed $5,000,
plus out-of-pocket expenses. The Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, in person or by telephone or facsimile.
Security Ownership of Certain Beneficial Owners And Management
The following table sets forth certain information known to the Company
regarding beneficial ownership of Common Stock of the Company as of March 15,
1997, by (i) all persons known to the Company to be the beneficial owners of
more than 5% of the Company's Common Stock, (ii) each executive officer named in
the Summary Compensation Table below, (iii) each of the Company's directors and
(iv) all directors and executive officers as a group.
Company
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Number of Shares of Approximate
the Company Percent of
Name (1) Beneficially Owned Ownership
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Gregory Aasen (2) 212,933 *
Robert L. Bailey (3) 527,222 1.77%
Alexandre Balkanski (4) 23,228 *
Colin Beaumont (5) 20,461 *
James V. Diller (6) 930,450 3.09%
Michael L. Dionne (7) 13,123 *
Glenn C. Jones (8) 249,764 *
Richard J. Koeltl (9) 116,312 *
Frank Marshall (10) 7,916 *
All directors and executive officers
as a group (9 persons) (11) 2,101,409 6.87%
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* Less than 1%.
(1) The beneficial owners named in the table have sole voting and investment
power with respect to the shares, except as indicated.
(2) Includes 17,708 shares subject to options exercisable within 60 days after
March 15, 1997, 6,000 shares held by Mr. Aasen's wife and an aggregate of
14,000 shares held by Mr. Aasen's two sons. Also includes 92,981 shares
issuable upon redemption of PMC-Sierra, Inc. ("PMC") Special Shares,
64,384 shares issuable upon redemption of PMC Special Shares held by Mr.
Aasen's wife and an aggregate of 16,554 shares issuable upon redemption of
PMC Special Shares held by Mr. Aasen's two sons.
(3) Includes 16,666 shares subject to options exercisable within 60 days after
March 15, 1997. Also includes 402,350 shares issuable upon redemption of
PMC Special Shares, and 1,910 shares issuable upon redemption of PMC
Special Shares subject to options exercisable within 60 days after March
15, 1997.
(4) Includes 23,228 shares subject to options exercisable within 60 days after
March 15, 1997.
(5) Includes 19,461 shares issuable upon redemption of PMC Special Shares.
(6) Includes 381,666 shares subject to options exercisable within 60 days
after March 15, 1997 and 38,192 shares issuable
upon redemption of PMC Special Shares subject to options exercisable
within 60 days after March 15, 1997.
(7) Includes 13,123 shares subject to options exercisable within 60 days after
March 15, 1997.
(8) Includes 240,832 shares subject to options exercisable within 60 days
after March 15, 1997.
(9) Includes 99,998 shares subject to options exercisable within 60 days after
March 15, 1997. Also includes 5,333 shares held by Mr. Koeltl's wife as
custodian for their son and 8,577 shares held by Mr. Koeltl's adult son
and daughter as to which Mr. Koeltl disclaims beneficial ownership.
(10) Includes 5,416 shares subject to options exercisable within 60 days of
March 15, 1997.
(11) Includes 798,637 shares subject to options exercisable within 60 days
after March 15, 1997 held by eight of the directors and executive officers
listed above. Also includes 40,102 shares issuable upon redemption of PMC
Special Shares subject to options exercisable within 60 days after March
15, 1997 held by two of the executive officers and directors listed above
and 595,730 shares issuable upon redemption of PMC Special Shares to one
executive officer and director, one executive officer and one nominee as a
director listed above. See notes (2) through (10) above.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Company's Bylaws provide for a variable board of four to seven
directors, with the number currently fixed at six. It is planned that a board of
six directors will be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the six
nominees of the Board of Directors named below, all of whom are presently
directors of the Company. If 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 designated by the proxy holders to fill the vacancy. It is not expected
that any nominee will be unable or will decline to serve as a director. If
shareholders nominate persons other than the Company's nominees for election as
directors, the proxy holders will vote all proxies received by them in
accordance with cumulative voting to assure the election of as many of the
Company's nominees as possible. The term of office of each person elected as a
director will continue until the next Annual Meeting of Shareholders or until
the director's successor has been elected.
The Board of Directors recommends a vote FOR the nominees listed below:
Director
Name of Nominee Age Principal Occupation Since
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Robert L. Bailey 39 President and Chief Executive Officer of PMC 1996
Alexandre Balkanski (1) 36 President and Chief Executive Officer, C-Cube 1993
Microsystems, Inc.
Colin Beaumont . . . . . . . . . . . 56 Management Consultant 1997
James V. Diller 61 Chairman of the Board of Directors and Chief Executive 1983
Officer of the Company
Michael L. Dionne (1)(2) 48 Management Consultant 1992
Frank J. Marshall (2) 50 Vice President, General Manager of Cisco Systems, Inc. 1996
Core Products Business Unit
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(1) Member of the Compensation Committee.
(2) Member of Audit Committee.
Mr. Bailey has been a director of the Company since October 1996. Mr.
Bailey has served as President, Chief Executive Officer and Director of PMC
since December 1993. Prior to joining PMC, Mr. Bailey was employed by
AT&T-Microelectronics from August 1989 to November 1993 where he served as Vice
President of Integrated Microperipheral Products. He also serves on the Boards
of Directors of PMC and of Teltone Corporation, a designer and manufacturer of
telecom products.
Dr. Balkanski has been a director of the Company since August 1993. In
July 1988, Dr. Balkanski co-founded C-Cube Microsystems, Inc., a developer of
integrated circuits and software. Dr. Balkanski has held a variety of senior
management positions with C-Cube, and is currently its President, Chief
Executive Officer and a Director. He also serves as a member of the board of
directors of CKS Group, Inc.
Mr. Beaumont has been a director of the Company since April 1997. Mr.
Beaumont is a management consultant and is a board member of Plaintree Systems,
Incorporated. In 1995 Mr. Beaumont retired from Nortel where he was the Chief
Engineer of BNR, the largest commercial research and development facility in
Canada. Mr. Beaumont has served as a PMC director since 1992.
Mr. Diller, a founder of the Company, served as the Company's President
and Chief Executive Officer from 1983 to July 1993 and has served as a director
of the Company since the Company's formation in 1983. Mr. Diller was named as
the Chairman of the Company's Board of Directors in July 1993. Mr. Diller served
as Chief Financial Officer of the Company from its formation until July 1987. He
has served on PMC's Board since its formation. He also serves on the board of
directors of Elantec Semiconductor, Inc.
Mr. Dionne has been a director of the Company since July 1992. Mr.
Dionne is currently a management consultant. From May 1983 until March 1997, Mr.
Dionne held a variety of senior management positions with Apple Computer, Inc.,
a computing products manufacturer, most recently as Senior Vice President and
General Manager, Apple Worldwide Service and Support.
Mr. Marshall has been a director of the Company since April 1996. Mr.
Marshall's title is Vice President, General Manager of Cisco Systems Inc.'s Core
Products Business Unit, which has responsibility for Cisco's traditional
high-end Cisco 7500 series backbone routers as well as ATM switches. Mr.
Marshall has also served as Vice President of Engineering for Cisco Systems Inc.
from April 1992 to July 1995. Prior to joining Cisco Systems Inc., Mr. Marshall
was the founding Vice President of Engineering of Convex Computer.
Vote Required
The six nominees for director receiving the highest number of
affirmative votes of the shares entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum, but have no other legal effect
under California law.
Board Meetings and Committees
The Board of Directors of the Company held six meetings during the 1996
fiscal year. All nominees who were Board members in 1996 attended 75% or more of
the meetings of the Board of Directors and of the committees of the Board on
which the director served (held during their membership period) except Dr.
Balkanski, who attended two-thirds of the meetings. The Board of Directors has
an Audit Committee, Compensation Committee and Stock Option Committee. The Board
does not have a nominating committee.
The Audit Committee, which consists of Mr. Dionne and Mr. Marshall,
held one meeting in 1996. The Audit Committee recommends engagement of the
Company's independent auditors, approves the services performed by the Company's
independent auditors and reviews the Company's accounting principles and its
system of internal accounting controls.
The Compensation Committee, which consists of Mr. Dionne and Mr.
Balkanski, held one meeting in 1996. The Compensation Committee reviews and
makes recommendations to the Board concerning the Company's executive
compensation policy, bonus plans and equity incentive plans.
The Stock Option Committee, which consists of Mr. Diller and any other
one director, took action by written consent on several occasions but did not
hold any meetings in 1996. The Stock Option Committee has authority to grant
stock options to purchase up to 10,000 shares to individuals not subject to
Section 16 of the Securities Exchange Act of 1934.
Board Compensation
Non-employee directors receive an annual retainer of $12,000 per year
plus $1,000 per board meeting attended for their services as members of the
Board of Directors, except for Mr. Marshall, who has waived his right to receive
this compensation. Non-employee directors are automatically granted options to
purchase shares of the Company's Common Stock pursuant to the provisions of the
Company's 1994 Incentive Stock Plan. Mr. Marshall received an option to purchase
20,000 shares of Common Stock at an exercise price of $15.9375 per share upon
being appointed to the Board of Directors in April 1996. In June 1996, Mr.
Balkanski and Mr. Dionne each received automatic annual grants of options to
purchase 5,000 shares of Common Stock at an exercise price of $14.50 per share.
Mr. Beaumont received an option to purchase 20,000 shares of common stock at an
exercise price of $15.8125 per share upon being appointed to the Board of
Directors in April 1997. These options become exercisable as to 1/4 of the
shares subject to the option after one year; thereafter, 1/48 of the shares
subject to the option become exercisable at the end of each calendar month.
The Company has agreed to indemnify each director against certain
claims and expenses for which the director might be held liable in connection
with past or future service on the Board. In addition, the Company maintains an
insurance policy insuring its officers and directors against such liabilities.
Certain Transactions
During the year ended December 29, 1996, members of the Board of
Directors of the Company and executive officers of the Company received grants
of options as set forth under "Board Compensation" and "Executive Compensation."
