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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ESS TECHNOLOGY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions 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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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 31, 2001
TO THE SHAREHOLDERS OF ESS TECHNOLOGY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ESS
Technology, Inc. (the "Company") will be held on Thursday, May 31, 2001 at 2:00
p.m. local time at The Westin Hotel, 5101 Great America Parkway, Santa Clara,
California 95054 for the following purposes:
1. To elect directors of the Company, each to serve until the next Annual
Meeting of Shareholders and until his or her successor has been elected
and qualified or until his or her earlier resignation or removal.
2. To approve and ratify amendments to the Company's 1995 Employee Stock
Purchase Plan that will improve the administration of the Purchase Plan
and increase the number of shares of Common Stock authorized for
issuance under the Purchase Plan by 300,000 shares to an aggregate of
925,000 shares.
3. To approve and ratify amendments to the Company's 1997 Equity Incentive
Plan to increase the per person annual grant limits and increase the
number of shares of Common Stock reserved for issuance thereunder by
2,500,000 shares to an aggregate of 10,000,000 shares.
4. To approve and ratify amendments to the Company's 1995 Directors' Stock
Option Plan to increase the shares of Initial Grant and Subsequent Grant
and to increase the number of shares of Common Stock reserved for
issuance thereunder by 300,000 shares to an aggregate of 600,000 shares.
5. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending December 31,
2001.
6. To transact such other business as may properly come before the meeting
or any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 16, 2001 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
James B. Boyd
Chief Financial Officer
Fremont, California
April 30, 2001
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING
PROMPTLY.
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LOGO
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 31, 2001
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of ESS
Technology, Inc. (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held on Thursday, May 31, 2001 at 2:00
p.m., local time, or at any postponement or adjournment(s) thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders (the "Annual Meeting"). The Annual Meeting will be held at The
Westin Hotel, 5101 Great America Parkway, Santa Clara, CA 95054. The telephone
number at that location is (408) 986-0700.
The Company's principal executive offices are located at 48401 Fremont
Blvd., Fremont, California 94538. The Company's telephone number at that
location is (510) 492-1088.
SOLICITATION
These proxy solicitation materials, including an annual report for the
fiscal year ended December 31, 2000 were mailed on or about April 30, 2001 to
all shareholders entitled to vote at the Annual Meeting. The costs of soliciting
these proxies will be borne by the Company. These costs will include the
expenses of preparing and mailing proxy materials for the Annual Meeting and
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation personally, telephonically or by facsimile through its officers,
directors and regular employees, none of whom will receive additional
compensation for assisting with the solicitation.
The Company will provide a copy of the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, including financial statements and
financial statement schedules (but not exhibits), without charge to each
shareholder upon written request. The request should be sent to James B. Boyd,
Chief Financial Officer, ESS Technology, Inc., 48401 Fremont Blvd., Fremont, CA
94538 (telephone number: (510) 492-1088). Exhibits to the Annual Report may be
obtained on written request to Mr. Boyd and payment of the Company's reasonable
expenses in furnishing such exhibits.
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 delivering to the Company (Attention:
James B. Boyd, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person. Please note, however, that if a shareholder's shares are held
of record by a broker, bank or other nominee and the shareholder wishes to vote
at the Annual Meeting, the shareholder must bring to the Annual Meeting a letter
from the broker, bank or other nominee confirming the shareholder's beneficial
ownership of the shares.
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VOTING RIGHTS AND SOLICITATION OF PROXIES
VOTING
Holders of Common Stock are entitled to one vote per share on all matters,
except that in the election of directors each shareholder has cumulative voting
rights and is entitled to a number of votes equal to the number of shares held
by such shareholder multiplied by the number of directors to be elected. The
shareholder may cast these votes all for a single candidate or distribute the
votes among any or all of the candidates. No shareholder will be entitled to
cumulate votes for a candidate, however, unless that candidate's name has been
placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the Annual Meeting prior to the voting of an
intention to cumulate votes. In such an event, the proxy holder may allocate
among the Board of Directors' nominees the votes represented by proxies in the
proxy holder's sole discretion. With respect to the election of directors, the
seven (7) directors receiving the highest number of votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
voting on the election of directors will be elected.
The Inspector of Elections will tabulate the votes cast in person or by
proxy at the Annual Meeting with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. The affirmative vote of a majority of shares represented and voting
(and constituting at least a majority of the required quorum) at a duly held
meeting at which a quorum is present and voting is required under California law
for approval of proposals presented to shareholders other than the election of
directors. In general, California law also provides that a quorum consists of a
majority of the shares entitled to vote, represented either in person or by
proxy. The Inspector of Elections will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum but as not voting for purposes of determining the approval of any matter
submitted to the shareholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of directors, for the amendments to the Company's 1995
Employee Stock Purchase Plan, for the amendments to the Company's 1997 Equity
Incentive Plan, for the amendments to the Company's 1995 Directors' Stock Option
Plan and for the ratification of the appointment of the designated independent
accountants, and as the proxy holders deem advisable on other matters that may
come before the meeting, as the case may be, with respect to the item not
marked. If a broker indicates on the enclosed proxy or its substitute that it
does not have discretionary authority as to certain shares to vote on a
particular matter ("broker non-votes"), those shares will be considered as
present for the purpose of determining the presence of a quorum but will not be
considered as voting with respect to that matter. While there is no definitive
specific statutory or case law authority in California concerning the proper
treatment of abstentions and broker non-votes, the Company believes that the
tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
The Company announced in its proxy for the shareholders' meeting held in
2000 that if the shareholders who are interested in raising a proposal at the
Company's 2001 Annual Meeting do not notify the Company of a proposal on or
before March 14, 2001, management may use its discretionary voting authority to
vote on such proposal, even if the matter is not discussed in the proxy
statement for the 2001 Annual Meeting of Shareholders. Since the Company was not
notified of any proposal on or before March 14, 2001, management intends to use
its discretionary voting authority to vote on any proposal that may be brought
at the 2001 Annual Meeting.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on April 16, 2001 are
entitled to notice of and to vote at the Annual Meeting. As of the record date,
42,669,954 shares of the Company's Common Stock were issued and outstanding, and
there were 216 shareholders of record.
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DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 2002 Annual Meeting of Shareholders must
be received by the Company no later than December 31, 2001, in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
Also, if a shareholder does not notify the Company on or before March 13,
2002 of a proposal for the 2002 Annual Meeting of Shareholders, management
intends to use its discretionary voting authority to vote on such proposal, even
if the matter is not discussed in the proxy statement for the 2002 Annual
Meeting of Shareholders.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's bylaws currently provide that the number of directors shall
not be less than five or more than nine. The size of the Company's Board of
Directors (the "Board") is currently set at seven members. Seven nominees will
be elected at the Annual Meeting to be the seven directors of the Company.
The Board has nominated the seven persons named below to serve as directors
to hold office until the next Annual Meeting of Shareholders and until their
respective successors have been elected and qualified or until such directors'
earlier resignation or removal. All of the nominees have served as directors
since the last annual meeting. If any nominee for any reason is unable to serve,
or for good cause, will not serve as a director, the proxies may be voted for
such substitute nominee as the proxy holder may determine. The Company is not
aware of any nominee who will be unable to or, for good cause, will not serve as
a director.
NOMINEES
The names of the nominees, and certain information about them as of March
25, 2001, are set forth below:
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
Fred S.L. Chan.................... 53 Chairman of the Board of the Company 1986
Matthew K. Fong................... 46 Vice Chairman of the Board 1999
Robert L. Blair................... 53 President and Chief Executive Officer of the 1999
Company
Annie M.H. Chan................... 48 Independent Investor and Management Consultant 1993
Peter T. Mok...................... 46 President and CEO of KLM Capital, a venture capital 1993
management company
Dominic Ng........................ 41 President and CEO of East West Bank 1998
David S. Lee...................... 63 Chairman of the Board for eOn Communications and 2000
Cortelco
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his or her name above during the past
five years. There is no family relationship between any director or executive
officer of the Company, except for Annie Chan and Fred Chan, who are married to
each other.
Mr. Chan joined the Company in November 1985 as President and served as
such until October 1996 and then served as President again from February 1997 to
September 1999. Mr. Chan has been a director since January 1986. He was
appointed Chairman of the Board in October 1992. Mr. Chan served as Secretary
from October 1992 to August 1995, Chief Financial Officer from October 1992 to
May 1995 and Chief Executive Officer from June 1994 to September 1999. Mr. Chan
holds B.S.E.E. and M.S.C. degrees from the University of Hawaii. Mr. Chan is the
husband of Annie M.H. Chan.
