SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CHIPS AND TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
DENISE HOOPER
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11.
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction.
---------------------------------------------------------------
[ ] 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 number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------
CHIPS AND TECHNOLOGIES, INC.
2950 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 10, 1994
To the Stockholders of Chips and Technologies, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of
Chips and Technologies, Inc., will be held on November 10, 1994, at 3:30 p.m. at
the Sheraton San Jose Hotel, 1801 Barber Lane, Milpitas, California 95035 for
the following purposes:
1. To elect one (1) Class II director.
2. To consider a proposal to amend and restate the Chips and
Technologies, Inc. 1985 Stock Option Plan (the "Option Plan") to modify certain
provisions in order to comply with changes in applicable laws and to renew the
Option Plan which will otherwise terminate on January 11, 1995.
3. To consider a proposal to ratify the appointment of Price Waterhouse
LLP as the independent accountants of the Company for the fiscal year ending
June 30, 1995.
4. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on September 12, 1994
are entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours at the Sheraton San Jose Hotel, 1801 Barber Lane, Milpitas, California
95035.
By Order of the Board of Directors
Jeffery Anne Tatum, Secretary
San Jose, California
September 30, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK
MAY BE REPRESENTED AT THE MEETING.
CHIPS AND TECHNOLOGIES, INC.
2950 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of Chips
and Technologies, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held November 10, 1994, or any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement and accompanying proxy are being first sent to stockholders
on approximately September 30, 1994.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended June 30,
1994 is enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of
business on September 12, 1994 will be entitled to vote at the meeting and any
adjournment thereof. As of that date, there were 16,900,893 shares of Common
Stock and 122,845 shares of Series A Preferred Stock of the Company issued and
outstanding. Each holder of shares of Common Stock or Series A Preferred Stock
is entitled to one (1) vote for each share of stock held by him or her on the
proposals presented in this Proxy Statement. Stockholders may vote in person or
by proxy. The Company's Bylaws provide that a majority of all of the shares of
stock entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne
by the Company. In addition to soliciting stockholders by mail through its
regular employees, the Company will request banks and brokers to solicit
customers of theirs who have stock of the Company registered in the names of
such banks and brokers or their nominees, and will reimburse such banks and
brokers for their reasonable, out-of-pocket costs. The Company may use the
services of its officers, directors, and others, including professional proxy
solicitors, to solicit proxies, personally or by telephone.
Voting of Proxies. All valid proxies received prior to the meeting will
be voted. All shares represented by a proxy will be voted and, where a
stockholder specifies by means of the proxy a choice with respect to any matter
to be acted upon, the shares will be voted in accordance with the specification
so made. If no choice is indicated on the proxy, the shares will be voted for
each nominee and in favor of each proposal. A stockholder giving a proxy has the
power to revoke his or her proxy at any time prior to the closing of the polls
at the meeting by delivery to the Secretary of the Company of a written
instrument revoking the proxy or a duly executed proxy with a later date, or by
attending the meeting and voting in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock owned on June 30, 1994 by (i) each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director and director nominee of the Company, (iii) the two individuals who
served as the Chief Executive Officer during fiscal 1994, and the other most
highly compensated executive officers whose compensation is disclosed under the
caption "Executive Compensation and Other Matters," and (iv) all executive
officers and directors of the Company as a group.
SHARES OWNED (1)
---------------------------
NUMBER PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS OF SHARES OF CLASS
- - ---------------------------------------------- ------------ ----------
Gordon A. Campbell(2) ........................ 1,638,290(3) 9.33
James F. Stafford ............................ 502,077(4) 2.89
Keith Angelo ................................. 195,503(5) 1.14
Gene P. Carter ............................... 120,179(6) *
Richard E. Christopher ....................... 140,000(7) *
Scott E. Cutler .............................. 132,631(8) *
Henri A. Jarrat(9) ........................... 0 *
Morris E. Jones, Jr .......................... 475,637(10) 2.78
Lawrence A. Roffelsen ........................ 155,000(11) *
Bernard V. Vonderschmitt ..................... 36,300(12) *
All directors and executive officers
as a group (12 persons) .................... 3,665,717(13) 18.99%
* Represents less than 1%
1 Unless otherwise indicated below, the persons and entities named in the
above table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
2 The address of Mr. Campbell is 404 Tasman Drive, Sunnyvale, California
94089.
3 Includes 675,000 shares subject to immediately exercisable options.
Includes 82,605 unvested shares.
4 Includes 500,000 shares subject to immediately exercisable options.
Includes 189,584 unvested shares.
5 Includes 194,500 shares subject to immediately exercisable options.
Includes 111,359 unvested shares.
6 Includes 70,000 shares subject to immediately exercisable options.
Includes 32,397 unvested shares.
7 All shares are subject to an immediately exercisable option.
Includes 81,563 unvested shares.
8 Includes 125,000 shares subject to immediately exercisable options.
Includes 47,815 unvested shares.
9 Mr. Jarrat was appointed a director of the Company in August 1994, at
which time he was granted an option to purchase 20,000 shares, all of
which are unvested.
10 Includes 255,000 shares subject to immediately exercisable options.
Includes 76,669 unvested shares.
11 All shares are subject to an immediately exercisable option.
Includes 93,959 unvested shares.