During 1996 Mr. Bailey, a director and an executive officer of the
Company, had an outstanding loan from PMC pursuant to a September 1994 credit
facility established to pay certain tax expenses incurred in connection with the
transfer of PMC Special Shares to his wife. The maturity date of the loan is the
earlier of (i) August 1, 1999 or (ii) when certain designated shares of the
Company's Common Stock held by Mr. Bailey are disposed of in an arm's length
transaction. The interest rate of the loan is the higher of (i) the applicable
U.S. federal rate for a five-year loan or (ii) the prescribed rate for employee
loans pursuant to the Income Tax Act (Canada). During 1996 PMC reimbursed Mr.
Bailey for interest paid on the loan. During 1996, the largest outstanding
amount owed by Mr. Bailey to PMC was approximately $344,198. This loan was paid
in full in December 1996.
In January 1996, in connection with the sale of SiTel Sierra B.V.
("SiTel"), Mr. Diller, the Chairman of the Board of Directors and Chief
Executive Officer of the Company, received approximately $80,000 upon the sale
of his SiTel shares upon substantially the same terms as all other shareholders
of SiTel including the Company (which received approximately $7 million).
Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file certain reports regarding ownership of, and
transactions in, the Company's Securities with the Securities and Exchange
Commission (the "SEC"). Such officers, directors and 10% shareholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that during fiscal 1996 all the reporting persons complied with Section 16(a)
filing requirements except that in December 1996 Mr. Bailey reported the
acquisition earlier in the year of Common Stock of the Company upon redemption
of PMC Series 1-A and Series 1-B Special Shares.
PROPOSAL NO. 2:
REINCORPORATION IN DELAWARE
Introduction
The Board of Directors believes that the best interests of the Company
and its shareholders will be served by changing the state of incorporation of
the Company from California to Delaware (the "Reincorporation"). As discussed
below, the principal reasons for reincorporation are the reduction in the
Company's operations in California, the greater flexibility of Delaware
corporate law, the substantial body of case law interpreting that law and the
increased ability of the Company to attract and retain qualified directors. The
proposed Delaware certificate of incorporation and bylaws are substantially
similar to those currently in effect in California with the exceptions that (i)
cumulative voting will be eliminated as part of the Reincorporation if Proposal
No. 4 is approved by the shareholders of the Company, and (ii) the ability of
the shareholders to act by written consent will be eliminated as part of the
Reincorporation if Proposal No. 5 is approved by the shareholders of the Company
. The term "Sierra Delaware" refers to the new Delaware corporation which is the
proposed successor to the Company. Proposal No. 3 would change the Company's
name to "PMC-Sierra, Inc." If Proposals No. 2 and 3 are approved by the
shareholders of the Company, the name change will be effected as part of the
Reincorporation.
The Reincorporation will be effected by merging the Company into Sierra
Delaware (the "Merger"). Upon completion of the Merger, the Company will cease
to exist and Sierra Delaware will continue to operate the business of the
Company. Pursuant to the Agreement and Plan of Merger between the Company and
Sierra Delaware, a copy of which is attached hereto as Exhibit A (the "Merger
Agreement"), each outstanding share of the Company Common Stock, no par value,
will automatically be converted into one share of Sierra Delaware Common stock,
no par value. IT IS NOT NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING
STOCK CERTIFICATES FOR STOCK CERTIFICATES OF SIERRA DELAWARE.
Upon the date on which the Merger will become effective (the "Effective
Date"), Sierra Delaware will also assume and continue the outstanding stock
options and all other employee benefit plans of the Company. Each outstanding
and unexercised option or other right to purchase shares of the Company's Common
Stock will become an option or right to purchase the same number of shares of
Sierra Delaware Common Stock on the same terms and conditions and at the same
exercise price applicable to any such the Company option or right at the
Effective Date.
The Reincorporation has been unanimously approved by the Company's
Board of Directors. If approved by the shareholders of the Company, it is
anticipated that the Effective Date of the Merger will be as soon as reasonably
practicable following the Annual Meeting of Shareholders. However, pursuant to
the Merger Agreement, the Merger may be abandoned or the Merger Agreement may be
amended by the Board of Directors (except that certain principal terms may not
be amended without shareholder approval) either before or after shareholder
approval has been obtained and prior to the Effective Date of the
Reincorporation if, in the opinion of the board of directors of either company,
circumstances arise that make it inadvisable to proceed.
Shareholders of the Company will have no dissenters' rights of
appraisal with respect to the Reincorporation. See "Significant Differences
Between the Corporation Laws of California and Delaware--Appraisal Rights." The
discussion set forth below is qualified in its entirety by reference to the
Merger Agreement, the Certificate of Incorporation and the Bylaws of Sierra
Delaware, copies of which are attached hereto as Exhibit A, B and C,
respectively.
Vote Required for the Reincorporation Proposal
Approval of the Reincorporation will require the affirmative vote of
the holders of a majority of the outstanding shares of the Company's Common
Stock, and will also constitute approval of the (i) Merger Agreement, and
Certificate of Incorporation and Bylaws of Sierra Delaware (which will use the
corporate name PMC-Sierra, Inc. if the shareholders of the Company approve
Proposal No. 3, provide for elimination of cumulative voting if the shareholders
of the Company approve Proposal No. 4, and provide for elimination of
shareholders' action by written consent if the shareholders of the Company
approve Proposal No.5), (ii) the assumption of the Company's employee benefit
plans and outstanding stock options by Sierra Delaware and (iii) revisions in
the Company's indemnification agreements with its officers and directors to
conform those agreements to Delaware law.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSED REINCORPORATION IN
DELAWARE. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE
REINCORPORATION.
Principal Reasons for the Reincorporation
The Company has remained a California corporation since its inception
due in part to the large proportion of its operations in California. As a result
of the Company's exit from the modem chipset business and related restructuring
of its non-networking product businesses announced in September 1996
("Restructuring"), the Company's California operations will become a small
portion of its total operations. As a result, the Board of Directors believes it
is appropriate to take advantage of the following benefits of Delaware law.
Prominence, Predictability and Flexibility of Delaware Law. For many
years Delaware has followed a policy of encouraging incorporation in that sate
and, in furtherance of that policy, has been a leader in adopting, construing
and implementing comprehensive, flexible corporate laws responsive to the legal
and business needs of corporations organized under its laws. Because of
Delaware's prominence as the state of incorporation for many major corporations,
both the legislature and courts in Delaware have demonstrated an ability and a
willingness to act quickly and effectively to meet changing business needs. The
Delaware courts have developed considerable expertise in dealing with corporate
issues and a substantial body of case law has developed construing Delaware law
and establishing public policies with respect to corporate legal affairs.
Increased Ability to Attract and Retain Qualified Directors. Both
California and Delaware law permit a corporation to include a provision in its
certificate of incorporation which reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and money
required to respond to such claims and to defend such litigation can be
substantial. Recent efforts to adopt legislation in California, if successful,
would have increased the liability of directors. It is the Company's desire to
reduce these risks to its directors and officers and to limit situations in
which monetary damages can be recovered against directors so that the Company
may continue to attract and retain qualified directors who otherwise might be
unwilling to serve because of the risks involved. The Company believes that, in
general, Delaware law provides greater protection to directors than California
law and that Delaware case law regarding a corporation's ability to limit
director liability is more developed and provides more guidance than California
law.
Well-Established Principles of Corporate Governance. There is
substantial judicial precedent in the Delaware courts as to the legal principle
applicable to measures that may be taken by a corporation and as to the conduct
of the Board of Directors under the business judgment rule. The Company believes
that its shareholders will benefit from the well-established principles of
corporate governance that Delaware law affords.
No Change in the Board Members, Business, Management, Employee Plans or Location
of Principal Facilities of the Company
The Reincorporation will effect a change in the legal domicile of the
Company, but not its physical location. The Reincorporation will not result in
any change in the business, management, fiscal year, assets or liabilities or
location of the principal facilities of the Company. The Company's principal
business activities will be conducted in Canada as a result of the Restructuring
and not as a result of the Reincorporation. The Company's directors will become
the directors of Sierra Delaware. All employee benefit plans of the Company will
be assumed and continued by Sierra Delaware. All stock options or other rights
to acquire Common Stock of the Company will automatically be converted into an
option or right to purchase the same number of shares of Sierra Delaware Common
Stock at the same price per share, upon the same terms, and subject to the same
conditions. The Company's other employee benefit arrangements will also be
continued by Sierra Delaware upon the terms and subject to the conditions
currently in effect.
Antitakeover Implications
Delaware, like many other states, permits a corporation to adopt a
number of measures through amendment of the certificate of incorporation or
bylaws or otherwise, which measures are designed to reduce a corporation's
vulnerability to unsolicited takeover attempts. The Reincorporation is not being
proposed in order to prevent an unsolicited takeover attempt, nor is it in
response to any present attempt known to the Board of Directors to acquire
control of the Company, obtain representation on the Board of Directors or take
significant action that affects the Company.
Certain effects of the Reincorporation may be considered to have
antitakeover implications. Section 203 of the Delaware General Corporation Law
("Section 203"), from which Sierra Delaware does not currently intend to opt
out, restricts certain "business combinations" with "interested stockholders"
for three years following the date that a person or entity becomes an interested
stockholder, unless the Board of Directors approves the business combination
and/or other requirements are met. Other measures permitted under Delaware law,
which the Company does not presently intend to implement, include the
establishment of a staggered board of directors, and the elimination of the
right of stockholders controlling at least ten percent (10%) of the voting
shares to call a special meeting of stockholders. For a detailed discussion of
all of the changes that will be implemented as part of the Proposed
Reincorporation, see "The Charters and Bylaws of the Company and Sierra
Delaware." For a discussion of differences between the laws of California and
Delaware, see "Significant Differences Between the Corporation Laws of
California and Delaware."