Mr. Fong has served as Vice Chairman of the Board since March 8, 2000, as
Advisor to the President since January 4, 1999, and as a director of the Company
from January 1999 to September 1999. Prior to that, he served as California
State Treasurer from 1995 to 1998. He has led global investment missions as the
Chief Financial Officer for California. He served as the National Economic
Growth and Taxation Committee in Washington, D.C. Mr. Fong also served as Vice
Chairman of the State Board of Equalization from 1991 to 1994.
Mr. Blair was promoted to President and Chief Executive Officer in
September 1999. Mr. Blair was elected a director in October 1999. Mr. Blair
served as Executive Vice President of Operations of the Company from April 1997
to September 1999. From December 1994 to March 1997, he was Vice President of
Operations of the Company. From December 1991 to November 1994, he was Senior
Vice President of Operations (Software Packaging & Printing Division) of
Logistix Corporation, a software turnkey company, and from 1989 to November
1991, he was Vice President and co-owner of Rock Canyon Investments, a real
estate development planning firm in California. From 1986 to 1989, he held
various positions at Xidex
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Corporation. From 1973 to 1986 he was Vice President of High Reliability
Operations at Precision Monolithics, Inc.
Mrs. Chan has served as a director of the Company since May 1993 and has
been an independent investor and management consultant since April 1996. Mrs.
Chan was a member of the Senior Technical Staff of the Company from May 1995
until March 1996. From September 1994 to May 1995, she was Vice President,
Administration of the Company and, from May 1993 to August 1994, she was Vice
President, CAD of the Company. Mrs. Chan holds a B.S. degree in Organizational
Behavior from the University of San Francisco. Mrs. Chan is the wife of Fred
S.L. Chan.
Mr. Mok has served as a director of the Company since May 1993. Mr. Mok has
served as President and CEO of KLM Capital, a venture capital management
company, since July 1996. From July 1994 to July 1996, Mr. Mok was Senior
Manager, Investment Banking, of DBS Ltd. From June 1992 to July 1994, he was
Senior Vice President, Manager and a director of Transpac Capital, Inc., a
venture capital management company that is a wholly-owned subsidiary of
Transpac. Mr. Mok holds a B.S. degree in Business Administration from San Jose
State University.
Mr. Ng has served as a director of the Company since May 1998. Mr. Ng has
served as President and CEO of East West Bank since 1992. Prior to that, he
served as President of Seyen Investment, Inc. Mr. Ng is currently a member of
the Board of Governors of Town Hall Los Angeles and serves, among others, as a
director of the United Way of Greater Los Angeles and a director of the Los
Angeles Chamber of Commerce.
Mr. Lee has served as a director of the Company since March 2000. Mr. Lee
has served as Chairman of the Board for eOn Communications and Cortelco since
1990. Prior to that, he served as President and Chairman of Data Technology
Corporation, which bought and merged with Qume Corporation in 1988. From 1983 to
1985, he served as Vice President of ITT and as Group Executive and Chairman of
its Business Information Systems Group. Mr. Lee held positions of Executive Vice
President of ITT Qume from 1978 to 1981, and President from 1981 to 1983. Mr.
Lee originally co-founded Qume Corporation in 1973 and served as Executive Vice
President until it was acquired by ITT Corporation in 1978. Mr. Lee currently
serves on the Board of Directors for many business and non-business related
ventures including, among others, ACT Manufacturing Inc., Linear Technology
Corporation, Open Data Systems, Telmax Communications, and the California
Chamber of Commerce. He was an advisor to both President Bush and President
Clinton through the Advisory Committee on Trade Policy and Negotiation and
additionally to Governor Pete Wilson through the California Economic Development
Corporation. Mr. Lee is also a Regent of the University of California.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met 8 times, including telephone conference meetings, during
fiscal year 2000. The Board of Directors has an Audit Committee, a Compensation
Committee, and a Nominating Committee.
During fiscal year 2000, the Audit Committee of the Board held four
meetings. Consistent with the new NASDAQ audit committee structure and
membership requirements, the Audit Committee is comprised of three members:
David Lee, Peter Mok and Dominic Ng. The Audit Committee reviews the adequacy of
the Company's internal control systems, financial reporting procedures, the
general scope of the Company's annual audit, the fees charged by the independent
accountants, the performance of non-audit services by the Company's auditors and
the fairness of any proposed transaction between any officer, director or other
affiliate of the Company and the Company. After such review, the Audit Committee
makes recommendations to the full Board and performs such further functions as
may be required by any stock exchange or over-the-counter market upon which the
Company's common stock may now or in the future be listed. The members of the
Audit Committee are independent directors.
During fiscal year 2000, the Compensation Committee held 4 meetings. The
Compensation Committee is comprised of two members: David Lee and Peter Mok. The
Compensation Committee reviews and approves compensation and benefits for the
Company's key executive officers, administers the Company's stock purchase and
equity incentive plans and makes recommendations to the Board of Directors
regarding such matters.
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The Nominating Committee was formed in December 1997. It makes
recommendations to the Board regarding the size and composition of the Board.
The Nominating Committee consisted of David Lee and Peter Mok. The Nominating
Committee did not meet in fiscal year 2000. The Nominating Committee will
consider nominees proposed by shareholders. Any shareholder who wishes to
recommend a prospective nominee for the Board of Directors for the Nominating
Committee's consideration may do so by giving the candidate's name and
qualifications in writing to the Secretary of the Company, ESS Technology, Inc.,
48401 Fremont Blvd., Fremont, CA 94538.
With the exception of Matthew Fong who attended 62% of the aggregate number
of meetings of the Board, no incumbent director attended fewer than 75% of the
aggregate number of meetings of the Board and meetings of the Committees of the
Board on which he serves held during the fiscal year 2000.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for their
services, except that nonemployee directors (Annie Chan, David Lee, Peter Mok
and Dominic Ng) receive $2,000 each for each board meeting he or she attends.
The directors are reimbursed for their reasonable expenses in attending meetings
of the Board of Directors.
Nonemployee directors of the Company are automatically granted options to
purchase shares of the Company's Common Stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors Plan"). Each
nonemployee director who becomes a member of the Board on or after October 5,
1995, the effective date of the Company's initial public offering of its Common
Stock (the "Effective Date"), will be automatically granted an option to
purchase 20,000 shares of Common Stock under the Directors Plan (the "Initial
Grant"). On each anniversary of his or her Initial Grant, each nonemployee
director will be automatically granted an additional option to purchase 5,000
shares of Common Stock under the Directors Plan, so long as he or she has
continuously served as a director of the Company (the "Subsequent Grant").
Effective and contingent upon the shareholders' approval, the shares of Initial
Grant and Subsequent Grants shall become 40,000 and 10,000, respectively. In
addition, a nonemployee director who does not receive an Initial Grant shall
nevertheless automatically receive a Subsequent Grant on the anniversary of the
most recent grant of an option to such director. Options granted under the
Directors' Plan have an exercise price equal to the fair market value of the
Company's common stock on the date of grant with a term of ten years. The fair
market value of the common stock is the closing sales price on the Nasdaq
National Market on the last trading day prior to grant. Nonemployee director
options vest and are exercisable in four equal installments, starting from the
one year anniversary date of the grant. As of March 31, 2001, Annie Chan, David
Lee, Peter Mok and Dominic Ng, nonemployee directors, have been granted options
to purchase 25,000, 25,000, 90,000, and 40,000 shares of the Company's common
stock, respectively.
Since January 1999, Mr. Fong has been an Advisor to the President. Under
the terms of Mr. Fong's employment offer, he is an at-will employee reporting to
Mr. Chan and receives compensation of $5,950 per month for four hours per week
with additional compensation of $250 per hour and $2,500 per day of additional
compensation for each day of travel overseas. Mr. Fong was also granted an
option to purchase 100,000 shares of the Company's Common Stock.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes of
shares of the Company's Common Stock present at the Annual Meeting in person or
by proxy and voting on the election of directors shall be elected as directors.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE.
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PROPOSAL NO. 2
AMENDMENT OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN
We are asking the Company's shareholders to approve an amendment to the
1995 Employee Stock Purchase Plan (the "Purchase Plan") that will improve the
administration of the Purchase Plan and increase the number of shares of Common
Stock authorized for issuance under the Purchase Plan by 300,000 shares
effective and contingent upon receipt of shareholders approval. The amendment
will allow the Company to administer the Purchase Plan more flexibly. Following
approval of this amendment, the maximum aggregate number of shares reserved for
future issuance under the Purchase Plan shall not exceed 925,000 shares.
The Company believes that this amendment to increase the number of shares
of Common Stock authorized for issuance under the Purchase Plan, which was
adopted by the Board in April 2001, is necessary to ensure that a sufficient
reserve of Common Stock is available under the Purchase Plan. The Company also
believes that operation of the Purchase Plan is important in attracting and
retaining employees in a competitive labor market, which is essential to the
Company's long-term growth and success.