12 Includes 35,000 shares subject to immediately exercisable options.
Includes 21,147 unvested shares.
13 Includes 2,419,500 shares subject to immediately exercisable options.
Includes 953,453 unvested shares.
PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
Pursuant to the Bylaws and actions of the Board of Directors, five (5)
directors constitute the full Board of Directors. The directors are divided into
three classes, with one class to be elected for a three year term at each annual
meeting of stockholders. Gordon A. Campbell and Gene P. Carter, whose terms
expire in 1995, currently serve as the Class I directors. Bernard V.
Vonderschmitt was appointed a Class II director in August 1992 and his term
expires in 1994. Henri A. Jarrat was appointed a Class III director in August
1994. The terms of Mr. Jarrat and James F. Stafford, the other Class III
director, will expire in 1996.
At the Annual Meeting of Stockholders, one (1) director, Bernard V.
Vonderschmitt, is nominated for election to Class II of the Board of Directors,
to hold office until the earlier to occur of (i) the meeting of stockholders to
be held in 1997 and the election and qualification of a successor, or (ii) a
resignation or the vacancy of office as a result of death, removal, or other
cause in accordance with the Bylaws of the Company.
If a quorum is present and voting, the nominee for the Class II
director receiving the highest number of votes will be elected as the Class II
director. Abstentions and shares held by brokers that are present, but not voted
because the brokers were prohibited from exercising discretionary authority,
i.e., "broker non-votes," will be counted as present in determining if a quorum
is present.
Certain information concerning the current directors, including the
Class II nominee to be elected at this meeting, is set forth below.
Director Position with the Company Age Term
- - ------------------------ ---------------------------- --- ------------------------------------
Gordon A. Campbell Chairman of the Board 50 Director since 1984; term ends 1995.
Gene P. Carter Director 60 Director since 1988; term ends 1995.
Henri A. Jarrat Direct 56 Director since 1994; term ends 1996.
James F. Stafford President, Chief Executive
Officer and Director 50 Director since 1993; term ends 1996.
Bernard V. Vonderschmitt Director 71 Director since 1992; term ends 1994.
Mr. Campbell is a founder of the Company and has served as a director
and Chairman of the Board since December 1984, and as President and Chief
Executive Officer from January 1985 through July 1993. He is a founder of
Techfarm, Inc. and The LAN Guys, Inc., and has served as President and Chairman
of the Board for both companies since August 1993. Mr. Campbell was a founder of
Seeq Technology, Inc., a semiconductor manufacturer, and from January 1981 to
October 1984, he served as that company's President and Chief Executive Officer.
From January 1976 to January 1981, he served in various management positions at
Intel, a semiconductor manufacturer, most recently as Marketing Manager, Special
Products Division. Mr. Campbell also serves as a director on the boards of
directors of 3Com Corporation and Bell Micro Devices.
Mr. Carter has served as a director of the Company since March 1988.
From August 1977 to September 1984, Mr. Carter served as Vice President of Sales
for Apple Computer, Inc. He has been self-employed as a private investor since
1984. Mr. Carter also serves as a director on the board of directors of Adobe
Systems, Inc.
Mr. Jarrat was appointed to the Board of Directors in August 1994. He
is currently President of Jarrat Global Enterprises, Inc. From 1983 to 1987, he
served as President and Chief Operating Officer of VLSI Technology, Inc., and
for seven years prior to 1983, he served at Motorola, Inc. as a Corporate Vice
President and General Manager.
Mr. Vonderschmitt has served as a director of the Company since August
1992. He is a co-founder of Xilinx, Inc. and has served as its President since
February 1984. Prior to founding Xilinx, he spent two and one-half years at
Zilog, Inc., then a subsidiary of Exxon, as Vice President and General Manager
of the Microprocessor Division. Prior to joining Zilog, he was with RCA for more
than twenty years in mostly technical management positions. During his last
seven years at RCA, Mr. Vonderschmitt served as Vice President and General
Manager of the Solid State Division. Mr. Vonderschmitt also serves as a director
on the boards of Xilinx, Inc., IMP, Inc., Sanmina, Inc. and Credence Systems
Corporation.
Mr. Stafford was appointed to the Board of Directors in August 1993 and
was named President and Chief Executive Officer in July 1993. Mr. Stafford
served as Acting Chief Financial Officer from April 1993 until December 31,
1993. He previously served as Senior Vice President and Chief Operating Officer
from January 1992 to July 1993, as Senior Vice President, Product Line
Operations from February 1990 to January 1992, as Vice President, Product Line
Operations from July 1989 to February 1990, as Vice President, Operations from
December 1985 to July 1989, and as Director of Operations from January 1985 to
December 1985.
During the fiscal year ended June 30, 1994, the Board of Directors held
twelve (12) meetings. No director attended fewer than 75% of such meetings of
the Board of Directors and the committees on which he serves.
There are two (2) committees of the Board of Directors: the Audit
Committee and the Compensation Committee.
The Audit Committee's function is to review with the independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services performed by the independent accountants and related fees,
recommend the retention of the independent accountants to the Board, subject to
ratification by the stockholders, and periodically review the Company's
accounting policies and internal accounting and financial controls. The members
of the Audit Committee are Bernard Vonderschmitt and Gene Carter. During the
fiscal year ended June 30, 1994, the Audit Committee held one (1) meeting.