In addition, Delaware Law permits a corporation to adopt such measures
as stockholder rights plan, designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. There is substantial judicial precedent in the
Delaware courts as to the legal principles applicable to such defensive measures
and as to the conduct of a board of directors under the business judgment rule
with respect to unsolicited takeover attempts. The Board of Directors has no
present intention following the Reincorporation to amend the Certificate of
Incorporation or Bylaws to include provisions that might deter an unsolicited
takeover attempt. However, in the discharge of its fiduciary obligations to its
shareholders, the Board of Directors of the Company will continue to evaluate
the Company's vulnerability to potential unsolicited bids to acquire the Company
on unfavorable terms and to consider strategies to enhance the Board's ability
to negotiate with an unsolicited bidder.
The Charters and Bylaws of the Company and Sierra Delaware
The provisions of the Sierra Delaware Certificate of Incorporation and
Bylaws are similar to those of the Company's Articles of Incorporation and
Bylaws in many respects. However, the Reincorporation includes the
implementation of certain provisions in the Sierra Delaware Certificate of
Incorporation and Bylaws that alter the rights of shareholders and the powers of
management. In addition, Sierra Delaware could implement certain other changes
by amending its Certificate of Incorporation and Bylaws. For a discussion of
such changes, see below and "Significant Differences Between the Corporation
Laws of California and Delaware."
The Articles of Incorporation of the Company currently authorize the
Company to issue up to 50,000,000 shares of Common Stock, no par value, 405,916
shares of Series D Preferred Stock, no par value, and 5,000,000 shares of
undesignated Preferred Stock, no par value. The shares of Series D Preferred
Stock were authorized before the Company's initial public offering. There are no
outstanding shares of Series D Preferred Stock and the Company has no intention
of issuing Series D Preferred Stock. Accordingly, the Certificate of
Incorporation of Sierra Delaware provides that such company will have 50,000,000
authorized shares of Common Stock, no par value, and 5,000,000 shares of
undesignated Preferred Stock, no par value. Like the Company's Articles of
Incorporation, Sierra Delaware's Certificate of Incorporation provides that the
Board of Directors is entitled to determine the powers, preferences and rights,
and the qualifications, limitations or restrictions, of the authorized and
unissued undesignated Preferred Stock. Thus, although it has no present
intention of doing so, the Board of Directors, without stockholder approval,
could authorize the issuance of Preferred Stock upon terms which could have the
effect of delaying or preventing a change in control of the Company or modifying
the rights of holders of the Company's Common Stock under either California or
Delaware law. The Board of Directors could also use shares for further
financings, possible acquisitions and other uses.
Monetary Liability of Directors. The Articles of Incorporation of the
Company and the Certificate of Incorporation of Sierra Delaware both provide for
the elimination of personal monetary liability of directors to the fullest
extent permissible under the applicable law. The provisions eliminating monetary
liability of directors set forth in the Sierra Delaware Certificate of
Incorporation is potentially broader than the corresponding provision in the
Company's Articles of Incorporation, in that the former incorporates future
amendments to Delaware law with respect to the elimination of such liability.
See "Significant Differences Between the Corporation Laws of California and
Delaware--Indemnification and Limitation of Liability."
Size of the Board of Directors. The Bylaws of Sierra Delaware provide
for a Board of Directors consisting of six directors. The Bylaws of the Company
provide for a Board of Directors of from four to seven members, with the exact
number currently set at six directors. Under California law, although changes in
the number of directors, in general, must be approved by a majority of the
outstanding shares, the Board may fix the exact number of directors within a
stated range set forth in the articles of incorporation or bylaws. Delaware law
permits the board of directors, acting alone, to change the authorized number of
directors by amendment to the bylaws, unless the directors are not authorized to
amend the bylaws or the number of directors is fixed in the certificate of
incorporation. After the Reincorporation, the Board of Directors of Sierra
Delaware could amend the Bylaws to change the size of the Board of Directors
from six directors without further stockholder approval.
Cumulative Voting for Directors. Under California law, if any
shareholder has given notice of an intention to cumulate votes for the election
of directors, any other shareholder of the corporation is also entitled to
cumulate his or her votes at such election. Cumulative voting provides that each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder may choose. In the absence of cumulative voting, the holders of
a majority of the shares present or represented at a meeting in which directors
are to be elected would have the power to elect all the directors to be elected
at such meeting, and no person could be elected without the support of holders
of a majority of the shares present or represented at such meeting. Elimination
of cumulative voting could make it more difficult for a minority shareholder
adverse to a majority of the shareholders to obtain representation on the
Company's Board of Directors. California corporations whose stock is listed on a
national stock exchange or whose stock is held by 800 shareholders of record and
included in the Nasdaq National Market System (a "Listed Company") can also
eliminate cumulative voting with shareholder approval. The Company qualifies as
a Listed Company but has not sought shareholder approval to eliminate cumulative
voting. Under Delaware law, cumulative voting in the election of directors is
not mandatory. The Sierra Delaware Certificate of Incorporation will not provide
for cumulative voting rights if the shareholders of the Company approve Proposal
No. 4.
Power to Call Special Shareholders' Meetings. Under California law, a
special meeting of shareholders may be called by the Board of Directors, the
Chairman of the Board, the President, the holders of shares entitled to cast not
less than 10% of the votes at such meeting and such additional persons as are
authorized by the articles of incorporation or the bylaws. Under Delaware law, a
special meeting of stockholders may be called by the Board of Directors or by
any other person authorized to do so in the Certificate of Incorporation or the
Bylaws. The Bylaws of Sierra Delaware currently authorize the Board of
Directors, the Chairman of the Board, the President and the holders of not less
than 10% of the shares entitled to vote to call a special meeting of
stockholders. Therefore, no substantive change is contemplated in this
provision, although the Board could in the future amend the Company's Bylaws
without stockholder approval.
Filling Vacancies on the Board of Directors. Under California law, any
vacancy on the board of directors other than one created by removal of a
director may be filled by the Board. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director may be filled by the board
only if so authorized by a corporation's articles of incorporation or by a bylaw
approved by the corporation's shareholders. The Company's current Articles of
Incorporation and Bylaws do not permit directors to fill vacancies created by
removal of a director. Under Delaware law, vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) or by a sole remaining director, unless otherwise
provided in the certificate of incorporation or bylaws (or unless the
certificate of incorporation directs that a particular class of stock is to
elect such directors), in which case a majority of the directors elected by such
class, or a sole remaining director so elected, shall fill such vacancy or newly
created directorship). The Bylaws of Sierra Delaware provide, consistent with
the Company's Bylaws, that any vacancy created by the removal of a director by
the stockholders of Sierra Delaware may be filled only by the stockholders.
Following the Reincorporation, the Board of Directors of Sierra Delaware could
amend the Bylaws to provide that directors may fill any vacancy created by
removal of directors by the stockholders.
Loans to Officers and Employees. Under California law, any loan or
guaranty to or for the benefit of a director or officer of the corporation or
its parent requires approval of the shareholders unless such loan or guaranty is
provided under a plan approved by shareholders owning a majority of the
outstanding shares of the corporation. However, under California law,
shareholders of any corporation with 100 or more shareholders of record, such as
the Company, may approve a bylaw authorizing the board of directors alone to
approve loans or guaranties to or on behalf of officers (whether or not such
officers are directors) if the board determines that any such loan or guaranty
may reasonably be expected to benefit the corporation. Pursuant to the Sierra
Delaware Bylaws and in accordance with Delaware law, Sierra Delaware may make
loans to, guarantee the obligations of or otherwise assist its officers or other
employees and those of its subsidiaries (including directors who are also
officers or employees) when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation.
Voting by Ballot. California law provides that the election of
directors may proceed in the manner described in a corporation's bylaws. The
Company's current Bylaws provide that the election of directors at a
shareholders' meeting may be by voice vote or ballot, unless prior to such vote
a shareholder demands a vote by ballot, in which case such vote must be by
ballot. Under Delaware law, the right to vote by written ballot may be
restricted if so provided in the Certificate of Incorporation. The Bylaws of
Sierra Delaware do not address election by ballot, but the Certificate of
Incorporation of Sierra Delaware, consistent with the Company's current Bylaws,
provides that if a stockholder specifically demands election of directors by
ballot (or if the Bylaws provide that elections shall be by ballot) then
elections shall be held by ballot. Stockholders of Sierra Delaware may therefore
continue to demand election by ballot, unless and until the Certificate of
Incorporation is amended, which amendment would require a majority stockholder
vote. It may be more difficult for a stockholder to contest the outcome of a
vote that has not been conducted by written ballot.
Compliance with Delaware and California Law
Following the Annual Meeting of Shareholders, if the Reincorporation is
approved, the Company will submit the Merger Agreement to the office of the
California Secretary of State and to the office of the Delaware Secretary of
State for filing.
Significant Differences Between the Corporation Laws of California and Delaware
The corporation laws of California and Delaware differ in many
respects. Although all the differences are not set forth in this Proxy
Statement, certain provisions, which could materially affect the rights of
shareholders, are discussed below.
Stockholder Approval of Certain Business Combinations. In recent years,
a number of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant shareholders, more difficult. Under Section
203, certain "business combinations" with "interested stockholders" of Delaware
corporations are subject to a three-year moratorium unless specified conditions
are met.
Section 203 prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person or entity becomes an interested stockholder.
With certain exceptions, an interested stockholder is a person or entity who or
which owns, individually or with or through certain other persons or entities,
15% or more of the corporation's outstanding voting stock (including any rights
to acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is an affiliate or
associate of the corporation and was the owner, individually or with or through
certain other persons or entities, of 15% or more of such voting stock at any
time within the previous three years, or is an affiliate or associate of any of
the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value to 10% or
more of the aggregate market value of either the corporation's consolidated
assets or all of its outstanding stock; the issuance or transfer by the
corporation or a direct or indirect majority-owned subsidiary of stock of the
corporation or such subsidiary to the interested, stockholder (except for
certain transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date on which such stockholder becomes
an interested stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested stockholder; (ii) upon consummation of the transaction that made him
or her an interested stockholder, the interested stockholder owns at least 85%
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the 85% calculation shares owned by directors who are
also officers of the target corporation and shares held by employee stock plans
that do not give employee participants the right to decide confidentially
whether to accept a tender or exchange offer); or (iii) on or after the date
such person or entity becomes an interested stockholder, the board approves the
business combination and it is also approved at a stockholder meeting by 66-2/3%
of the outstanding voting stock not owned by the interested stockholder.