The essential features of the Purchase Plan as amended are summarized
below. This summary does not purport to be a complete description of all the
provisions of the Purchase Plan. Any shareholders of the Company who wishes to
obtain a copy of the actual Purchase Plan document may do so upon written
request to the Secretary at the Company's principal executive offices.
GENERAL
The Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code, as amended (the "Code"). It is not a tax-qualified, deferred
compensation plan under Section 401(a) of the Code, nor is it subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The
purpose of the Purchase Plan is to provide employees (including officers and
employee directors) of the Company with an opportunity to purchase Common Stock
of the Company at a discount to market price through payroll deductions.
ADMINISTRATION
The Purchase Plan is administered by our Board or a committee appointed by
our Board. The Purchase Plan is currently administered by the Board's
Compensation Committee. All questions of interpretation or application of the
Purchase Plan are determined by the Board or its appointed committee, and its
decisions are final, conclusive and binding upon all participants.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are customarily
employed for more than 20 hours per week and more than 5 months per calendar
year with the Company and our designated subsidiaries are eligible to
participate in the Purchase Plan as implemented, subject to certain limitations
imposed by the Code and certain other limitations set forth in the Purchase
Plan. Eligible employees become participants in the Purchase Plan by filing with
the stock administration department of the Company a subscription agreement
authorizing payroll deductions prior to the applicable offering date, unless the
administrator sets a later time for filing the subscription agreement. A
participant's subscription agreement continues to be effective for each
consecutive offering period until the participant withdraws from the Purchase
Plan or ceases to be eligible to participate in the Purchase Plan.
As of March 25, 2001, approximately 422 employees, including 7 executive
officers, were eligible to participate in the Purchase Plan. Members of the
Company's Board who are not employees and other non-employees such as
consultants are not eligible to participate. The actual benefits, if any, to
participants in the Purchase Plan are not determinable prior to the purchase of
shares thereunder as the value, if any, of such shares to their holders is
represented by the difference between the market price of a share of the
Company's Common Stock on the date of the purchase and the purchase price of the
shares, as described below.
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OFFERING PERIODS AND PURCHASE PRICE
To date, the Purchase Plan has been implemented by a series of consecutive
offering periods of six months commencing on the first business day of May and
November of each year. Payroll deductions accumulate during the six month period
and are applied at the end of the period to purchase shares of Common Stock. The
price at which shares are purchased is equal to 85% of the lesser of the fair
market value (the closing price on Nasdaq for the applicable day) of the Common
Stock on the first day of the offering period or the fair market value on the
purchase date (the last day of the offering period).
Beginning on November 1, 2001, the Purchase Plan is being implemented by a
series of overlapping offering periods of approximately 24 months duration. The
board approved this new structure in April 2001 after determining that many of
the companies with whom we compete for employees offer purchase plans with
24-month offering periods.
Following November 2001, purchases will be made for participants on the
last business day of each April and October by applying payroll deductions
accumulated over the preceding six months towards such purchases. Four purchases
will be made during each offering period. The price at which these purchases
will be made will equal 85% of the lesser of the fair market value of the Common
Stock as of the first day of the 24-month offering period or the fair market
value on the purchase date. For example, if an employee who enrolls in the
offering period beginning on November 1, 2001 continues in the Purchase Plan
through the end of that offering period is not automatically enrolled in a lower
point offering period, he or she will make a final purchase of stock on October
21, 2003 at 85% of the lesser of the market value of the stock on November 1,
2001 or the market value on October 31, 2003 (having made three earlier
purchases on April 30, 2002, October 31, 2002 and April 30, 2003 at the
applicable purchase prices for each of those dates). Employees who join the
Company during an ongoing offering period, or who are otherwise not yet
participating in the Purchase Plan, will be given the opportunity to enroll in
the Purchase Plan two times a year, on each May 1 and November 1. Employees who
begin participating in the Purchase Plan after the beginning of an offering
period will purchase stock at 85% of the lesser of the market value of the stock
on the date they join the Purchase Plan or the purchase date market value, and
will be participating in an offering period that lasts 24 months from the date
they began participating.
If the fair market value of a share of the Company's Common Stock on a
purchase date within a 24-month offering period is lower than the fair market
value of a share of the Company's Common Stock at the beginning of the 24-month
period, then participants in that offering period will automatically be enrolled
in a new 24-month offering period that will begin on the following business day
(the first business day of May or November). A similar re-set mechanism applies
for employees who join the Purchase Plan following the first day of the offering
period.
The applicable price at which shares may be purchased under the Purchase
Plan may be adjusted in the event that shares must be added (through Board and
Shareholder approval) to the Purchase Plan during an ongoing offering period in
order to satisfy purchase requirements. If this happens, the applicable purchase
price for these newly added shares would equal 85% of the lesser of the fair
market value on the date of stockholder approval or the market value on the
purchase date. We are under no obligation to cause shares to be added to the
Purchase Plan at any time.
LIMITATIONS ON PARTICIPATION
Although the amended Purchase Plan allows employees to contribute between
1% and 15% of their compensation to the Purchase Plan, the Company is
implementing the Purchase Plan to allow employees to have between 2% and 10% of
their compensation accumulated and applied toward purchases of shares under the
Purchase Plan. The administrator may change this participation rate at any time
before the beginning of an offering period. An employee may not participate in
the Purchase Plan if, immediately after he or she joined, he or she (or any
other person whose stock would be attributed to such employee under stock
attribution rules of the Code) would own stock and/or hold rights to purchase
stock possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company. The Company
is also implementing the Purchase Plan with a per participant limit on purchases
of
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1,000 shares per purchase date. The Purchase Plan also limits an employee's
rights to purchase stock under all employee stock purchase plans (those subject
to Section 423 of the Code) of the Company and its subsidiaries so that such
rights may accrue at a rate that does not exceed $25,000 of fair market value of
such stock (determined at the time the employee begins participating in the
offering period) for each calendar year in which such right to purchase stock is
outstanding at any time.
The Company may make a pro rata allocation of the shares remaining
available for option grant if the total number of shares that would otherwise be
subject to options granted at the beginning of an offering period exceeds the
number of remaining available shares in the Purchase Plan. Employees may
withdraw from the Purchase Plan, and receive back their accumulated payroll
deductions, at any time prior to a purchase date (the last business day of
January, April, July and October). If any employee does not withdraw prior to
the end of an offering period, he or she will continue to participate in the
next offering period that begins following the end of that offering period.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the Purchase Plan is
accumulated by payroll deductions over an offering period. As implemented, the
deductions may not be at a rate of less than 2% or more than 10% of a
participant's compensation on each payday during the offering period. The
administrator may change the maximum amount that a participant can contribute at
any time before the beginning of an offering period. A participant may change
his or her rate of contribution as of the beginning of each three-month purchase
period. A participant may discontinue his or her participation in the Purchase
Plan by withdrawing at any time. When a participant withdraws, he or she
receives back the payroll deductions accumulated under the Purchase Plan, but
does not receive interest on such amounts. Amounts contributed to the Purchase
Plan are part of the Company's general funds and are not required to be
segregated. Payroll deductions for a participant begin with the first full
payroll following the date he or she joins the Purchase Plan. To the extent
necessary to comply with the Code provisions and certain purchase limitations of
the Purchase Plan, a participant's payroll deductions may be decreased to 0%.
TERMINATION OF EMPLOYMENT OR LOSS OF ELIGIBILITY
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during an
offering period, causes the employee to become ineligible to participate in the
Purchase Plan. In such event, payroll deductions credited to the participant's
account will be returned to him or her or, in the case of death, to the person
or persons entitled thereto as provided in the Purchase Plan, without interest.
CAPITAL CHANGES
In the event any change is made in the Company's capitalization in the
middle of an offering period, such as a stock split or stock dividend, that
results in an increase or decrease in the number of shares of Common Stock
outstanding without receipt of consideration by the Company, appropriate
adjustment may be made in the purchase price and in the number of shares subject
to options under the Purchase Plan and to the number of shares authorized for
issuance under the Purchase Plan.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend or terminate the Purchase
Plan. If the Purchase Plan is terminated, the Board may terminate all
outstanding options or may allow options to expire in accordance with their
terms.
If not terminated earlier, the Purchase Plan will terminate on July 31,
2005.
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TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. If a participant disposes of his or her shares of Common Stock
within the later of two years from the offering date that applies to the shares
(the beginning of the offering period or the day on which the employee joined
the Purchase Plan) or within one year from the purchase date of the shares, a
transaction referred to as a "disqualifying disposition," the participant will
realize ordinary income in the year of such disposition equal to the amount by
which the fair market value of the stock on the purchase date exceeded the
purchase price. In such instances, the amount of such ordinary income will be
added to the participant's basis in the shares, and any additional gain or
resulting loss recognized on the disposition of the shares after such basis
adjustment will be a capital gain or loss. A capital gain or loss will be
long-term if the participant holds the shares of Common Stock for more than one
year after the purchase date.