The Compensation Committee's function is to review and recommend salary
levels and stock option grants for officers and other employees of the Company.
The members of the Compensation Committee are Bernard Vonderschmitt and Gene
Carter. During the fiscal year ended June 30, 1994, the Compensation Committee
held five (5) meetings.
EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
of the two individuals who served as Chief Executive Officer of the Company
during fiscal 1994, and the five other most highly compensated executive
officers of the Company as of June 30, 1994 whose total salary and bonus for the
fiscal year ended June 30, 1994 exceeded $100,000 during the fiscal years ended
June 30, 1992, 1993, and 1994:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation --------------
------------------------------------------- Awards
------
Name and Principal Fiscal Other Annual Options/
Position Year Salary Bonus Compensation Shares
- - ---------------------------- ------ -------- ----- ------------ -----------
Gordon A. Campbell 1994 $123,857 $0 $230,217(1) 125,000(2)
Chairman of the 1993 $337,513 $0 (3) 350,000(4)
Board (5) 1992 $325,013 $0 (3) 200,000
James F. Stafford 1994 $225,009 $0 (3) 125,000
President, Chief Executive 1993 $181,924 $0 (3) 275,000(6)
Officer and Acting Financial 1992 $178,007 $0 (3) 0
Officer (7)
Keith Angelo 1994 $141,755 $0 (3) 50,000
Vice President, Marketing (9) 1993 $125,682 $0 (3) 165,000(8)
1992 $88,404 $0 (3) 15,000
Richard E. Christopher 1994 $158,440 $0 (3) 35,000
Vice President, Sales (10) 1993 $149,121 $0 (3) 180,000(11)
1992 $0 $0 (3) 0
Scott E. Cutler 1994 $156,006 $0 (3) 20,000
Vice President, Software 1993 $147,006 $0 (3) 65,000(12)
Technology 1992 $143,005 $0 (3) 10,000
Morris E. Jones, Jr. 1994 $178,506 $0 (3) 35,000
Senior Vice President, 1993 $170,715 $0 (3) 150,000(13)
Advanced Products and 1992 $170,006 $0 (3) 50,000
Chief Technical Officer
Lawrence A. Roffelsen 1994 $141,755 $0 (3) 50,000
Vice President, 1993 $64,430 $0 (3) 105,000
Engineering (14) 1992 $0 $0 (3) 0
<FN>
1 Represents amount earned pursuant to severance agreement. See "Certain
Transactions and Other Relationships."
2 Includes an option to purchase 100,000 shares granted on August 17,
1993, which had an exercise price of $6.05 per share and which expired
on August 31, 1994.
3 The total amount of personal benefits paid to the named executive
officers during the fiscal year was less than the lesser of (i) $50,000
and (ii) 10% of each such executive officer's total reported salary and
bonus.
4 Includes an option to purchase 100,000 shares granted on July 27, 1992
at 110% of the fair market value on the date of grant, replacing an
option granted in fiscal 1991 which was surrendered. The surrendered
option was about to expire and had an exercise price significantly in
excess of fair market value.
5 Mr. Campbell resigned as President and Chief Executive Officer in July
1993. Mr. Campbell remains Chairman of the Board.
6 Includes options to purchase 50,000 shares which were repriced on
August 3, 1992, replacing options granted in fiscal 1991.
7 Mr. Stafford was promoted to President and Chief Executive Officer in
July 1993, and he remained acting Chief Financial Officer until January
1994.
8 Includes options to purchase 105,000 shares which were repriced on
August 3, 1992, replacing options granted in fiscal years 1991, 1992
and 1993.
9 Mr. Angelo was promoted to Vice President, Marketing on November 5,
1992.
10 Mr. Christopher commenced his employment with the Company on July 6,
1992.
11 Includes options to purchase 75,000 shares which were repriced on
August 3, 1992, replacing options granted in fiscal 1993 which are also
included in the above table and which were canceled.
12 Includes options to purchase 10,000 shares which were repriced on
August 3, 1992, replacing options granted in fiscal 1992 which are also
included in the above table and which were canceled.
13 Includes options to purchase 100,000 shares which were repriced on
August 3, 1992, replacing options granted in fiscal 1991 and 1992 which
were canceled, including options to purchase 50,000 shares granted in
1992 which are also included in the above table.
14 Mr. Roffelsen's promotion to Vice President, Engineering was ratified
on January 7, 1993.