Section 203 only applies to certain publicly held corporations that
have a class of voting stock that is (i) listed on a national securities
exchange, (ii) quoted on an interdealer quotation system of a registered
national securities association or (iii) held of record by more than 2,000
stockholders. Although a Delaware corporation to which Section 203 applies may
elect not to be governed by Section 203, Sierra Delaware does not intend to so
elect.
Section 203 will encourage any potential acquiror to negotiate with the
Company's Board of Directors. Section 203 also might have the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for Sierra Delaware
in which all stockholders would not be treated equally. Shareholders should
note, however, that the application of Section 203 to Sierra Delaware will
confer upon the Board the power to reject a proposed business combination in
certain circumstances, even though a potential acquiror may be offering a
substantial premium for Sierra Delaware's shares over the then-current market
price. Section 203 would also discourage certain potential acquirers unwilling
to comply with its provisions. See "Shareholder Voting".
Removal of Directors. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director of a corporation that does not
have a classified board of directors or cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote at an election of directors. In the case of a Delaware corporation
having cumulative voting, if less than the entire board is to be removed, a
director may not be removed without cause if the number of shares voted against
such removal would be sufficient to elect the director under cumulative voting.
A director of a corporation with a classified board of directors may be removed
only for cause, unless the certificate of incorporation otherwise provides. The
Certificate of Incorporation of Sierra Delaware does not provide for a
classified board of directors. The Delaware rule for removal of directors in a
corporation with cumulative voting will apply if the shareholders of the Company
do not approve Proposal No. 4.
Classified Board of Directors. A classified board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the composition of
the board of directors more difficult, and thus a potential change in control of
a corporation a lengthier and more difficult process. California law permits
certain qualifying corporations to provide for a classified board of directors
by adopting amendments to their articles of incorporation or bylaws, which
amendments must be approved by the shareholders. Although the Company qualifies
to adopt a classified board of directors, its Board of Directors has not done
so. Delaware law permits, but does not require, a classified board of directors,
pursuant to which the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. The Sierra Delaware Certificate of Incorporation and Bylaws
do not provide for a classified board and Sierra Delaware presently does not
intend to propose establishment of a classified board. The establishment of a
classified board following the Reincorporation would require the approval of the
stockholders of Sierra Delaware.
Indemnification and Limitation of Liability. California and Delaware
have similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit, with
certain exceptions, a corporation to adopt a provision in its articles of
incorporation or certificate of incorporation, as the case may be, eliminating
the liability of a director to the corporation or its shareholders for monetary
damages for breach of the director's fiduciary duty. There are nonetheless
certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Articles of Incorporation of the Company eliminate the liability of
directors to the corporation to the fullest extent permissible under California
law. California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a director
in which a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
The Certificate of Incorporation of Sierra Delaware also eliminates the
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permissible under Delaware law, as such law exists currently or as it may be
amended in the future. Under Delaware law, such provision may not eliminate or
limit director monetary liability for: (a) breaches of the director's duty of
loyalty to the corporation or its stockholders; (b) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law; (c)
the payment of unlawful dividends or unlawful stock repurchases or redemptions;
or (d) transactions in which the director received an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve Sierra Delaware or its
directors from the necessity of complying with federal or state securities laws,
or affect the availability of non-monetary remedies such as injunctive relief or
rescission.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made when a person is adjudged liable to
the corporation in the performance of that person's duty to the corporation and
its shareholders unless a court determines such person is entitled to indemnity
for expenses, and then such indemnification may be made only to the extent that
such court shall determine, and (b) no indemnification may be made without court
approval in respect of amounts paid or expenses incurred in settling or
otherwise disposing of a threatened or pending action or amounts incurred in
defending a pending action that is settled or otherwise disposed of without
court approval.
California law requires indemnification when the individual has
defended successfully the action on the merits (as opposed to Delaware law,
which requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses, including
attorney's fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended any action, claim, issue,
or matter therein, on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may
be paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions which make mandatory the permissive
indemnification provided by California law. Under California law, there are two
limitations on such additional rights to indemnification: (i) such
indemnification is not permitted for acts, omissions or transactions from which
a director of a California corporation may not be relieved of personal
liability, as described above; and (ii) such indemnification is not permitted in
circumstances where California law expressly prohibits indemnification, as
described above. The Company's Articles of Incorporation permit indemnification
beyond that expressly mandated by the California Corporations Code and limit
director monetary liability to the extent permitted by California law. The
Company has entered into indemnification agreements with its officers and
directors.
Delaware law also permits a Delaware corporation to provide
indemnification in excess of that provided by statute. By contrast to California
law, Delaware law does not require authorizing provisions in the certificate of
incorporation and does not contain express prohibitions on indemnification in
certain circumstances; limitations on indemnification may be imposed by a court,
however, based on principles of public policy.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise. Under
Delaware law, therefore, the indemnification agreements entered into by the
Company with its officers and directors may be assumed by Sierra Delaware upon
completion of the Reincorporation. If the Reincorporation is approved, the
indemnification agreements will be amended to the extent necessary to conform
the agreements to Delaware law, and a vote in favor of the Reincorporation is
also approval of such amendments to the indemnification agreements. In
particular, the indemnification agreements will be amended to include within
their purview future changes in Delaware law that expand the permissible scope
of indemnification of directors and officers of Delaware corporations.
Inspection of Shareholder List. Both California and Delaware law allow
any shareholder to inspect the shareholder list for a purpose reasonably related
to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholder list by persons holding an aggregate of 5% or more of a
corporation's voting shares, or shareholders holding an aggregate of 1% or more
of such shares who have filed a Schedule 14B with the Securities and Exchange
Commission in connection with a contested election of directors. The latter
provision has not been amended in response to the elimination of Schedule 14B
under the revised proxy rules. Under California law, such absolute inspection
rights also apply to a corporation formed under the laws of any other state if
its principal executive offices are in California or if it customarily holds
meetings of its board in California. Delaware law also provides for inspection
rights as to a list of stockholders entitled to vote at a meeting within a ten
day period preceding a stockholders' meeting for any purpose germane to the
meeting. However, Delaware law contains no provisions comparable to the absolute
right of inspection provided by California law to certain shareholders.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares, other than repurchases of its shares issued under employee stock plans
contemplated by Section 408 of the California Corporations Code) unless either
(i) the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or (ii)
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 125% of its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 125% of its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
Shareholder Voting. Both California and Delaware law generally require
that a majority of the shareholders of both acquiring and target corporations
approve statutory mergers. Delaware law does not require a stockholder vote of
the surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (a) the merger agreement does not amend
the existing certificate of incorporation, (b) each share of the stock of the
surviving corporation outstanding immediately before the effective date of the
merger is an identical outstanding or treasury share after the merger, and (c)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed 20% of the shares of common stock of such constituent
corporation outstanding immediately prior to the effective date of the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California law and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. As a result, shareholder approval of such
transactions may be easier to obtain under Delaware law for companies which have
more than one class of shares outstanding.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances Section
203 does provide similar protection against coercive two-tiered bids for a
corporation in which the stockholders are not treated equally. See "Significant
Differences Between the Corporation Laws of California and Delaware--Stockholder
Approval of Certain Business Combinations."
California law provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing person of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that does not
have shares held of record by at least 100 persons, or to a transaction that has
been qualified under California state securities laws. Furthermore, if a tender
of shares or vote is sought pursuant to an interested party's proposal and a
later proposal is made by another party at least ten days prior to the date of
acceptance of the interested party proposal, the shareholders must be informed
of the later offer and be afforded a reasonable opportunity to withdraw any
vote, consent or proxy, or to withdraw any tendered shares. Delaware law has no
comparable provision.
Interested Director Transactions. Under both California and Delaware
law, certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, (a) either the shareholders or the board
of directors must approve any such contract or transaction after full disclosure
of the material facts, and, in the case of board approval, the contract or
transaction must also be "just and reasonable" (in California) or "fair" (in
Delaware) to the corporation, or (b) the contract or transaction must have been
just and reasonable or fair as to the corporation at the time it was approved.
In the latter case, California law explicitly places the burden of proof on the
interested director. Under California law, if shareholder approval is sought,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction. If
board approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors (except that interested directors may be counted for
purposes of establishing a quorum). Under Delaware law, if board approval is
sought, the contract or transaction must be approved by a majority of the
disinterested directors (even if the disinterested directors are less than a
quorum). Therefore, certain transactions that the Board of Directors of the
Company might not be able to approve because of the number of interested
directors, could be approved by a majority of the disinterested directors of
Sierra Delaware, although less than a majority of a quorum. The Company is not
aware of any plans to propose any transaction involving directors of the Company
that could not be approved under California law but could be approved under
Delaware law.
Shareholder Derivative Suits. California law provides that a
shareholder bringing a derivative action on behalf of a corporation need not
have been a shareholder at the time of the transaction in question, provided
that certain tests are met. Under Delaware law, a stockholder may bring a
derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or if
his or her stock thereafter devolved upon him or her by operation of law.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
Appraisal Rights. Under both California and Delaware law, a shareholder
of a corporation participating in certain major corporate transactions may,
under varying circumstances, be entitled to appraisal rights pursuant to which
such shareholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under Delaware law, such fair market value is determined
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, and such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such stockholders
receive only shares of the surviving corporation or shares of any other
corporation that are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares of
such corporations, or (c) to stockholders of a corporation surviving a merger if
no vote of the stockholders of the surviving corporation is required to approve
the merger under certain provisions of Delaware law.