If the participant disposes of his or her shares of Common Stock more than
two years after the offering date of such option and more than one year after
the purchase date of such option, the participant will realize ordinary income
in the year of such disposition equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition over the purchase
price or (ii) 15% of the fair market value of the shares on the offering date of
such option. The amount of such ordinary income will be added to the
participant's basis in the shares, and any additional gain recognized on the
disposition of the shares after such basis adjustment will be long-term capital
gain. If the fair market value of the shares on the date of disposition is less
than the purchase price, there will be no ordinary income and any loss
recognized will be a capital loss.
We will generally be entitled to a deduction in the year of a disqualifying
disposition equal to the amount of ordinary income recognized by the participant
as a result of such disposition. In all other cases, we receive no deduction.
The foregoing is only a summary of the effect of federal income taxation
upon the participants and us with respect to participation in the Purchase Plan
and does not purport to be complete. Furthermore, the foregoing does not discuss
the income tax laws of any municipality, state or foreign country in which a
participant may reside. Participants should consult their own tax advisors with
respect to the tax consequences of participation in the Purchase Plan for their
particular situations.
REQUIRED VOTE
The approval of the amendment of the Purchase Plan and the reservation of
300,000 additional shares for issuance thereunder requires the affirmative vote
of the holders of a majority of the shares of the Company's Common Stock present
at the Annual Meeting in person or by proxy and entitled to vote.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT OF THE 1995
EMPLOYE STOCK PURCHASE PLAN AND THE RESERVATION OF 300,000 ADDITIONAL SHARES OF
COMMON STOCK FOR ISSUANCE THEREUNDER.
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PROPOSAL NO. 3
AMENDMENT OF THE 1997 EQUITY INCENTIVE PLAN
At the Annual Meeting, the Company's shareholders are being asked to
approve the amendment of the Company's 1997 Equity Incentive Plan (the "1997
Plan") and the reservation of 2,500,000 additional shares of Common Stock for
issuance thereunder. The shareholders are also being asked to approve an
increase in the per person annual grant limits. The following is a summary of
principal features of the 1997 Plan. The summary, however, does not purport to
be a complete description of all the provisions of the 1997 Plan. Any
shareholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Secretary at the Company's
principal executive offices.
GENERAL
The Company's 1997 Plan was adopted by the Board in April 1997. In
connection with the amendment of the 1997 Plan, the Board has reserved 2,500,000
additional shares of Common Stock for issuance under the 1997 Plan. The Board
believes that, in order to attract qualified employees, officers, consultants
and directors to the Company and to provide incentives to its current employees,
officers, consultants and directors, it is necessary to grant options to
purchase Common Stock to such persons pursuant to the 1997 Plan. Accordingly,
the shareholders are being asked to approve the amendment of the 1997 Plan.
The 1997 Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Code, and for the granting of
nonstatutory stock options to employees, consultants and directors. See "United
States Federal Income Tax Information" below for information concerning the tax
treatment of both incentive stock options and nonstatutory stock options.
As of March 25, 2001, 1,306,502 shares had been issued upon exercise of
options granted under the 1997 Plan, options to purchase 7,500,000 shares were
outstanding and 70,291 shares remained available for future grant. Grants under
the 1997 Plan are discretionary. Accordingly, the future benefits under the 1997
Plan to particular participants are not determinable. The following table sets
forth information with respect to the stock options granted to the Named
Executive Officers, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees
(including all current officers who are not executive officers) as a group under
the 1997 Plan in the last completed fiscal year.
NUMBER OF SHARES SUBJECT TO WEIGHTED AVERAGE
OPTIONS GRANTED UNDER EXERCISE PRICE
NAME AND TITLE THE 1997 PLAN PER SHARE
-------------- --------------------------- ----------------
Fred Chan............................................ -- $
Robert Blair......................................... -- --
Frank Effler......................................... -- --
Paul Tien............................................ -- --
Austin Sun........................................... -- --
All current executive officers as a group (7
persons)........................................... -- --
All directors who are not executive officers (4
persons)........................................... 0 0
All employees (including all current officers who are
not executive officers) as a group (402 persons)... 2,823,709 $14.7817
The 1997 Plan is not a qualified, deferred compensation plan under Section
401(a) of the Code and is not subject to the provisions of the ERISA.
RESERVATION OF SHARES UNDER THE 1997 PLAN
The Board believes that in order to attract and retain highly qualified
employees, consultants and directors and to provide such employees, consultants
and directors with adequate incentive through their proprietary interest in the
Company, it is necessary to reserve 2,500,000 additional shares of Common Stock
for issuance thereunder. At the Annual Meeting, the shareholders are being asked
to approve the amended 1997 Plan and the reservation of 2,500,000 additional
shares of Common Stock for issuance thereunder.
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PURPOSE
The purposes of the 1997 Plan are to attract and retain the best available
personnel for the Company, to provide additional incentive to the employees,
officers, consultants and directors of the Company, and to promote the success
of the Company's business.
ADMINISTRATION
Grants under the 1997 Plan may (but need not) be made by different
administrative bodies with respect to employees or consultants who are also
officers or directors and employees who are neither directors nor officers. A
body administering grants that are intended to comply with Rule 16b-3 of the
Exchange Act and to be "performance-based compensation" under Section 162(m) of
the Code shall comply with the requirements of those laws. The various
administrative bodies are referred to as the "Administrator."
ELIGIBILITY
The 1997 Plan provides that options may be granted to employees (including
officers and directors who are also employees) and consultants of the Company
(including non-employee directors). Incentive stock options may be granted only
to employees. The Administrator selects the optionees and determines the number
of shares and the exercise price to be associated with each option. In making
such determination, the Administrator takes into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company, and
other relevant factors. As of March 25, 2001, there are approximately 415
employees, officers, consultants and directors eligible to participate in the
1997 Plan.
The 1997 Plan as amended provides that the maximum number of shares of
Common Stock which may be granted under options to any one individual under the
1997 Plan during any fiscal year is 500,000, provided that options covering up
to 1,000,000 shares may be granted to an individual in connection with his or
her initial employment. (Prior to the amendment, these limits were 375,000 and
750,000, respectively.) These limits are subject to adjustment as provided in
the 1997 Plan. There is also a limit on the aggregate market value of shares
subject to all incentive stock options that may be granted to an optionee during
any calendar year.
TERMS OF OPTIONS
The terms of options granted under the 1997 Plan are determined by the
Administrator. Each option is evidenced by a stock option agreement between the
Company and the optionee and is subject to the following additional terms and
conditions:
Exercise of the Option. The optionee must earn the right to exercise the
option by continuing to work for the Company. The Administrator determines when
options are exercisable. An option is exercised by giving written notice of
exercise to the Company specifying the number of full shares of Common Stock to
be purchased, and by tendering payment of the purchase price to the Company. The
method of payment of the exercise price of the shares purchased upon exercise of
an option is determined by the Administrator.
Exercise Price. The exercise price of options granted under the 1997 Plan
is determined by the Administrator and must be at least equal to the fair market
value of the shares on the date of grant based upon the closing price on the
Nasdaq National Market on the date of grant, in the case of incentive stock
options. In the case of nonstatutory stock options, the exercise price of the
option granted is as determined by the Administrator. Incentive stock options
granted to shareholders owning more than 10% of the total combined voting power
of all classes of the Company's stock (such holders are referred to as "10%
Shareholders") are subject to the additional restriction that the exercise price
on such options must be at least 110% of the fair market value on the date of
the grant. Nonstatutory stock options granted to a "covered employee" under
Section 162(m) of the Code are subject to the additional restriction that the
exercise price on such options must be at least 100% of the fair market value on
the date of grant.
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Termination of Employment. Unless otherwise provided in the option
agreement, if the optionee's employment or consulting relationship with the
Company is terminated for any reason other than death or total and permanent
disability or for cause, options under the 1997 Plan may be exercised not later
than 30 days after the date of such termination to the extent the option was
exercisable on the date of such termination. In no event may an option be
exercised by any person after the expiration of its term.
Disability. Unless otherwise provided in the applicable stock option
agreement, if an optionee is unable to continue his or her employment or
consulting relationship with the Company as a result of or her total and
permanent disability, options may be exercised within six months (or such other
period of time not exceeding twelve months in the case of incentive stock
options as is determined by the Administrator) after the date of termination and
may be exercised only to the extent the option was exercisable on the date of
termination, but in no event may the option be exercised after its termination
date.