STOCK OPTIONS GRANTED IN FISCAL 1994
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock made during the fiscal
year ended June 30, 1994, to the persons named in the Summary Compensation
Table.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants in Fiscal 1994 Option Term(1)
- - -------------------------------------------------------------------------------------- ---------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- - ------------------------ --------- ------------ ----------- ---------- ------- ----------
Gordon A. Campbell 100,000 6.01% $ 6.05 08/31/94 0.00 0.00
20,000 1.20% 4.00 08/18/98 22,102 48,841
5,000 0.30% 5.75 11/10/98 7,943 17,552
James F. Stafford 125,000 7.51% 4.00 06/23/04 314,447 796,871
Keith Angelo 50,000 3.00% 4.625 05/27/04 145,432 368,553
Richard E. Christopher 35,000 2.10% 4.625 05/27/04 101,802 257,987
Scott E. Cutler 20,000 1.20% 4.625 05/27/04 58,172 147,421
Morris E. Jones, Jr. 35,000 2.10% 4.625 05/27/04 101,802 257,987
Lawrence A. Roffelsen 50,000 3.00% 4.625 05/27/04 145,432 368,553
<FN>
(1) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission's
rules. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Company, overall market conditions and
the optionholders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
Options Exercises and Fiscal 1994 Year-End Values
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in the fiscal year
ended June 30, 1994, and unexercised options held as of June 30, 1994, by the
persons named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at 6/30/94 at 6/30/94(1)(2)
--------------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable(1) Unexercisable Exercisable Unexercisable
- - ----------------------------------------------------------------------------------------------------------------------
Gordon A. Campbell 0 $0 675,000 82,605 $0 $0
James F. Stafford 0 $0 500,000 189,584 $21,094 $7,031
Keith Angelo 8,000 $9,500 194,500 111,359 $3,625 $1,875
Richard E. Christopher 0 $0 140,000 81,563 $5,625 $1,875
Scott E. Cutler 0 $0 125,000 47,815 $5,625 $1,875
Morris E. Jones, Jr. 0 $0 255,000 76,669 $9,375 $3,125
Lawrence A. Roffelsen 0 $0 155,000 93,959 $10,312 $3,438
<FN>
1 Generally, Company stock options are immediately exercisable at date of
grant, but vest over a four year period at the rate of 1/8th six (6)
months after the date of hire for initial grants and 1/48 one (1) month
after the date of grant for current employees, and 1/48th per month
thereafter for each full month of the optionee's continuous employment
with the Company. In addition, certain of the listed options vest based
upon the Company attaining profitability. The table indicates the
amount of such options which are unvested under the caption
"Unexercisable".
2 Based on a value of $3.75 per share which was the closing price of the
Company's Common Stock on June 30, 1994. The value shown is for all
outstanding options which have an exercise price below the closing
price on June 30, 1994 of the Company's Common Stock regardless of
vesting restrictions.
CHANGE OF CONTROL ARRANGEMENTS
Options granted under the Company's Amended and Restated 1985 Stock
Option Plan and the Company's 1988 Nonqualified Stock Option Plan for Outside
Directors (the "Outside Directors Plan") contain provisions pursuant to which,
under certain circumstances, all outstanding options granted under such plans
shall become fully vested and immediately exercisable upon a "transfer of
control" as defined in such plans. See "Changes to Benefit Plans" and "PROPOSAL
TWO - AMENDED AND RESTATED CHIPS AND TECHNOLOGIES, INC. 1985 STOCK OPTION PLAN."
COMPENSATION OF DIRECTORS
The Company's outside directors each receive $1,500 for each Board of
Directors meeting which the director attends. In addition, each receives $1,000
for each committee meeting of the Board of Directors he attends which is held
separately from a Board meeting and $500 for each committee meeting he attends
that is held consecutively with a Board meeting. See "Certain Transactions and
Other Relationships."
The Company's Outside Directors Plan currently provides that upon the
effective date of the Outside Directors Plan or initial election to the Board of
Directors, each non-employee director (an "Outside Director") will receive a
one-time grant of an option to purchase 20,000 shares of the Company's Common
Stock and an additional grant of an option to purchase 10,000 shares of the
Company's Common Stock on each anniversary of his or her tenure as an Outside
Director. The Chairman of the Board receives a stock option to purchase 5,000
shares of the Company's Common Stock on each anniversary of his tenure as
Chairman, and each director receives a stock option to purchase 2,500 shares of
the Company's Common Stock each year for each committee of the Board of
Directors on which a director serves.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In July 1993, Gordon Campbell terminated his employment as President
and Chief Executive Officer of the Company. In connection with his termination,
Mr. Campbell and the Company agreed that, in exchange for the provision by Mr.
Campbell of certain consulting services to the Company and a release of any
claims against the Company, the Company would (1) pay Mr. Campbell $27,084 per
month for one year; (2) extend his medical benefits for up to one year; (3)
accelerate the vesting of 76,633 shares of Company stock under stock options
previously granted Mr. Campbell; (4) extend vesting eligibility for 250,000
shares under a performance-based option; and (5) extend the exercise date of Mr.
Campbell's vested stock options to August 31, 1994. The Board of Directors
retained the right to terminate the foregoing agreement with Mr. Campbell in the
event he did not perform the consulting services to which he agreed. In May
1994, the Board of Directors extended to August 31, 1995 the exercise date of
550,000 shares of Company stock under stock options previously granted Mr.
Campbell, which included the options for 76,633 shares and 250,000 shares
described above in (3) and (4), respectively.
CERTAIN TRANSACTIONS AND OTHER RELATIONSHIPS
In February 1989, the Company loaned $412,018.75 at an interest rate of
8% per annum to Marc E. Jones, a former executive officer of the Company. The
due date for the loan, initially February 1990, was extended during the period
of Mr. Jones' employment and, in connection with his termination in January
1993, the due date for the balance of the loan was extended to January 1994, the
interest rate was changed to 5% per annum, and the exercise date of Mr. Jones'
vested options was extended for a period of twelve (12) months following his
termination date. Mr. Jones repaid the remaining balance in full, including
accrued interest, in the amount of $253,076.92, and the note was retired as of
April 17, 1994.