The limitations on the availability of appraisal rights under
California law are different from those under Delaware law. Shareholders of a
California corporation whose shares are listed on a national securities exchange
or on a list of over-the-counter margin stocks issued by the Board of Governors
of the Federal Reserve System generally do not have such appraisal rights unless
the holders of at least 5% of the class of outstanding shares claim the right or
the corporation or any law restricts the transfer of such shares. Appraisal
rights are also unavailable if the shareholders of a corporation or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity (as will be the case in the Reincorporation). Appraisal or
dissenters' rights are, therefore, not available to shareholders of the Company
with respect to the Reincorporation. California law generally affords appraisal
rights in sale of asset reorganizations.
Dissolution. Under California law, shareholders holding fifty percent
(50%) or more of the total voting power may authorize a corporation's
dissolution, with or without the approval of the corporations board of
directors, and this right may not be modified by the articles of incorporation.
Under Delaware law, unless the board of directors approves the proposal to
dissolve, the dissolution must be approved by all the stockholders entitled to
vote thereon. Only if the dissolution is initially approved by the board of
directors may it be approved by a simple majority of the outstanding shares of
the corporation's stock entitled to vote. In the event of such a board-initiated
dissolution, Delaware law allows a Delaware corporation to include in its
certificate of incorporation a supermajority (greater than a simple majority)
voting requirement in connection with dissolutions. Sierra Delaware's
Certificate of Incorporation contains no such supermajority voting requirement,
however, and a majority of the outstanding shares entitled to vote, voting at a
meeting at which a quorum is present, would be sufficient to approve a
dissolution of Sierra Delaware that had previously been approved by its Board of
Directors.
Certain Federal Income Tax Considerations
The following is a discussion of certain federal income tax
considerations that may be relevant to holders of the Company's Common Stock who
receive Sierra Delaware Common Stock in exchange for their Company Common Stock
as a result of the Reincorporation. The discussion does not address all of the
tax consequences of the Reincorporation that may be relevant to particular
Company shareholders, such as dealers in securities, or those Company
shareholders who acquired their shares upon the exercise of stock options, nor
does it address the tax consequences to holders of options or other rights to
acquire Company Common Stock. Furthermore, no foreign, state, or local tax
considerations are addressed herein. IN VIEW OF THE VARYING NATURE OF SUCH TAX
CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications and exceptions described
herein, and assuming the Reincorporation qualifies as a reorganization within
the meaning of Section 368(a) of the Code, the following tax consequences
generally should result:
(a) No gain or loss should be recognized by holders of Company
Common Stock upon receipt of Sierra Delaware Common Stock pursuant to
the Reincorporation;
(b) The aggregate tax basis of the Sierra Delaware Common
Stock received by each shareholder in the Reincorporation should be
equal to the aggregate tax basis of the Company Common Stock
surrendered in exchange therefor; and
(c) The holding period of the Sierra Delaware Common Stock
received by each shareholder of the Company should include the period
for which such shareholder held the Company Common Stock surrendered in
exchange therefor, provided that such Company Common Stock was held by
the shareholder as a capital asset at the time of Reincorporation.
The Company has not requested a ruling from the Internal Revenue
Service (the "IRS") with respect to the federal income tax consequences of the
Proposed Reincorporation under the Code. The Company will, however, receive an
opinion from its legal counsel, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, substantially to the effect that the Proposed Reincorporation will
qualify as a reorganization within the meaning of Section 368(a) of the Code
(the "Tax Opinion"). The Tax Opinion will neither bind the IRS nor preclude it
from asserting a contrary position. In addition, the Tax Opinion will be subject
to certain assumptions and qualifications and will be based upon the truth and
accuracy of representations made by the Company and Sierra Delaware. Of
particular importance will be assumptions and representations relating to the
requirement (the "continuity of interest" requirement) that the shareholders of
the Company retain, through ownership of Sierra Delaware stock, a significant
equity interest in the Company's business after the Reincorporation.
A successful IRS challenge to the reorganization status of the
Reincorporation (in consequence of a failure to satisfy the "continuity of
interest" requirement or otherwise) would result in a shareholder recognizing
gain or loss with respect to each share of the Company Common Stock exchanged in
the Reincorporation equal to the difference between the shareholder's basis in
such share and the fair market value, as of the time of the Reincorporation, of
the Sierra Delaware Common Stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the shares of Sierra Delaware Common Stock
received in the exchange would equal their fair market value on such date, and
the shareholder's holding period for such shares would not include the period
during which the shareholder held the Company Common Stock. Even if the
Reincorporation qualifies as a reorganization under the Code, a shareholder
would recognize gain to the extent the shareholder received (actually or
constructively) consideration other than Sierra Delaware Common Stock in
exchange for the shareholder's Common Stock of the Company.
Description of Securities of Sierra Delaware
The authorized capital stock of the Sierra Delaware consists of
50,000,000 shares of Common Stock, no par value, and 5,000,000 shares of
undesignated Preferred Stock, no par value. The following summary of certain
provisions of the Common Stock and Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by the provisions of
Sierra Delaware's Certificate of Incorporation and by the provisions of
applicable law.
Common Stock. The Common Stock Shares of Sierra Delaware have no par
value. Subject to preferences that may be applicable to any Preferred Stock
which may be issued in the future, the holders of Common Stock of Sierra
Delaware are entitled to receive ratably such non-cumulative dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. The Common Stock of Sierra Delaware has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
holders of Common Stock of Sierra Delaware are entitled to one vote per share on
all matters to be voted upon by the stockholders. Cumulative voting for
directors will apply unless the Company's shareholders approve Proposal No. 4.
In the event of liquidation, dissolution or winding up of Sierra Delaware, the
holders of Common Stock of Sierra Delaware are entitled to share ratably in all
assets remaining after payment of liabilities, subject to liquidation
preferences, if any, of Preferred Stock which may be issued in the future. All
outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock. The Board of Directors of Sierra Delaware has the
authority to issue up to 5,000,000 additional shares of Preferred Stock in one
or more series, to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock, and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. The Board of
Directors, without Common Stock stockholder approval, can issue Preferred Stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of Sierra
Delaware.
Rights of Holders of Special Shares of PMC. The Special Shares, no par
value, of PMC are redeemable for Common Stock of Sierra California. Special
Shares do not have voting rights in Sierra California, but in all other respects
they represent the economic and functional equivalent of the Common Stock of
Sierra California for which they can be redeemed. Under applicable law, each
class of Special Shares will have class voting rights in certain circumstances
with respect to transactions that affect the rights of the class and for certain
extraordinary corporate transactions. Upon the Effective Date, all of Sierra
California's obligations towards holders of PMC Special Shares will be assumed
by Sierra Delaware.
PROPOSAL NO. 3:
CHANGE OF NAME
The Company proposes to change its name to PMC-Sierra, Inc. since this
name reflects the Company's current position in the networking market better
than its current name, which is associated with the Company's business in the
custom, graphics and modem chipset markets. If the shareholders of the Company
approve the name change, PMC will change its name to PMC-Sierra, Inc. (Canada)
or a similar name. The name change is not conditioned on approval of the
Reincorporation. If the Reincorporation does not occur and the shareholders of
the Company approve Proposal No. 3, Sierra California will change its name to
PMC-Sierra, Inc. If the Reincorporation does occur and the shareholders of the
Company approve Proposal No. 3, then the name change will be part of the
Reincorporation.
Vote Required
Approval of the name change will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock.
Recommendations
The Company's Board of Directors recommends a vote "FOR" Proposal No.
3. The effect of an abstention is the same as that of a vote against the
Proposal.
PROPOSAL NO. 4:
ELIMINATION OF CUMULATIVE VOTING
The Company proposes that the Certificate of Incorporation and Bylaws
of Sierra Delaware will not provide for cumulative voting. The Company's current
Articles of Incorporation and Bylaws permit cumulative voting, but cumulative
voting has not to date been exercised by the Company's shareholders. The
elimination of cumulative voting is not being proposed in order to prevent an
unsolicited takeover attempt, nor is it in response to any present attempt known
to the Board of Directors to acquire control of the Company, obtain
representation on the Board of Directors or take significant action that affects
the Company.
Elimination of cumulative voting is proposed as part of and conditioned
upon the Reincorporation. If the Reincorporation does not occur, cumulative
voting will remain in effect. Elimination of cumulative voting was unanimously
approved by the Company's Board of Directors. The elimination of cumulative
voting may be considered to have an antitakeover effect in that it can make it
more difficult for minority shareholders to gain a seat on the Board. See
Proposal No. 2 - "Antitakeover Implications" and "The Charters and Bylaws of the
Company and Sierra Delaware". For a discussion of differences between the laws
of California and Delaware, see Proposal No. 2 - "Significant Differences
Between the Corporation Laws of California and Delaware".
Vote Required
Approval of this proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock.
Recommendations
The Company's Board of Directors recommends a vote "FOR" Proposal No.
4. The effect of an abstention is the same as that of a vote against the
proposal.
PROPOSAL NO. 5:
ELIMINATION OF THE ABILITY OF SHAREHOLDERS TO ACT BY WRITTEN CONSENT
The Company proposes that the Certificate of Incorporation and Bylaws
of Sierra Delaware will not provide for the ability of shareholders to act by
written consent. Articles of Incorporation and Bylaws of Sierra California
permit the shareholders to effect an action by written consent of holders of the
number of shares that would be necessary to take the action at a shareholder
meeting, except that election of directors requires the consent of all
shareholders, and filling a vacancy on the board of directors by shareholders
requires the consent of the holders of a majority of the outstanding shares. The
Company's shareholders have not acted by written consent since the Company's
initial public offering. The elimination of shareholders' action by written
consent is not being proposed in order to prevent an unsolicited takeover
attempt, nor is it in response to any present attempt known to the Board of
Directors to acquire control of the Company, obtain representation on the Board
of Directors or take significant action that affects the Company.