Death. Unless otherwise provided in the applicable stock option agreement,
if an optionee should die while employed or retained by the Company (or within
30 days of a termination other than for cause), and such optionee has been
continuously employed or retained by the Company since the date of grant of the
option, the option may be exercised within twelve months after the date of death
(or such other period of time, not exceeding six months, as is determined by the
Administrator) by the optionee's estate or by a person who acquired the right to
exercise the option by bequest or inheritance to the extent the option was
exercisable on the date of termination, but in no event may the option be
exercised after its termination date.
Cause. Unless otherwise provided in the applicable stock option agreement,
if an optionee's employment or service with the Company is terminated for cause,
the optionee's option will terminate upon termination.
Option Termination Date. Incentive stock options granted under the 1997
Plan expire ten years from the date of grant unless a shorter period is provided
in the option agreement. Incentive stock options granted to 10% Shareholders may
not have a term of more than five years.
Nontransferability of Options. Incentive stock options are not transferable
by the optionee, other than by will or the laws of descent and distribution, and
are exercisable only by the optionee during his or her lifetime or, in the event
of death, by a person who acquires the right to exercise the option by bequest
or inheritance or by reason of the death of the optionee. In the case of
nonstatutory stock options, the Administrator may at its discretion in certain
circumstances allow the transferability of such options.
Acceleration of Option. In the event of a merger of the Company with or
into another corporation or sale of substantially all of the Company's assets,
the Administrator may either accomplish a substitution or assumption of options
by the successor corporation or give written notice of the acceleration of the
optionee's right to exercise his or her outstanding options in part or in full
at any time within fifteen days of such notice.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1997 Plan as may be
determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, reverse stock split, stock
dividend, combination or reclassification, is made in the Company's
capitalization that results in an increase or decrease in the number of
outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, and the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the 1997 Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Administrator.
AMENDMENT AND TERMINATION
The Board may amend the 1997 Plan at any time or from time to time or may
terminate it without approval of the shareholders to the extent allowed by
applicable law. However, no action by the Board or the shareholders may
materially and adversely affect any option previously granted under the 1997
Plan, unless
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mutually agreed otherwise between the optionee and the Board. The 1997 Plan
shall terminate in April 2007, provided that any options then outstanding under
the 1997 Plan shall remain outstanding until they expire by their terms.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the 1997 Plan based on federal income tax
laws in effect on the date of this Proxy Statement. This summary is not intended
to be exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all optionees to consult their own tax advisor
concerning the tax implications of option grants and exercises and the
disposition of stock acquired upon such exercises, under the 1997 Plan.
Options granted under the 1997 Plan may be either incentive stock options,
which are intended to qualify for the special tax treatment provided by Section
422 of the Code, or nonstatutory stock options, which will not qualify. If an
option granted under the 1997 Plan is an incentive stock option, the optionee
will recognize no income upon grant of the incentive stock option and will incur
no tax liability due to the exercise, except to the extent that such exercise
causes the optionee to incur alternative minimum tax. (See discussion below.)
The Company will not be allowed a deduction for federal income tax purposes as a
result of the exercise of an incentive stock option regardless of the
applicability of 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 exercise
of the option by the optionee, any gain will be treated as a long-term capital
gain. If both of these holding periods are not satisfied, the optionee will
recognize ordinary income equal to the difference between the exercise price and
the lower of the fair market value of the Common Stock on the date of the option
exercise or the sale price of the Common Stock. 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 a disposition of the shares prior to
completion of both of the above holding periods in excess of the amount treated
as ordinary income will be characterized as long-term capital gain if the sale
occurs more than one year after exercise of the option or as short-term capital
gain if the sale is made earlier.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess of the fair market value of the shares over the
exercise price. The income recognized by an optionee who is also an employee of
the Company will be subject to income and employment tax withholding by the
Company by payment in cash by the optionee or out of the optionee's current
earnings. Upon the sale of such shares by the optionee, any difference between
the sale price and the fair market value of the shares as of the date of
exercise of the option will be treated as capital gain or loss, and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than one year from date of exercise.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exemption amount
of $45,000 for joint returns, $33,750 for unmarried individual returns and
$22,500 in the case of married taxpayers filing separately (which exemption
amounts are phased out for upper income taxpayers). Alternative minimum tax will
be due if the tax determined under the foregoing formula exceeds the regular tax
of the taxpayer for the year.
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In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
REQUIRED VOTE
The approval of the amendment of the 1997 Plan and the reservation of
2,500,000 additional shares for issuance thereunder requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
present at the Annual Meeting in person or by proxy and entitled to vote.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT OF THE 1997 PLAN
AND THE RESERVATION OF 2,500,000 ADDITIONAL SHARES OF COMMON STOCK FOR ISSUANCE
THEREUNDER. APPROVAL OF AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL NO. 4
AMENDMENT OF 1995 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to
approve the amendment of the 1995 Directors' Stock Option Plan (the "Directors
Plan") to increase the number of shares under the Initial Grant and the
Subsequent Grant and to reserve 300,000 additional shares of Common Stock for
issuance thereunder for a total of 600,000 shares. The following is a summary of
principal features of the Directors Plan as amended. The summary, however, does
not purport to be a complete description of all the provisions of the Directors
Plan. Any shareholder of the Company who wishes to obtain a copy of the actual
plan document may do so upon written request to the Secretary at the Company's
principal offices.
GENERAL AND PURPOSE
The Directors Plan was adopted by the Board in August 1995 and the Board
originally reserved a total of 300,000 shares of Common Stock for issuance
thereunder.
The Directors Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company. It is designed to work automatically and
not to require administration; however, to the extent administration is
necessary, it will be provided by the Board.
The purpose of the Directors Plan is to provide an incentive for directors
to continue to serve the Company as directors and to assist the Company in
recruiting highly qualified individuals when vacancies occur on the Board.
GRANT AND EXERCISE OF OPTION
The Directors Plan provides that each person who becomes a nonemployee
director after the effective date of the Directors Plan shall be automatically
granted an Initial Grant to purchase 40,000 shares of Common Stock on the date
on which such person first becomes a nonemployee director, whether through
election by the shareholders of the Company or appointment by the Board to fill
a vacancy. A Subsequent Grant to purchase 10,000 shares is automatically granted
to each nonemployee director on each anniversary of the nonemployee director's
Initial Grant. Prior to the amendment of the Directors Plan, the Initial Grant
was for 20,000 shares and each Subsequent Grant was for 5,000 shares.
The Directors Plan provides for neither a maximum nor a minimum number of
shares subject to options that may be granted to any one nonemployee director,
but does provide for the number of shares that may be included in any grant and
the method of making a grant. No option granted under the Directors Plan is
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to the terms of a qualified domestic relations order
(as defined by the Code), and each option is exercisable, during the lifetime of
the optionee, only by such optionee.
Each option granted under the Directors Plan becomes exercisable as to 25%
of the shares subject to the option on each of the first, second, third and
fourth anniversaries of the date of grant, provided the optionee remains a
director of the Company continuously through such anniversary. The options
remain exercisable for up to seven months following the optionee's termination
of service as a director of the Company, unless such termination is a result of
death or permanent and total disability, in which case the options remain
exercisable for up to 12 months. An option is never exercisable beyond its term.
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the Directors Plan
shall be equal to the fair market value of a share of the Company's Common Stock
on the date of grant of the option, which is defined to be the closing sale
price of the Company's Common Stock on the Nasdaq National Market on the
immediately preceding trading date. Options granted under the Directors Plan
have a term of ten years.
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PLAN BENEFITS
As discussed above, under the amended Directors Plan each non-employee
director would receive an option to purchase 10,000 shares of Common Stock on
the next anniversary of the commencement of his or her service as a nonemployee
director. As of March, 2001, there were four eligible nonemployee directors.
Employee directors of the Company are not eligible to receive options under the
Directors Plan.
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company, a sale of
all or substantially all of the assets of the Company, the merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation or any of certain other corporate
transactions, each nonemployee director shall have a reasonable time within
which to exercise the option, including any part of the option that would not be
exercisable prior to the time of such transaction but would terminated at the
end of such transaction.
AMENDMENT AND TERMINATION
The Board may at any time amend or terminate the Directors Plan, except
that such termination cannot affect options previously granted without the
agreement of any optionee being so affected. Notwithstanding the foregoing, the
provisions regarding the grant of options under the Directors Plan may be
amended only once in any six-month period, other than to comport with changes in
the Code, ERISA, or the rules thereunder.
If not terminated earlier, the Directors Plan will expire in 2005.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief 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 Directors Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside. The Company advises all eligible directors to
consult their own tax advisors concerning tax implications of option grants and
exercises and the disposition of stock acquired upon such exercises under the
Directors Plan.