In August 1989, the Company loaned $74,937 at an interest rate of 9%
per annum to Enzo N. Torresi, a former director of the Company, which he used to
exercise a portion of his stock options. The due date for the balance of the
loan was initially August 1990, but such due date was subsequently extended to
August 1991, August 1992 and August 1993, respectively. In August 1992, the
interest rate on the note was changed to 8.2% per annum. Mr. Torresi repaid the
remaining balance in full, including accrued interest, in the amount of $28,600,
and the note was retired in September 1993.
In connection with the relocation of Scott E. Cutler, an executive
officer of the Company, the Company purchased a house in May 1991 and agreed to
lease the house to Mr. Cutler. The lease currently extends through December 1994
at a monthly rental of $2,000, which the Board of Directors believes to be the
fair market value. At the end of the lease, Mr. Cutler may elect to purchase the
house from the Company at a price equal to the price paid by the Company plus
the Company's incremental cost, less any rent paid by Mr. Cutler.
In connection with the relocation of Lee Barker, an executive officer
of the Company, in September 1992, the Company provided relocation assistance
and moving expenses to Mr. Barker in the amount of $16,793. The Company also
agreed to provide Mr. Barker mortgage assistance in the amount of $1,500 per
month from October 28, 1992 through October 27, 1993, $1,000 per month from
October 28, 1993 through October 27, 1994, and $500 per month from October 28,
1994 through October 27, 1995, unless Mr. Barker's employment terminates earlier
for cause or voluntarily. In October 1992, the Company loaned $30,000 to Mr.
Barker at an interest rate of 8% per annum which was due on October 5, 1993. In
November 1993, the Board of Directors extended the due date to September 1,
1994. Mr. Barker repaid the remaining balance in full, including accrued
interest, in the amount of $34,682.73, and the note was retired as of August,
1994.
During 1993, several executive officers terminated their employment
with the Company, specifically Gary P. Martin, Chief Financial Officer, in April
1993, Gordon A. Campbell, President and Chief Executive Officer, in July 1993,
and Nancy S. Dusseau and Jeffrey A. Grammer in August 1993. In connection with
these terminations, each officer entered into an agreement with the Company
which provided that, in exchange for the provision by the former officer of
certain consulting services to the Company and a release of any claims against
the Company, the Company would pay certain benefits, including extending medical
benefits for up to one year. The agreement with Mr. Martin provided that the
Company would (1) pay Mr. Martin $13,917 per month for one year, reduced by any
income earned by Mr. Martin through other employment; and (2) extend the
exercise date of Mr. Martin's vested stock options to April 11, 1994. In
September 1993, Mr. Martin accepted a position with another employer and the
Company's monthly payments to him were reduced to $2,250 and ceased in April
1994. The agreements with Ms. Dusseau and Mr. Grammer provide that the Company
would (1) pay Ms. Dusseau $11,667 per month and Mr. Grammer $12,167 per month,
each for nine months; (2) accelerate the vesting of 54,588 and 22,271 shares of
Company stock under stock options previously granted Ms. Dusseau and Mr.
Grammer, respectively; and (3) extend the exercise date of their vested stock
options to August 14, 1994. For the terms of the agreement with Mr. Campbell,
see "Employment Contracts and Termination of Employment Arrangements."
In September 1993, the Company entered into an asset sale agreement
(the "Agreement") with Techfarm, Inc. ("Techfarm"). Techfarm is a corporation
whose principal shareholders are Gordon A. Campbell, the Company's former
President and Chief Executive Officer, and two other former executive officers
of the Company. Mr. Campbell is the Company's Chairman of the Board. Pursuant to
the Agreement, Techfarm purchased certain of the Company's assets, including the
Company's interest in its Russian joint venture, Summit Systems ("Summit"), the
Company's ethernet and token ring technology, and the technology associated with
the Company's development of future multimedia products. The Company received a
license back to the ethernet and multimedia technology for future products and
agreed that, for a period of five (5) years, it will not engage directly in any
of the businesses conducted by the networking business or the Summit business as
of the date of the Agreement. In connection with the purchase, Techfarm assumed
certain of the Company's liabilities, including the liabilities associated with
the termination of interests in Summit other than the Company's and the
liabilities under any contracts assumed by Techfarm, including certain joint
development contracts. In exchange for the foregoing assets, Techfarm paid the
Company $100,000 in cash and delivered a promissory note for $1,615,000. The
note bears interest at 10% per annum and the principal and any accrued interest
are payable in four installments, one every six months. The first installment
was paid March 31, 1994. The note is secured by the stock of the Techfarm
subsidiary which now operates Summit and by certain other of the acquired
assets. The Agreement, which was entered into after the Company's decision to
discontinue these businesses, was unanimously approved by the disinterested
members of the Company's Board of Directors, after consideration of all
available options. Mr. Campbell abstained from the vote. In March 1994, the
Company and Techfarm entered into the following agreements: (i) a loan and
security agreement among the Company, Techfarm, Chips & Technologies J.V. Cyprus
Limited ("Chips Cyprus") and Summit; (ii) a secured continuing guarantee between
Techfarm and the Company; and (iii) a secured promissory note from Chips Cyprus
and Summit in favor of the Company. Pursuant to these agreements, Chips Cyprus
and Summit became the principal obligors on the promissory note to the Company,
with Techfarm as guarantor, and all security intact. The terms of the new note
are substantially the same as those of the note originally delivered to the
Company by Techfarm.