Elimination of the ability of shareholders to act by written consent is
proposed as part of and conditioned upon the Reincorporation. If the
Reincorporation does not occur, the existing ability to act by written consent
will remain in effect. The elimination of the ability of shareholders to act by
written consent may be considered to have an antitakeover effect in that it
requires disclosing the proposal to all the shareholders of the Company in order
to assemble a meeting to obtain shareholder approval, and thus can make it more
difficult to obtain shareholder approval without incurring potential opposition.
The Delaware General Corporation Law allows shareholders to act by written
consent unless otherwise provided in the Certificate of Incorporation. See
Proposal No. 2 -"Antitakeover Implications" and "The Charters and Bylaws of the
Company and Sierra Delaware".
Vote Required
Approval of this proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock.
Recommendations
The Company's Board of Directors recommends a vote "FOR" Proposal No.
5. The effect of an abstention is the same as that of a vote against the
proposal.
PROPOSAL NO. 6:
APPROVAL OF AMENDMENT TO THE
1994 INCENTIVE STOCK PLAN
The 1994 Incentive Stock Plan (the "1994 Plan") was adopted by the
Board of Directors in January 1994 and approved by the shareholders in May 1994.
Prior to February 1997, 3,600,000 shares of Common Stock were reserved for
issuance under the 1994 Plan. In February 1997, the Board of Directors approved
an amendment to the 1994 Plan to increase the number of shares reserved for
issuance by 500,000 shares to a new total of 4,100,000 shares. Proposal No. 6
seeks shareholder approval of the amendment made by the Board of Directors in
February 1997.
The essential features of the 1994 Plan are set forth below:
General: The 1994 Plan provides for the granting to employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), and for the granting of nonstatutory options,
stock bonuses and stock purchase rights to employees, consultants, sales
representatives and distributors. As of March 30, 1997, options to purchase
2,462,553 were outstanding, 859,053 shares were available for future grant,
options to purchase 278,394 shares had been exercised and 20,000 shares had been
issued as a stock bonus. As of March 30, 1997, approximately 234 persons were
eligible to participate in the 1994 Plan and the closing price of the Company's
Common Stock as last reported on the Nasdaq National Market was $16.50.
Administration and Eligibility: The 1994 Plan is currently administered
by the Board of Directors. The Stock Option Committee (comprised of Mr. Diller
and any other director) has authority to grant options to purchase up to 10,000
shares for each individual, but has no authority to grant options to persons
subject to Section 16 of the Exchange Act. The administrator determines the
terms of options granted, including the exercise price, number of shares subject
to the option and the exercisability thereof, and the terms of stock purchase
rights and stock bonuses.
The 1994 Plan provides that no officer or employee may be granted in
any one fiscal year stock options or purchase rights with respect to more than
800,000 shares of Common Stock. There is also a limit on the aggregate market
value of shares subject to all incentive stock options which may be granted to
an optionee during any calendar year. See "Tax Information Regarding Stock
Options" below.
Consideration to be Paid: The consideration to be paid for shares may
consist of cash, check, promissory note, shares of Common Stock of the Company,
a reduction in the amount of any indebtedness of the Company to the optionee, or
such other consideration as permitted under applicable law. The Company may
issue stock bonuses in exchange for past or future services as permitted by
applicable law.
Additional Terms of Options: Options are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all incentive stock options must be at least equal to the
fair market value of the shares of Common Stock on the date of grant. The
exercise price of all nonstatutory stock options must be at least 85% of the
fair market value of the Common Stock on the date of grant. Options generally
have not been granted at exercise prices less than 100% of the fair market value
on the date of grant. The term of each option may not exceed ten years. With
respect to any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The administrators of the 1994 Plan determine when options granted
thereunder will become exercisable. Options granted before March 1, 1996
generally vest at the rate of 1/48th of the shares subject to the option at the
end of each calendar month. Options granted after March 1, 1996 generally become
exercisable as to 1/4 of total shares subject to the option after one year;
thereafter, 1/48 of the shares subject to the option vest at the end of each
calendar month.
If a participant's services to the Company terminate for any reason
other than death or disability, the participants option may be exercised only
during a specified period of time after termination and only to the extent the
option was exercisable on the date of termination. If a participant's status
changes from that of an employee to a consultant, the participant's options will
automatically convert from incentive stock options to nonstatutory stock options
on the 91st day after such change of status.
In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, the Board of
Directors must accelerate the exercisability of all outstanding options unless
the outstanding options are assumed or equivalent options are substituted by the
successor corporation.
Additional Terms of Stock Bonuses and Stock Purchase Rights: Shares
issued pursuant to stock bonuses and stock purchase rights can be subject to
repurchase by the Company at the original purchase price of the shares or, in
the case of stock bonuses, at the fair market price of the shares on the date of
grant in the event that the person acquiring the shares ceases to be employed by
the Company or ceases to be a distributor for or representative of the Company.
The repurchase option lapses at a rate determined by the administrator.
Terms of Options to Non-Officer Directors: Option grants to members of
the Board of Directors who are not employees or consultants of the Company
("non-officer directors") are automatic and non-discretionary. Upon initial
election, each non-officer director of the Company automatically receives an
option to purchase 20,000 shares of Common Stock. On June 1 in each calendar
year, each continuing non-officer director of the Company who first served as a
non-officer director prior to September 1, 1995 automatically receives an option
to purchase 5,000 shares of Common Stock, provided in each case that such person
has served in such capacity for the prior 12 months. Each non-officer director
of the Company who first served as a non-officer director after September 1,
1995, shall automatically be granted an option to purchase 5,000 shares on each
anniversary date of each such person's election to the board, provided each such
person continues to serve as a non-officer director on such dates. Additionally,
in September 1996 the Board granted to each non-officer director an option to
purchase 5,000 shares. Options granted before March 1, 1996 become exercisable
at the rate of 1/48th of the shares subject to the option at the end of each
calendar month. Options granted after March 1, 1996, become exercisable at the
rate of 1/4 of the total shares subject to the option after one year;
thereafter, 1/48 of the shares subject to the option vest at the end of each
calendar month.
Amendments to the Plan: The Board of Directors may amend or terminate
the plan from time to time in such respect as the board may deem advisable. To
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation), the Company will obtain
approval of the shareholders of the Company to the extent and in the manner
required by such law or regulation.
Tax Information Regarding Stock Options: Options granted under the 1994
Plan may be either "incentive stock options," as defined in Section 422 of the
Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's tax basis (purchase price
plus the income recognized on exercise), will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the Optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the 1994 Plan, does not purport to be complete, and
does not discuss the tax consequences of the optionee's death or the income tax
laws of any municipality, state or foreign country in which an optionee may
reside.
Tax Information Regarding Stock Purchase and Stock Bonus Rights: The
shares of Common Stock acquired upon exercise of a stock purchase right or
pursuant to a stock bonus will be deemed "property subject to substantial risk
of forfeiture" within the meaning of Section 83 of the Internal Revenue Code by
reason of the repurchase option in favor of the Company described above. Unless
an election is filed with the Internal Revenue Service under Section 83(b) of
the Code within 30 days after the date of purchase or bonus, the participant
will not be taxed at the time of purchase or bonus on any difference between the
fair market value of the shares at the time of purchase or bonus and the amount
(if any) paid for the shares, nor will the participant's long-term capital gain
holding period begin to run at the time of purchase or bonus. Rather, at such
time or times as the repurchase option expires, the participant will recognize
ordinary income in an amount equal to the difference between the amount (if any)
paid for the shares and the fair market value of the shares at such time or
times, whether or not the shares are sold at such tune, and the long-term
capital gain holding period will begin to run at such time or times. If an
election is timely made under Section 83(b), the participant will recognize
ordinary income at the time of purchase or bonus in the amount of any difference
between the fair market value of the stock at such time and the amount (if any)
paid for the shares. The income recognized by a participant who is also an
employee will be treated as wages and will be subject to tax withholding by the
Company. The Company will be entitled to a tax deduction in the amount and at
the time that the participant recognizes ordinary income with respect to shares
acquired upon exercise of a stock purchase right or pursuant to a stock bonus.
Participation in the Option Plan: The grant of options and stock
purchase rights under the 1994 Plan to executive officers is subject to the
discretion of the Board or the Plan Committee. Options to purchase a total of
315,000 shares were granted during fiscal 1996 to executive officers under the
1994 Plan. There has been no determination by the Board or the Plan Committee
with respect to future awards under the 1994 Plan.
The grant of options under the 1994 Plan to non-officer directors is
described under "Terms of Options to Non-Officer Directors." Options to purchase
a total of 35,000 shares were granted during fiscal 1996 to non-officer
directors under the 1994 Plan. Assuming that each of the Company's current
non-officer directors remains a director through June 5, 1997, options to
purchase 35,000 shares will be granted to non-officer directors in fiscal 1997.
Each of these options will be exercisable at a price equal to the fair market
value of the Company's Common Stock on the date of grant. It is not possible at
this time to determine the value of these option grants.
The following table sets forth information regarding grants made under
the 1994 Plan for the last fiscal year ended December 29, 1996 to (i) each
executive officer named in the Summary Compensation Table, (ii) all current
executive officers as a group, (iii) all non-officer directors as a group and
(iv) all employees as a group. Mr. Beaumont received an option to purchase
20,000 shares at an exercise price of $15.8125 per share in April 1997 upon his
election to the Board. Future option grants to the individuals listed below are
not presently determinable, except for the automatic option grants to
non-officer directors described above.
Weighted Average
Identity of Person or Group Options Exercise Price
- - ------------------------------------ Granted (#) Per Share
---------- ----------------
James V. Diller 120,000 $17.00
Robert L. Bailey 50,000 $17.00
Colin Beaumont -- --
Glenn C. Jones 75,000 $14.583
Richard J. Koeltl 70,000 $17.00
Gregory Aasen -- --
Alexandre Balkanski 5,000 $14.50
Michael L. Dionne 5,000 $14.50
Frank Marshall 20,000 $15.9375
All current executive officers
as a group 315,000 $16.4246
All non-officer directors as a group 35,000 $15.3214
All employees as a group 1,038,624 $13.7108
Vote Required
The affirmative vote of a majority of the Votes Cast will be required
to approve the amendment to the 1994 Plan.