Options granted under the Directors Plan are nonstatutory stock options. An
optionee will not recognize any taxable income at the time he or she is granted
a nonstatutory stock option. However upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the option price. Upon resale of such
shares by the optionee, any difference between the sale price and the exercise
price, to the extent not recognized as ordinary income as provided above will be
treated as capital gain (or loss), and will be long-term capital gain if the
optionee has held the shares more than one year. For individual taxpayers, the
current U.S. federal income tax rate on long-term capital gains is 20%, whereas
the maximum rate on other income is 39.6%. Capital losses for individual
taxpayers are allowed under U.S. tax laws in full against capital gains plus
$3,000 of other income. The Company will be entitled to a tax deduction in the
amount and at the time that the optionee recognizes ordinary income with respect
to shares acquired upon exercise of a nonstatutory stock option.
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REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common
Stock present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve the amendment of the Directors Plan to increase the
number of shares under the Initial Grant and the Subsequent Grant and to reserve
300,000 additional shares of Common Stock for issuance thereunder.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE DIRECTORS' STOCK OPTION
PLAN AND THE RESERVATION OF ADDITIONAL SHARES OF COMMON STOCK FOR ISSUANCE
THEREUNDER.
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected PricewaterhouseCoopers LLP as its independent
accountants to perform the audit of the Company's financial statements for
fiscal year 2001 and recommends that the shareholders vote for ratification of
such selection. In the event the shareholders do not ratify such appointment,
the Board will reconsider its selection. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have the opportunity to make a statement at the Annual Meeting if they
desire to do so and are expected to be available to respond to appropriate
questions.
FEES PAID TO THE INDEPENDENT ACCOUNTANTS
Audit Fees
PricewaterhouseCoopers LLP billed the Company aggregate fees of $548,000
for professional services rendered for the audit of the Company's annual
financial statements for fiscal year 2000 and for reviews of the financial
statements included in the Company's quarterly reports on Form 10-Q for the
first three quarters of fiscal 2000.
Financial Information Systems Design and Implementation
PricewaterhouseCoopers LLP billed the Company aggregate fees of $0 for
professional services rendered for various information system implementation
projects in fiscal 2000.
All Other Fees
PricewaterhouseCoopers LLP billed the Company aggregate fees of $591,903
for other professional services rendered in fiscal 2000, including professional
services in connection with tax preparation, tax consultation, statutory filings
and other consulting services.
The Audit Committee of the Board has considered whether the provision by
PricewaterhouseCoopers LLP of the non-audit listed above is compatible with
maintaining PricewaterhouseCooper LLP's independence.
REQUIRED VOTE
The ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants requires the affirmative vote of the holders
of a majority of the shares of the Company's common stock present at the Annual
Meeting in person or by proxy and entitled to vote and constituting a majority
of the required quorum.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP FOR FISCAL YEAR 2001.
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COMMON OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 23, 2001,
known to the Company regarding the beneficial ownership of the Company's common
stock by (i) each person known by the Company to be the beneficial owner of more
than 5% of the Company's common stock, (ii) each of the Company's directors,
(iii) each executive officer named in the Summary Compensation Table below (the
"Named Executive Officers") and (iv) all directors and executive officers as a
group.
SHARES BENEFICIALLY
OWNED(1) OPTIONS EXERCISABLE
5% SHAREHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, -------------------- ON OR BEFORE
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT MAY 22, 2001
----------------------------------------------------- ---------- ------- -------------------
Fred S.L. Chan(2)......................................... 11,543,091 29% 155,106
Chairman of the Board of Directors
Annie M.H. Chan, Director(2).............................. 11,543,091 29% 155,106
Trusts benefiting the children of Fred S.L. Chan and
Annie M.H. Chan(3)...................................... 3,680,954 9%
Matthew K. Fong, Vice Chairman of the Board of Directors
and Advisor to the President............................ 35,000 * 35,000
David Lee, Director....................................... 5,521 * 5,521
c/o Eon Communications
105 Cochrane Circle
Morgan Hill, CA 95037
Peter T. Mok, Director.................................... 67,829 * 59,479
c/o KLM Capitol Group
2041 Mission College Blvd., Suite 175
Santa Clara, CA 95054
Dominic Ng, Director...................................... 27,917 * 27,917
Robert L. Blair, President, CEO and Director.............. 472,399 1% 76,750
Paul Tien, VP of Engineering.............................. 342,595 * 123,200
Frank Effler, Jr., VP of Worldwide Sales.................. 96,867 * 38,501
All executive officers and directors as a group (12
persons)(4)............................................. 12,591,219 30% 561,474
- ---------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. As
of March 25, 2001, 42,068,088 shares of the Company's Common Stock were
issued and outstanding. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days after March 25, 2001 are
deemed to be outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Includes 900,000 shares held by Mrs. Annie Chan (Mr. Fred Chan's wife) and
10,629,652 shares held by Annie M.H. Chan Living Trust. Also includes
options exercisable on or before May 22, 2001 and held by Mrs. Chan to
purchase 13,752 shares of Common Stock of the Company.
(3) Represents 814,578 shares held by a trust benefiting David Y.W. Chan (the
"David Chan Trust"), 814,576 shares held by a trust benefiting Edward Y.C.
Chan (the "Edward Chan Trust"), 280,000 shares held by a trust benefiting
Michael Y.J. Chan (the "Michael Chan Trust") and 1,771,800 shares held by a
trust benefiting David, Edward and Michael Chan jointly. David, Edward and
Michael Chan are the sons of Fred S.L. Chan and Annie M.H. Chan. Mee Sim
Chan Lee and Sung Kook Kim are trustees of the four above-mentioned trusts.
In addition, Myong Shin Kim is a trustee of the David Chan Trust, the
Michael Chan Trust and the Edward Chan Trust.
(4) Includes an aggregate of 561,474 shares which the directors and executive
officers have the right to acquire by May 22, 2001. Does not include an
aggregate of 3,680,954 shares held by trusts benefiting Mr. & Mrs. Chan's
children.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Named
Executive Officers: (1) the Company's Chief Executive Officer and (2) the
Company's four other most highly compensated executive officers whose salary and
bonus for the fiscal year 2000 were in excess of $100,000.
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------
---------------------------- OTHER SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
--------------------------- ------ -------- -------- ------------ ---------- ---------------
Fred S.L. Chan................... 2000 $248,000 $ $ -- -- $ 655
Chairman of the Board 1999 248,000 701,002 -- 350,000 1,059
of Directors of the Company and
President & CEO of Vialta 1998 248,000 154,919 -- 100,000(2) 546
Robert Blair..................... 2000 $260,000 $ -- $ -- -- $ 686
President & CEO 1999 215,000 50,000 322 206,666 907
1998 196,667 -- -- 340,000(3) 546
Frank Effler, Jr. ............... 2000 $166,629 $ 93,459 $750 -- $ 440
VP of Worldwide Sales 1999 181,292 97,129 322 25,000 715
1998 126,538 65,830 -- 125,000(4) 468
Austin Sun(5).................... 2000 $143,654 $ -- $ -- -- $ 379
VP of Business Development 1999 -- -- -- -- --
1998 -- -- -- -- --
Paul Tien........................ 2000 $170,000 $ 4,000 $ -- -- $ 449
Senior VP of Engineering 1999 159,167 49,000 -- 70,000 420
1998 156,870 -- -- 120,000(6) 414
- ---------------
(1) Includes dollar value of premiums paid by the Company under the Company's
group term life insurance policy and accidental death and dismemberment
policy on behalf of the Named Executive Officers.
(2) Represents repriced options, which are deemed as newly granted.
(3) Includes 240,000 shares of repriced options to purchase the Company's Common
Stock, which are deemed as newly granted.
(4) Includes 80,000 shares of repriced options to purchase the Company's Common
Stock, which are deemed as newly granted.
(5) Mr. Sun joined the Company in June, 2000.
(6) Includes 120,000 of repriced options to purchase the Company's Common Stock,
which are deemed as newly granted.
STOCK OPTION GRANTS IN FISCAL YEAR 2000
There were no stock grants made during fiscal year 2000 to the named
executive officers.
AGGREGATE OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END VALUES
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal year 2000,
including the aggregate amount of gains on the date of exercise. In addition,
the table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 2000. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $5.125 per share, which
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was the closing price of the Company's common stock as reported on the Nasdaq
National Market on December 31, 2000.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT
SHARES YEAR END FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Fred S.L. Chan............ 538,988 $4,809,682 70,833 269,167 $ -- $ --
Robert Blair.............. 135,278 $2,147,538 50,918 223,804 $ 46,095 $55,624
Frank Effler, Jr. ........ 56,666 $ 753,533 26,001 67,333 $ 22,528 $67,056
Austin Sun................ -- $ -- -- -- $ -- $ --
Paul Tien................. 152,900 $2,703,192 323,178 84,717 $1,316,938 $86,799
- ---------------
(1) "Value Realized" represents the fair market value of the shares of common
stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's common stock on December 31,
2000, the last day of trading for the fiscal year.