In August 1994, the Company loaned $100,000 at an interest rate of 7%
per annum to Keith Angelo, an executive officer of the Company. The outstanding
balance of the loan will be forgiven at a rate of 25% per year as Mr. Angelo
continues his employment with the Company. If he voluntarily leaves his
employment with the Company or if Mr. Angelo's employment is terminated for
cause before August 1, 1998, the outstanding balance must be repaid in full at
that time.
In August 1994, the Company entered into an independent contractor
agreement (the "Contractor Agreement") with Jarrat Global Enterprises, Inc.
("JGE"), a corporation whose principal shareholder is Henri A. Jarrat, a
director of the Company. Pursuant to the Contractor Agreement, JGE will receive
$8,000 per month, plus stock options in an amount to be determined by the
Company's Board of Directors, as compensation for Mr. Jarrat providing the
Company with requested business advice, including management consulting in
specific areas, until November 1996, unless terminated earlier by either party.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were complied with during the
fiscal year ended June 30, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during fiscal 1994 was composed of two
independent, non-employee directors of the Company, Gene P. Carter and Enzo N.
Torresi who, upon his resignation from the Board, was replaced by Bernard V.
Vonderschmitt. See "REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION."
On August 11, 1994, the Board of Directors amended and restated the
Option Plan, which will otherwise expire on January 11, 1995, and renamed the
Option Plan the "Amended and Restated Chips and Technologies, Inc. 1994 Stock
Option Plan" (the "1994 Option Plan"), subject to approval by the Company's
stockholders. The 1994 Option Plan is an amended and restated version of the
Option Plan and will have a ten-year term extending from the date of its
approval by the Board, if approved by the stockholders. The 1994 Option Plan is
designed to comply with (i) the Securities and Exchange Commission's Rule 16b-3
(exempting certain transactions by corporate insiders from Section 16
"short-swing" profit liability), and (ii) recent changes to Internal Revenue
Code Section 162(m). The 1994 Option Plan gives the Board broad discretionary
authority in administering the 1994 Option Plan and in granting options. See
"PROPOSAL TWO - APPROVAL OF AMENDMENT TO AMENDED AND RESTATED CHIPS AND
TECHNOLOGIES, INC. 1985 STOCK OPTION PLAN" for a discussion of the proposed
amendments to the various features of the Option Plan. The following table sets
forth grants of stock options received under the Option Plan, as amended, during
the fiscal year ended June 30, 1994 by (i) the two individuals who served as
Chief Executive Officer of the Company during fiscal 1994, and the five other
most highly compensated executive officers of the Company as of June 30, 1994;
(ii) all current executive officers as a group; (iii) all current directors who
are not executive officers as a group; (iv) all employees, including all
officers who are not executive officers, as a group. Grants under the 1994
Option Plan are to be made at the discretion of the Board of Directors.
Accordingly, future grants under the 1994 Option Plan are not yet determinable.
NEW PLAN BENEFITS
Chips and Technologies Inc. Amended and
Restated 1985 Stock Option Plan(1)
Exercise Price(2) Number of
Name and Position (per share) Shares
- - ---------------------------- ----------------- ---------
Gordon A. Campbell(3) $ 6.05 100,000
Chairman of the Board $ 4.00 20,000
$ 5.75 5,000
James E. Stafford $ 4.00 125,000
President, Chief Executive
Officer and Acting Chief Financial Officer
Keith Angelo $ 4.625 50,000
Vice President, Marketing
Richard E. Christopher $ 4.625 35,000
Vice President, Sales
Scott E. Cutler $ 4.625 20,000
Vice President, Software Technology
Morris E. Jones, Jr. $ 4.625 35,000
Senior Vice President, Advanced Products and
Chief Technical Officer
Lawrence A. Roffelsen $ 4.625 50,000
Vice President, Engineering
Executive Officer Group $4.00 - $6.25 490,000
(8 persons)
Non-Executive Director $ 3.875 100,000
Group (3 persons)
Non-Executive Officer $3.875 - $6.25 983,600
Employee Group (177 persons)
1 Employees, directors and individuals who are rendering services as
consultants, advisors, or other independent contractors to the Company
are eligible to participate in the Option Plan.
2 Future exercise prices of options are unknown, as they are based upon
fair market value at the date of grant.
3 Mr. Campbell resigned as the Company's President and Chief Executive
Officer in July 1993, but remains Chairman of the Board.
REPORT OF THE COMPENSATION COMMITTEE ON THE
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Compensation Committee is composed of two independent, non-employee
directors of the Company, neither of whom are former employees of the Company.
During fiscal 1994, the Committee members were Gene P. Carter, Enzo N. Torresi,
until September 1993, and Bernard V. Vonderschmitt for the balance of the year.
The Committee is responsible for setting and administering the policies
governing the annual compensation of the Company's executive officers, including
cash compensation and stock option programs.