Recommendations
The Company's Board of Directors recommends a vote FOR Proposal No. 6.
PROPOSAL NO. 7:
APPROVAL OF THE 1996 PMC-SIERRA, INC. (PORTLAND) STOCK OPTION PLAN
The Company has agreed to issue up to 450,000 shares of Common Stock
upon exercise of options held by employees of PMC-Sierra, Inc. (Portland) ("PMC
Portland") under the PMC Portland Stock Option Plan ("Portland Plan"). The
Portland Plan is being submitted to the shareholders for approval so that
options granted under the Portland Plan qualify as incentive stock options. The
principal features of the Portland Plan are outlined below:
General: The Portland Plan provides PMC Portland employees with an
opportunity to purchase Common Stock of the Company.
The Portland Plan provides for the grant to PMC Portland employees of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), and for the grant of nonstatutory options to
PMC Portland employees and consultants. As of March 29, 1997, options to
purchase 385,938 shares were outstanding, 40,058 shares were available for
future grant, and 24,004 had been exercised. As of March 30, 1997, approximately
16 persons were eligible to participate in the Portland Plan and the closing
price of the Company's Common Stock as last reported on the Nasdaq National
Market was $16.50.
Administration and Eligibility: The Portland Plan is currently
administered by the PMC Portland Board of Directors. The administrator
determines the terms of options granted, including the exercise price, number of
shares subject to the option and the exercisability thereof.
The Portland Plan provides that no officer or employee may be granted
in any one fiscal year stock options or purchase rights with respect to more
than 450,000 shares of Common Stock. There is also a limit on the aggregate
market value of shares subject to all incentive stock options which may be
granted to an optionee during any calendar year. See "Tax Information Regarding
Stock Options" below.
Consideration to be Paid: The consideration to be paid for shares may
consist of cash, check, promissory note, shares of Common Stock of the Company,
a reduction in the amount of any indebtedness of the Company to the optionee, or
other consideration as permitted under state and corporate securities laws and
the Internal Revenue Code.
Additional Terms of Options: Options are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all incentive stock options must be at least equal to the
fair market value of the shares of Common Stock of Sierra on the date of grant.
The exercise price of all nonstatutory stock options must be at least 85% of the
fair market value of Sierra's Common Stock on the date of grant. Options
generally have not been granted at exercise prices less than 100% of the fair
market value on the date of grant. The term of each option may not exceed ten
years. With respect to any participant who owns stock possessing more than 10%
of the voting rights of the Sierra outstanding capital stock, the exercise price
of any incentive stock option granted must equal at least 110% of the fair
market value on the grant date and the maximum term of the option must not
exceed five years.
The administrator of the Portland Plan determines when options granted
thereunder will become exercisable. Options generally become exercisable as to
1/4 of the total shares subject to the option after one year; thereafter, 1/48
of the shares subject to the option vest at the end of each calendar month.
If a participant's services to the Company terminate for any reason
other than death or disability, the participant's option may be exercised only
during a specified period of time after termination and only to the extent the
option was exercisable on the date of termination. Upon such termination the
participant's option will continue to vest according to the vesting schedule
unless the termination is by the Company for cause, as defined in the Portland
Plan. If a participant's status changes from that of an employee to a
consultant, the participant's options automatically convert from incentive stock
options to nonstatutory stock options on the 91st day after such change of
status.
In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, the Board of
Directors must accelerate the exercisability of all outstanding options unless
the outstanding options are assumed or equivalent options are substituted by the
successor corporation.
Amendments to the Plan: The Board of Directors may amend or terminate
the plan from time to time in such respect as the board may deem advisable. To
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation), the Company will obtain
approval of the shareholders of the Company to the extent and in the manner
required by such law or regulation.
Tax Information Regarding Stock Options: Options granted under the
Portland Plan may be either "incentive stock options," as defined in Section 422
of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's tax basis (purchase price
plus the income recognized on exercise), will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the Optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Portland Plan, does not purport to be complete,
and does not discuss the tax consequences of the optionee's death or the income
tax laws of any municipality, state or foreign country in which an optionee may
reside.
Participation in the Portland Plan: The grant of options under the
Portland Plan to executive officers, is subject to the discretion of the Board
of PMC Portland. No options were granted during fiscal 1996 to executive
officers or non-officer directors of the Company under the Portland Plan. There
has been no determination by the Board of PMC Portland with respect to future
awards under the Portland Plan.
Vote Required
The affirmative vote of a majority of the Votes Cast will be required
to approve the Portland Plan.
Recommendations
The Company's Board of Directors recommends a vote FOR Proposal No. 7.
PROPOSAL NO. 8:
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On April 14, 1997, following a recommendation by the audit committee of
the Company's Board of Directors, the Company's Board of Directors selected
Deloitte & Touche LLP as the Company's independent auditors for the 1997 fiscal
year and dismissed the Company's independent auditors for 1996 fiscal year,
Ernst & Young LLP. In connection with the audits of the Company's financial
statements for the two most recent fiscal years and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP regarding accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Ernst & Young LLP,
would have caused Ernst & Young LLP to make reference to the matter in their
report. Ernst & Young LLP's reports for either of the past two completed fiscal
years did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified as to uncertainty, audit scope or accounting principles. Prior to
selecting Deloitte & Touche LLP, the Company had not consulted with Deloitte &
Touche LLP regarding the application of accounting principles, the type of audit
opinion that might be rendered on the Company's financial statements, or any
event that was either a reportable event or the subject of a disagreement.
The Company's Board of Directors recommends that the shareholders
ratify such selection. In the event of a negative vote, the Board of Directors
will reconsider its selection. Representatives of Deloitte & Touche LLP are
expected to be present at the meeting with the opportunity to make a statement
if they desire to do so, and are expected to be available to respond to
appropriate questions.
Vote Required
The affirmative vote of a majority of the Votes Cast will be required
to confirm the appointment of Deloitte & Touche LLP as independent auditors of
the Company for the 1997 fiscal year.
Recommendation
The Company's Board of Directors recommends a vote FOR Proposal No. 8.
EXECUTIVE COMPENSATION
Compensation Tables
Summary Compensation Table. The following table sets forth the
compensation paid by any person for all services rendered in all capacities to
the Company and its subsidiaries, for each of the three fiscal years in the
period ended December 29, 1996, to the Chief Executive Officer and each of the
other four most highly compensated executive officers of the Company in 1996:
Long-Term
Annual Compensation Compensation(1)
------------------------- ---------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)(2)
- - ------------------------------------- ----- ---------- ----------- ------------ ------------
Gregory Aasen 1996 135,055 94,896 -- 63
Chief Operating Officer and Secretary 1995 116,801 53,544 50,000 174
of PMC 1994 88,490 17,750 -- 162
James V. Diller 1996 300,019 261,224 120,000 683
Chairman and Chief Executive Officer 1995 281,683 339,641 100,000 683
1994 257,193 64,017 138,192(3) 683
Robert L. Bailey(4) 1996 209,438 221,424 50,000 25,569(5)
President and Chief Executive Officer 1995 200,868 124,936 -- 26,407(6)
of PMC 1994 175,432 52,000 18,332(7) 173
Richard J. Koeltl(8) 1996 230,004 193,985 70,000 683
President and Chief Operating Officer 1995 214,474 220,766 100,000 683
1994 191,565 41,611 50,000 683
Glenn C. Jones 1996 182,021 116,100 75,000 683
Senior Vice President, Finance and 1995 167,632 169,820 50,000 683
Chief Financial Officer 1994(9) 134,733 28,143 240,000 580
<FN>
(1) The Company made no restricted stock awards during the periods presented.
(2) Life insurance premiums, except as indicated in Notes 5 and 6.
(3) Includes 38,192 shares issuable upon redemption of PMC Special Shares
subject to an option.
(4) Mr. Bailey became an officer of the Company in September 1994.
(5) Includes $96 for life insurance premium and $25,473 to reimburse interest
paid to PMC. See "Certain Transactions."
(6) Includes $170 for life insurance premium and $26,237 to reimburse interest
paid to PMC. See "Certain Transactions."
(7) Includes 18,332 shares issuable upon redemption of PMC Special Shares
subject to an option.
(8) Mr. Koeltl joined the Company in July 1993 and was employed by the Company
until September 1996. During the remainder of 1996, he provided consulting
services to the Company.
(9) Mr. Jones joined the Company in February 1994.
</FN>
Option Grants in Last Fiscal Year. The following table sets forth each
---------------------------------
grant of stock options made during the fiscal year ended December 29, 1996 to
each of the executive officers named in the Summary Compensation Table above:
Potential Realizable Value
Individual Grants at Assumed Annual
-------------------------------------------- Rates of Stock
% of Total Options Price Appreciation
Granted to Exercise or for Option Term(5)
Options Employees Base Price Expiration -------------------------
Name Granted(1)(2) in Fiscal Year(3) ($/sh)(4) Date 5%($) 10%($)
- - --------------------- ------------ ----------------- --------- ----------- ----------- ----------
Gregory Aasen -- -- -- -- -- --
Robert L. Bailey 50,000 3.7 17.00 01/23/2006 530,310 1,341,480
James V. Diller 120,000 8.9 17.00 01/23/2006 1,282,945 3,251,235
Glenn C. Jones 50,000 3.7 17.00 01/23/2006 534,560 1,354,681
25,000 1.9 9.75 09/09/2006 153,293 388,475
Richard J. Koeltl 70,000 5.2 17.00 04/06/1997 748,385 1,896,554
<FN>
(1) The listed options become exercisable as to 1/48th of the shares subject
to the option at the end of each month after the date of grant with full
vesting occurring on the fourth anniversary of the date of grant, except
for the 25,000 shares granted to Mr. Jones which become exercisable as to
1/4 of the shares subject to the option one year after the date of grant
and thereafter monthly as to 1/48 of the shares subject to the option.