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PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
common stock of the Company from the first day of trading of the Company's
common stock upon the Company's initial public offering (October 6, 1995) to
December 31, 2000 with the cumulative total return on the Nasdaq Stock Market
and the Hambrecht & Quist Technology Index (assuming the investment of $100 in
the Company's common stock and in each of the indexes on the date of the
Company's initial public offering, and reinvestment of all dividends). The stock
price performance on the following graph is not necessarily indicative of future
stock price performance.
[PERFORMANCE GRAPH]
NASDAQ STOCK MARKETEU.S.
ESS TECHNOLOGY, INC. INDEX H&Q TECHNOLOGY INDEX
-------------------- ------------------------ --------------------
10/6/95 100.00 100.00 100.00
12/31/95 153.33 104.40 99.66
3/31/96 125.00 109.20 101.58
6/30/96 123.33 118.10 108.81
9/30/96 114.17 122.41 115.51
12/31/96 187.50 128.45 123.86
3/31/97 161.67 121.47 118.06
6/30/97 89.58 143.73 142.11
9/30/97 101.25 168.04 172.22
12/31/97 50.63 157.32 145.22
3/31/98 42.50 184.12 175.83
6/30/98 31.25 189.20 180.01
9/30/98 22.50 170.72 160.02
12/31/98 33.33 221.85 225.88
3/31/99 34.38 248.81 246.00
6/30/99 89.58 272.18 291.35
9/30/99 88.33 278.95 308.22
12/31/99 147.92 412.29 504.46
3/31/00 116.67 462.72 542.02
6/30/00 96.67 402.30 485.93
9/30/00 95.40 370.16 477.04
12/31/00 34.16 248.07 309.87
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The following description data are supplied in accordance with Rule 304(d)
of Regulation S-T:
NASDAQ STOCK MARKET --
U.S. INDEX H&Q TECHNOLOGY INDEX
ESS TECHNOLOGY, INC. -------------------------- --------------------------
MARKET PRICE INVESTMENT VALUE INDEX INVESTMENT VALUE INDEX INVESTMENT VALUE
-------------------- ---------------- ------- ---------------- ------- ----------------
10/6/95.............. $15.00 $100.00 331.02 $100.00 839.63 $100.00
12/31/95............. $23.00 $153.33 345.57 $104.40 836.78 $ 99.66
3/31/96.............. $18.75 $125.00 361.76 $109.20 852.89 $101.58
6/30/96.............. $18.50 $123.33 391.22 $118.10 913.62 $108.81
9/30/96.............. $17.13 $114.17 405.21 $122.41 969.86 $115.51
12/31/96............. $28.13 $187.50 425.18 $128.45 1040.00 $123.86
3/31/97.............. $24.25 $161.67 402.10 $121.47 991.30 $118.06
6/30/97.............. $13.44 $ 89.58 475.78 $143.73 1193.17 $142.11
9/30/97.............. $15.19 $101.25 556.24 $168.04 1446.03 $172.22
12/31/97............. $ 7.59 $ 50.63 520.76 $157.32 1219.28 $145.22
3/31/98.............. $ 6.38 $ 42.50 609.45 $184.12 1476.33 $175.83
6/30/98.............. $ 4.69 $ 31.25 626.28 $189.20 1511.43 $180.01
9/30/98.............. $ 3.38 $ 22.50 565.13 $170.72 1343.55 $160.02
12/31/98............. $ 5.00 $ 33.33 734.38 $221.85 1896.52 $225.88
3/31/99.............. $ 5.16 $ 34.38 823.60 $248.81 2065.47 $246.00
6/30/99.............. $13.44 $ 89.58 900.96 $272.18 2446.24 $291.35
9/30/99.............. $13.25 $ 88.33 923.39 $278.95 2587.88 $308.22
12/31/99............. $22.19 $147.92 1364.76 $412.29 4235.56 $504.46
3/31/00.............. $17.50 $116.67 1531.67 $462.72 4551.00 $542.02
6/30/00.............. $14.50 $ 96.67 1331.67 $402.30 4080.04 $485.93
9/30/00.............. $14.31 $ 95.40 1225.31 $370.16 4005.40 $477.04
12/31/00............. $ 5.13 $ 34.16 821.15 $248.07 2601.72 $309.87
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following and the
Performance Graph in this proxy shall not be incorporated by reference into any
such filing.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates under a written charter adopted by the Board
which is included in the Proxy Statement as Appendix A. The Audit Committee has
received the written disclosures and letter from the independent accountants
required by ISB No. 1.
The Audit Committee meets with the Company's independent accountants to
review and discuss the adequacy of the Company's internal control system,
financial reporting procedures and other matters required to be discussed by the
Statement of Auditor Standards 61 such as the independent accountant's
judgements as to the quality of the financial statements, changes in the
accounting policies and sensitive accounting estimates. The Audit Committee
reviews and discusses the audited financial statements with the management. The
Audit Committee reviews the general scope of the Company's annual audit and fees
charged by the independent accountants, reviews and monitors the performance of
non-audit services by the Company's auditors and reviews the fairness of any
proposed transactions between any officer, director or other affiliate of the
Company and the Company. After the reviews, the Audit Committee makes
recommendations, such as to include the audited financial statement in the
Company's annual report on Form 10-K, to the full Board and performs such
further functions as may be required by any stock exchange or over-the-counter
market upon which the Company's Common State may now or in the future be listed.
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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee reviews base salary levels and target bonuses for the Chief Executive
Officer ("CEO") at or about the beginning of each year. The Committee
administers the Company's incentive and equity plans, including the 1992 Stock
Option Plan, the 1995 Equity Incentive Plan, the 1995 Employee Stock Purchase
Plan, the 1995 Directors Stock Option Plan, and the 1997 Equity Incentive Plan.
The Committee's philosophy in compensating the CEO is to relate
compensation directly to corporate performance. Thus, the Company's compensation
policy for the CEO relates a portion of his total compensation to the Company
profit objectives and individual objectives set forth at the beginning of the
Company's year. Consistent with this policy, a designated portion of the CEO's
compensation is contingent on corporate performance, and is also based on his
performance as measured against objectives established under the CEO Incentive
Plan, as determined by the Committee in its discretion. Long-term equity
incentives for the CEO are effected through the granting of stock options under
the 1995 Equity Incentive Plan and the 1997 Equity Incentive Plan. Stock options
have value for the CEO only if the price of the Company's stock increases above
the fair market value (in Mr. Chan's case, 110% of the fair market value) on the
grant date and the CEO remains in the Company's employ for the period required
for the shares to vest.
The base salary, incentive compensation and stock option grants of the CEO
are determined in part by the Committee reviewing data on prevailing
compensation practices in technology companies with whom the Company competes
for executive talent and by their evaluating such information in connection with
the Company's corporate goals. To this end, the Committee attempts to compare
the compensation of the Company's CEO with the compensation practices of
comparable companies to determine base salary, target bonuses and target total
cash compensation. In addition to his base salary, the Company's CEO is eligible
to receive cash bonuses and to participate in the 1995 Equity Incentive Plan and
the 1997 Equity Incentive Plan.
COMPENSATION OF EXECUTIVE OFFICERS
During the fiscal year that ended on December 31, 2000, the Company's
executive compensation program was comprised of the following key components:
base salary, annual bonus, and equity-based incentives.
Base Salary. The Company sets the base salaries of its executives at the
levels of comparably sized companies engaged in similar industries.
Annual Bonus. The Company's cash bonus program seeks to motivate executives
to work effectively to achieve the Company's financial performance objectives
and to reward them when such objectives are met. Fiscal year 2000 executive
bonus payments for Messrs. Effler and Tien were based upon individual
performance objectives.
Equity-Based Incentive Compensation. Stock options are an important
component of the total compensation of executives. The Company believes that
stock options align the interests of each executive with those of the
shareholders. They also provide executives a significant, long-term interest in
the Company's success and help retain key executives in a competitive market for
executive talent. The Company's 1995 Equity Incentive Plan and 1997 Equity
Incentive Plan authorize the Committee to grant stock options to executives. The
number of shares owned by, or subject to options held by, each executive officer
is periodically reviewed and additional awards are considered based upon past
performance of the executive and the relative holdings of other executives in
the Company. The option grants generally utilize four-year vesting periods to
encourage executives to continue contributing to the Company, and they expire
not later than ten years from the date of grant.