COMPENSATION PHILOSOPHY
The Compensation Committee strives to align executive compensation with
the value achieved by the executive team for the Company's stockholders. Toward
that goal, the Company's compensation program emphasizes both short and
long-term incentives designed to attract, motivate, and retain highly qualified
executives who will effectively manage the Company and maximize stockholder
value. The Company uses salary, executive officer bonuses and stock options to
motivate executive officers to achieve the Company's business objectives and to
align the incentives of officers with the long-term interests of stockholders.
The Committee reviews and evaluates each executive officer's base and variable
compensation annually relative to corporate performance and comparative market
information.
In setting total compensation, the Committee considers individual and
Company performance, as well as market information in the form of published
survey data provided to the Committee by the Company's human resources staff.
The market data consists primarily of base salary and total cash compensation
rates, as well as incentive bonus and stock programs, of companies considered by
the Committee to be comparable companies in the semiconductor industry. The
Committee's policy is to generally target levels of cash and equity compensation
paid to its executive officers at approximately five percent above the average
of such compensation paid by comparable companies in the semiconductor industry.
The Company has considered the potential impact of Section 162(m)
("Section 162(m)") of the Internal Revenue Code adopted under the federal
Revenue Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for
any publicly-held corporation for individual compensation exceeding $1 million
in any taxable year for any of the named executive officers, unless compensation
is performance-based. Since the targeted cash compensation of each of the named
executive officers is well below the $1 million threshold and the Company
believes that any options granted under the Option Plan will meet the
requirement of being performance-based in accordance with the regulations under
Section 162(m), the Committee believes that Section 162(m) will not reduce the
tax deduction available to the Company. The Company's policy is to qualify to
the extent reasonable its executive officers' compensation for deductibility
under applicable tax laws.
FORMS OF COMPENSATION
Specific executive compensation elements and the factors on which they were
based are:
BASE SALARY. The Committee reviews the performance and sets the
salary of all executive officers on an annual basis. In making its decisions,
the Committee considers the evaluations and recommendations of the Chief
Executive Officer as to the performance, attainment of goals and objectives,
contribution to the Company and salary of each of the Company's other officers.
In making its decision regarding the Chief Executive Officer's compensation, the
Committee reviews the Chief Executive Officer's performance and sets his salary
independently, after considering his performance, contribution to the Company
and the salary levels for chief executive officers at comparable companies.
* BONUS. The Company seeks to provide short term incentives through
bonuses to executives who make contributions of outstanding value to the
Company. The Company has in the past awarded bonuses which comprised a
substantial portion of total compensation; however, the Company and the
Committee decided it was generally not appropriate to pay bonuses unless the
Company achieved profits from operations or attained specific performance
targets. For that reason the Company did not award bonuses to executive officers
in fiscal 1994.
* LONG-TERM INCENTIVES. Longer term incentives are provided through the
Amended and Restated Chips and Technologies, Inc. 1985 Stock Option Plan (the
"Option Plan") and the Company's Employee Stock Purchase Plan (the "Purchase
Plan"). Both the Option Plan and the Purchase Plan reward executives through the
growth in the value of the Company's stock. All of the Company's employees are
eligible to participate in the Option Plan and the Purchase Plan. Stock options
are granted upon hire and annually after performance reviews depending on
individual performance and contribution.
At the commencement of an executive officer's employment, and
periodically thereafter, the Chief Executive Officer recommends to the Committee
an award of stock options under the Option Plan. The Committee grants stock
options at the market price for the Company's Common Stock on the date of grant.
Therefore, such grants will only have value if the Company's Common Stock price
increases over the exercise price. The Committee believes that stock options
serve to align the incentives of executive officers with the interests of
stockholders because of the direct benefit executive officers receive through
improved stock performance. Recommendations for the grant of options are based
on relative position and responsibilities of each executive officer, their
relative equity ownership and degree of vesting, and the historical and expected
contributions of each executive officer to the Company. Generally, stock options
vest over a period of four years in order to encourage executive officers to
continue their employment with the Company.
FISCAL 1994 COMPENSATION
Compensation for the Chief Executive Officer and the other executive
officers was set according to the Company's established compensation philosophy
described above. The Committee's analysis of the Company's performance in fiscal
1994 focused on several factors, including the Company's overall profitability
and operating results. The salaries in fiscal 1994 for Gordon A. Campbell and
James F. Stafford, who both served as Chief Executive Officer for portions of
fiscal 1994, and the salaries for the other executive officers, were
substantially the same as in fiscal 1993. As noted above, no bonuses were
awarded in fiscal 1994.
During fiscal 1994, the Committee decided that, in order to retain the
key employees and executive officers who remained after the significant
restructurings and management reorganization, who the Committee believed were
critical to the long term success of the Company, it was necessary to grant
additional stock options to such employees. After review of the recommendations
by management, the Committee approved the grants, with certain adjustments for a
total of 1,573,600 shares, including 440,000 shares granted to the named
executive officers. The stock options granted to executive officers, including
James F. Stafford, Chief Executive Officer, were based upon rankings of each
officer's performance and his or her expected importance to the long term
success of the Company. James F. Stafford received an option to purchase 125,000
shares, subject to the foregoing terms. The number of shares was based on Mr.
Stafford's position, relatively modest equity position in the Company, and his
expected contribution in fiscal 1995 and beyond. All other option grants become
fully vested if the employee remains with the Company for four years from the
date of grant.