(2) Under the terms of the Company's 1994 Incentive Stock Plan, the Board of
Directors retains discretion, subject to plan limits, to modify the terms
of outstanding options and to reprice the options.
(3) The Company granted options to purchase 1,353,624 shares of Common Stock
to employees in fiscal 1996.
(4) The exercise price and tax withholding obligations related to exercise may
in some cases be paid by delivery of other shares or by offset of the
shares subject to the options.
(5) The 5% and 10% assumed annualized rates of compound stock price
appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent the Company's estimate or a projection by
the Company of future Common Stock prices.
</FN>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
-----------------------------------------------------------------------
Values. The following table sets forth, for each of the executive officers named
- - ------
in the Summary Compensation Table above, stock options exercised during the
fiscal year ended December 29, 1996 and the fiscal year-end value of unexercised
options:
Number of Securities Value(1) of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at Fiscal Year-End: Fiscal Year-End:
Name Exercise(1) Realized(1)(2)($) Exercisable/Unexercisable(3) Exercisable/Unexercisable($)
- - --------------------------- ----------- ---------------- --------------------------- ---------------------------
Gregory Aasen 646 1,127 12,500/37,500 1,563/4,688
Robert L. Bailey 14,243 113,062 11,840/42,743(4) 3,722/40,922
James V. Diller 20,795 168,887 384,440/173,752(5) 3,672,471/736,999
Glenn C. Jones 2,470 20,118 205,416/159,584 2,240,935/1,203,440
Richard J. Koeltl 125,795 1,233,887 214,373/170,627 2,235,586/1,197,539
<FN>
(1) Shares acquired includes shares purchased pursuant to the Company's
Employee Stock Purchase Plan. Value realized includes the difference
between the closing market price of the Common Stock on the purchase date
and the purchase price of the shares purchased.
(2) Market value of underlying securities at exercise date (for value
realized) or year-end (for value at year-end), minus the exercise price.
At December 29, 1996 the closing market price for the Company's stock was
$16.125.
(3) Does not include outstanding PMC Special Shares redeemable for shares of
Common Stock of the Company.
(4) Includes 4,583 shares issuable upon redemption of PMC Special Shares
subject to options.
(5) Includes 38,192 shares issuable upon redemption of PMC Special Shares
subject to options.
</FN>
Compensation Committee Report on Executive Compensation
Compensation Philosophy.
Under the supervision of the Compensation Committee of the Board of
Directors, the Corporation has developed and implemented compensation policies,
plans and programs which seek to enhance the profitability of the Company, and
thus shareholder value, by aligning closely the financial interests of the
Company's senior managers with those of its shareholders. In furtherance of
these goals, annual base salaries are generally set below competitive levels to
emphasize annual and longer-term incentive compensation. This is meant to
attract, motivate and retain corporate officers and other key employees to
perform to the full extent of their abilities. Both types of incentive
compensation are variable and closely tied to corporate performance in a manner
that encourages continuing focus on profitability and shareholder value.
Compensation for the Company's executive officers consists of a base
salary and annual and longer-term incentive compensation. The Committee
considers the total compensation (earned or potentially available) of each
executive officer in establishing each element of compensation.
Cash-Based Compensation.
Each fiscal year the Committee reviews with the Chief Executive Officer
and approves, with appropriate modifications, an annual base salary plan for the
Company's senior executives. This base salary plan is based on industry, peer
group, and national surveys and performance judgements as to the past and
expected future contributions of the individual senior executives. The base
salaries are fixed at a level below the competitive amounts paid to senior
managers with comparable qualifications, experience and responsibilities at
other similarly sized high-technology companies. The Committee reviews and fixes
the base salary of the Chief Executive Officer based on similar competitive
compensation data and the Committee's assessment of his past performance and its
expectation as to his future contributions in leading the Company.
Each executive officer, including the Chief Executive Officer, is
eligible to receive a quarterly cash bonus equal to a percentage of the
Company's operating group's pre-tax profits for the quarter. The percentages of
profits for each participant are determined annually by the Compensation
Committee based upon performance judgments as to the past and expected future
contributions of the individual senior executives.
Stock Options.
During each fiscal year, the Committee considers the desirability of
granting to executive officers awards under the Company's Incentive Stock Plan,
which provides the flexibility to grant longer-term incentives in a variety of
forms, including stock options and restricted stock. In fixing the grants of
stock options to executive officers (other than the Chief Executive Officer),
the Committee reviewed with the Chief Executive Officer the recommended
individual award, taking into account scope of accountability, strategic and
operational goals, and anticipated performance requirements and contributions of
the senior management group. The award to the Chief Executive Officer was fixed
separately and was based, among other things, on a review of competitive
compensation data from several surveys, data from selected peer companies,
information regarding long-term compensation awards as well as the Committee's
perception of past and expected future contributions to the Company's
achievement of its long-term performance goals. In addition, when hiring new
executive officers, the Committee may recommended a grant of options upon
acceptance of employment. These grants are made in order to retain qualified
personnel and take into account the compensation policies of the Company's
competitors and the unique qualifications of the new executives.
Respectfully submitted by:
Alexandre Balkanski
Michael L. Dionne
Compensation Committee Interlocks and Insider Participation
During fiscal 1996, the Company sold $18,936,000 of products to Apple
Computer, Inc., with which Mr. Dionne, a director of the Company, was
affiliated.
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
returns for the Company, the Nasdaq National Market, and the line-of-business
index for semiconductors and related devices (SIC code 3674) published by Media
General Financial Services. The graph assumes the investment of $100 on December
27, 1991. The performance shown is not necessarily indicative of future
performance.
Comparison of 60-Month Cumulative Total Return*
Among Sierra Semiconductor Corporation,
Nasdaq National Market Index and SIC Code Index
COMPANY 1991 1992 1993 1994 1995 1996
- - -------------------- ---- ---- ---- ---- ---- ----
Sierra Semiconductor Corporation 100 83.08 45.38 93.85 170.77 184.62
Industry Index 100 141.66 204.58 252.75 410.47 660.82
Broad Market 100 100.98 121.13 127.17 164.96 204.98
* The total return on each of these investments assumes the reinvestment
of dividends, although dividends have never been paid on the Company's
Common Stock.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY SHAREHOLDER, UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, INCLUDING, IF SO REQUESTED, THE FINANCIAL STATEMENTS,
SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO: INVESTOR
RELATIONS, SIERRA SEMICONDUCTOR CORPORATION, 2222 QUME DRIVE, SAN JOSE,
CALIFORNIA 95131.
FOR THE BOARD OF DIRECTORS
Dated: April 28, 1997
APPENDIX: FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SIERRA SEMICONDUCTOR CORPORATION
ANNUAL MEETING OF SHAREHOLDERS JUNE 5, 1997
The undersigned shareholder of SIERRA SEMICONDUCTOR CORPORATION (the
"Company") acknowledges receipt of the Notice of Annual Meeting of Shareholders
and the Proxy Statement each dated June 5, 1997, and the undersigned revokes all
prior proxies and appoints James V. Diller and Glenn C. Jones and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned to represent the undersigned and to
vote all shares of Common Stock of the Company which the undersigned would be
entitled to vote at the Annual Meeting of Shareholders to be held at the Clarion
Hotel Villa located at 4331 Dominion Street, Burnaby, British Columbia, Canada,
on June 5, 1997 at 3:00 p.m., and at any adjournment thereof, and instructs said
proxies to vote as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSALS.
1. TO ELECT DIRECTORS OF THE COMPANY TO SERVE UNTIL THE NEXT ANNUAL MEETING
OR THE ELECTION OF THEIR SUCCESSORS.
FOR all nominees listed below (except as indicated) WITHHOLD
---- ----
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
James V. Diller Michael L. Dionne Frank Marshall
Robert L. Bailey Alexandre Balkanski Colin Beaumont
2. TO APPROVE A CHANGE IN THE COMPANY'S STATE OF INCORPORATION FROM
CALIFORNIA TO DELAWARE.
FOR AGAINST ABSTAIN
---- ---- ----
3. TO CHANGE THE COMPANY'S NAME TO PMC-SIERRA, INC.
FOR AGAINST ABSTAIN
---- ---- ----
4. TO APPROVE THE ELIMINATION OF CUMULATIVE VOTING IN THE ELECTION OF
DIRECTORS AS PART OF THE REINCORPORATION INTO DELAWARE.
FOR AGAINST ABSTAIN
---- ---- ----
5. TO APPROVE THE ELIMINATION OF THE ABILITY OF SHAREHOLDERS TO ACT BY
WRITTEN CONSENT AS PART OF THE REINCORPORATION INTO DELAWARE.
FOR AGAINST ABSTAIN
---- ---- ----
6. TO APPROVE THE 1996 STOCK OPTION PLAN OF PMC-SIERRA,INC.(PORTLAND)
INCLUDING A RESERVE OF 450,000 SHARES OF THE COMPANY FOR ISSUANCE UPON
EXERCISE OF THE OPTIONS.
FOR AGAINST ABSTAIN
---- ---- ----
7. TO APPROVE AN AMENDMENT TO THE 1994 INCENTIVE STOCK PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE BY500,000 SHARES.
FOR AGAINST ABSTAIN
---- ---- ----
8. TO CONFIRM THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR.
FOR AGAINST ABSTAIN
---- ---- ----
9. TO TRANSACT SUCH OTHER BUSINESS, IN THEIR DISCRETION, AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
FOR AGAINST ABSTAIN
---- ---- ----
Dated: , 1997
Signature
----------------------------------------------
----------------------------------------------
Signature
(Note: This Proxy should be marked, dated and
signed by the shareholder exactly as his/her
name is printed at the left and returned
promptly in the enclosed envelope. A person
signing as an executor, administrator, trustee
or guardian should so indicate and specify
his/her title. If a corporation, please sign
in full corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
If shares are held by joint tenants or a
community property, all joint owners should
sign.)