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COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Company's CEO's compensation plan includes the same elements and
performance measures as the plans of the Company's other executive officers. The
Compensation Committee evaluates the performance of the Company's CEO, sets his
base compensation and determines bonuses and awards stock or option grants, if
any. Mr. Blair's base salary for fiscal year 2000 was $260,000 compared to
$260,000 for fiscal year 1999. He did not receive a bonus for fiscal year 2000.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee has considered the impact of Section 162(m) of
the Code, which disallows a deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO and
four other most highly compensated executive officers, unless such compensation
meets the requirements for the "performance-based" exception to the general
rule. Since the cash compensation paid by the Company to each of its executive
officers is expected to be below $1 million, the Compensation Committee believes
that this section will not affect the tax deductions available to the Company.
It will be the Compensation Committee's policy to qualify, to the extent
reasonable, the executive officers' compensation for deductibility under
applicable tax law.
COMPENSATION COMMITTEE
/s/ DAVID LEE, PETER T. MOK and DOMINIC
NG
------------------------------------------
David Lee
Peter T. Mok
Dominic Ng
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lee, Mr. Mok and Mr. Ng have not been an officer or employee of the
Company or any of its subsidiaries.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
Since January 1, 1998, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, nominee for election as a director, executive officer, holder of more
than 5% of the Company's common stock or any member of the immediate family of
any of the foregoing persons had or will have a direct or indirect material
interest other than (i) normal compensation arrangements, which are described
under "Executive Compensation" above and (ii) the transactions described under
"Compensation Committee Interlocks and Insider Participation" above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and officers, and persons who own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC and the Nasdaq National Market. Such persons
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.
James Boyd, David Lee and Austin Sun filed late Form 3s. Frank Effler and
Matthew Fong filed late Form 4s. Based solely on its review of the copies of
such forms furnished to the Company and written representations from the
executive officers and directors, the Company believes that all other Section
16(a) filing requirements for the year ended December 31, 2000 were met.
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OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Annual Meeting, and, so far as is known to the Board, no matters are to be
brought before the Annual Meeting except as specified in the Notice of the
Annual Meeting. As to any business that may properly come before the Annual
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
James B. Boyd
Chief Financial Officer
Dated: April 30, 2001
26
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APPENDIX A
ESS TECHNOLOGY, INC.
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
PURPOSE
The purpose of the Audit Committee established by this charter will be to
make such examinations as are necessary to monitor the corporate financial
reporting and the internal and external audits of ESS Technology, Inc., a
California corporation (the "Company"), to provide to the Board of Directors
(the "Board") the results of its examinations and recommendations derived
therefrom, to outline to the Board improvements made, or to be made, in internal
accounting controls, to nominate independent auditors, to supervise the finance
function of the Company (which will include, among other matters, the Company's
investment activities) and to provide the Board such additional information and
materials as it may deem necessary to make the Board aware of significant
financial matters which require Board attention.
The Audit Committee will undertake those specific duties and
responsibilities listed below, and such other duties as the Board from time to
time may prescribe.
CHARTER REVIEW
The Audit Committee will review and reassess the adequacy of this charter
at least once per year. This review is initially intended to be conducted at the
first Audit Committee meeting following the Company's Annual Meeting of
Shareholders, but may be conducted at any time the Audit Committee desires to do
so. Additionally, to the extent and in the manner that the Company is legally
required to do by the rules of the Securities and Exchange Commission (the
"SEC"), this charter (as then constituted) shall be publicly filed.
MEMBERSHIP
The Audit Committee must be comprised of at least three members of the
Board. Such members will be elected and serve at the pleasure of the Board. The
members of the Audit Committee will not be employees of the Company. Each member
of the Audit Committee shall be an "independent director," as defined by and to
the extent required by the Rules of the National Association of Securities
Dealers, Inc. ("NASD").
Further, each member of the Audit Committee must be able to read and
understand fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement, or must become able to do so
within a reasonable period of time after his or her appointment to the Audit
Committee. Additionally, at least one member of the Audit Committee must have
past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Notwithstanding the
foregoing, one director who is not independent, as defined in the NASD Rules,
and who is not a current employee or an immediate family member of such
employee, may be appointed to the Audit Committee, if the board, under
exceptional and limited circumstances, determines that membership on the Audit
Committee by the individual is required by the best interests of the Company and
its stockholders, and the Board discloses, in the next annual proxy statement
subsequent to such determination, the nature of the relationship and the reasons
for that determination.
MEETINGS
The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at least
quarterly to review the financial affairs of the Company. The Audit Committee
will meet with the independent auditors of the Company upon the completion of
the annual
A-1
30
audit, and at such other times as it deems appropriate, to review the
independent auditors' examination and management report.
RESPONSIBILITIES
The responsibilities of the Audit Committee shall include:
1. Nominating the independent auditors for annual approval by the
Board and ratification by the Shareholders;
2. Reviewing the plan for the audit and related services at least
annually;
3. Reviewing audit results and annual and interim financial
statements;
4. Ensuring the receipt of, and reviewing, a written statement from
the Company's auditors delineating all relationships between the auditor
and the Company, consistent with Independence Standards Board Standard 1;
5. Reviewing and actively discussing with the Company's auditors any
disclosed relationship or service that may impact the objectivity and
independence of the auditor;
6. Taking, or recommending that the Board take, appropriate action to
oversee the independence of the outside auditor;
7. Overseeing the adequacy of the Company's system of internal
accounting controls, including obtaining from the independent auditors
management letters or summaries on such internal accounting controls;
8. Overseeing the effectiveness of the internal audit function;
9. Overseeing the Company's compliance with the Foreign Corrupt
Practices Act;
10. Overseeing the Company's compliance with SEC requirements for
disclosure of auditor's services and Audit Committee members and
activities; and
11. Overseeing the Company's finance function, which may include the
adoption from time to time of a policy with regard to the investment of the
Company's assets.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board delegates to it.
Finally, the Audit Committee shall ensure that the Company's auditors
understand both (i) their ultimate accountability to the Board and the Audit
Committee, as representatives of the Company's Shareholders, and (ii) the
Board's and the Audit Committee's ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the Company's independent
auditors (or to nominate the outside auditor to be proposed for stockholder
approval in any proxy statement).
REPORTS
The Audit Committee will to the extent deemed appropriate record its
summaries of recommendations to the Board in written form that will be
incorporated as a part of the minutes of the Board. To the extent required, the
Audit Committee will also prepare and sign a Report of the Audit Committee for
inclusion in the Company's proxy statement for its Annual Meeting of
Shareholders.
A-2
31
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ESS TECHNOLOGY, INC.
2001 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ESS Technology, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 30, 2001, and hereby appoints
Robert Blair and James Boyd, and each of them, with full power to each of
substitution, as proxies and attorneys-in-fact, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of ESS Technology, Inc. to be held on May 31, 2001 at 2:00 p.m. local time, at
the Westin Hotel, 5101 Great America Parkway, Santa Clara, CA 95054, and at any
adjournment or postponement thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth on the reverse side.
The Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows: (1) FOR the Election of Directors in the
manner described in the Proxy Statement, (2) FOR the proposal to approve an
amendment to the 1995 Employee Stock Purchase Plan to improve the administration
of the 1995 Employee Stock Purchase Plan and increase the numbers of shares of
Common Stock authorized for issuance thereunder by 300,000 shares, (3) FOR the
proposal to approve an amendment to the 1997 Equity Incentive Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by
2,500,000 shares, (4) FOR the amendments to the Company's 1995 Directors' Stock
Option Plan, to increase the number of shares of Common Stock reserved for
issuance thereunder by 300,000 shares and (5) FOR the proposal to ratify the
selection of PricewaterhouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 2001.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
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Please mark
votes as in
this example [X]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR ALL NOMINEES FOR DIRECTORS AND PROPOSALS 2, 3 AND 4.
1. Election of Directors FOR WITHHELD FOR AGAINST ABSTAIN
Nominees: Fred S.L. Chan, [ ] [ ] 3. To approve amendments to the 1997 [ ] [ ] [ ]
Annie M.H. Chan, Matthew Fong, Equity Incentive Plan to increase
Robert Blair, David Lee, the number of shares of Common Stock
Peter T. Mok, and Dominic Ng reserved for issuance thereunder
by 2,500,000 shares.
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For all nominees except as noted above FOR AGAINST ABSTAIN
4. To approve amendments to the [ ] [ ] [ ]
FOR AGAINST ABSTAIN 1995 Directors Stock Option Plan.
2. To approve amendments to the 1995 [ ] [ ] [ ]
Employee Stock Purchase Plan to FOR AGAINST ABSTAIN
improve the administration of the 5. To ratify the appointment of [ ] [ ] [ ]
1995 Employee Stock Purchase Plan PricewaterhouseCoopers LLP as
and increase the number of shares of independent accountants of the
Common Stock reserved for issuance Company for the fiscal year
thereunder by 300,000 shares. ending December 31, 2001.
and, in their discretion, the proxies are authorized to
vote on such other business as may properly come before
the meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
SIGNATURE(S) DATE
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PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. Where shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership by authorized person.
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