THE COMPENSATION COMMITTEE
GENE P. CARTER
BERNARD V. VONDERSCHMITT
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the cumulative
total return of the H&Q Technology Index and the NASDAQ Stock Market - U.S.
Index for the period commencing on June 30, 1989, and ending on June 30, 1994.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM JUNE 30, 1989, THROUGH JUNE 30, 19941
CHIPS AND TECHNOLOGIES, INC.
[The following descriptive data is supplied in accordance with
Rule 304(d)(2) of Regulation ST]
Chips and H&Q
Technologies, Inc. NASDAQ-U.S. Technology
----------------- ----------- ----------
June 30, 1989 100.00 100.00 100.00
June 30, 1990 90.00 108.00 115.00
June 30, 1991 32.00 114.00 115.00
June 30, 1992 30.00 137.00 131.00
June 30, 1993 16.00 172.00 160.00
June 30, 1994 16.00 173.00 162.00
1 Assumes that $100.00 was invested on June 30, 1989, in the Company's
Common Stock at the price of $23.50 per share and at the closing sales
price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on the Company's
Common Stock. Stockholder returns over the indicated period should not
be considered indicative of future stockholder returns.
PROPOSAL TWO
AMENDED AND RESTATED CHIPS AND TECHNOLOGIES, INC. 1985 STOCK OPTION PLAN
The Company established the Option Plan in January 1985. The purpose of
the Option Plan is to encourage stock ownership by employees, directors and
consultants of the Company or any parent or subsidiary corporation of the
Company, to give them a greater personal interest in the success of the business
and to provide added incentive to continue and advance in their employment or
service to the Company. On January 8, 1987, the Board of Directors amended and
restated the Option Plan to conform to certain changes in governing law effected
by the Tax Reform Act of 1986. On August 11, 1994, the Board of Directors
amended and restated the Option Plan, extended its term and renamed the Option
Plan the "Amended and Restated Chips and Technologies, Inc. 1994 Stock Option
Plan." Amendments were made to the Option Plan including those described below,
subject to approval by the Company's stockholders. Since the inception of the
Option Plan, 17,200,000 shares of Common Stock have been reserved for issuance
under the Option Plan. Of the total number of shares reserved, as of June 30,
1994, 4,840,422 shares of Common Stock were reserved for issuance upon the
exercise of outstanding options at a weighted average exercise price of $4.75
per share with exercise prices ranging from $3.125 to $9.75, and 1,885,673
shares of Common Stock remained available for future option grants. See "BOARD
OF DIRECTORS -- Executive Compensation" for additional information regarding
grants and exercises of options under the Option Plan.
PROPOSED AMENDMENTS TO THE OPTION PLAN
The proposed amendments provide that all options must be granted, if at
all, by August 11, 2004. The Option Plan would otherwise expire on January 11,
1995.
The Revenue Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended (the "Code"). Under Section 162(m),
the allowable deduction for compensation paid or accrued with respect to the
chief executive officer and each of the four most highly compensated executive
officers of a publicly-held corporation is limited to no more than $1,000,000
per year for fiscal years beginning on or after January 1, 1994. To enable the
Company to preserve the benefit of receiving a tax deduction for the full amount
of income recognized by the Company's executive officers upon exercise of stock
options, the Board of Directors adopted an amendment to the Option Plan, subject
to stockholder approval, to impose a per-optionee share limitation of 500,000
shares per fiscal year, although Company grants typically do not approach these
limits. However, because the change in the Code is only recently enacted and
subject to clarification by the Internal Revenue Service, there can be no
assurance that the Company will be able to continue to deduct all compensation
paid to its employees.
In order for the Company to be able to obtain the advantages of using
pooling accounting in the event of a Transfer of Control (as defined in the
Option Plan), the Board of Directors also adopted an amendment to the Option
Plan, subject to stockholder approval, to provide that in the event of a
Transfer of Control the unexercisable and/or unvested portion of all outstanding
options will become immediately exercisable and vested as of a date 30 days
prior to the Transfer of Control, unless the acquiring company either assumes
the options granted under the Option Plan or else substitutes its own options
for the Option Plan options. Any options which are neither assumed or
substituted for by the acquiring company nor exercised as of the date of the
Transfer of Control will terminate effective as of the date of the Transfer of
Control.
To aid the Company's recruiting efforts, the Board of Directors also
adopted an amendment to the Option Plan, subject to stockholder approval, to
expand the eligibility provisions of the Option Plan to permit nonqualified
stock options to be granted to prospective employees, consultants and advisors.
(Incentive stock options may be granted only to actual employees.) This
amendment will enable the Company to issue an offer letter to a prospective key
employee stating that an option has been granted at a particular exercise price.
Since vesting under the option is based on employment, the prospective employee
must accept the employment offer and commence working for the Company to gain
any vested interest in such option. At the same time, an amendment was adopted
to permit the Board to provide that nonqualified stock options may be assigned
or transferred to third parties. Previously an option was exercisable only by
the optionee, except in the event of death.
The Board of Directors believes that the approval of the amendments to
the Option Plan is in the best interests of the Company and its stockholders, as
the ability to grant stock options is an important factor in attracting,
motivating and retaining qualified personnel essential to the success of the
Company; and the ability to deduct as compensation expense the gain recognized
by the Company's executive officers upon their exercise of options granted under
the Option Plan is a factor affecting the profitability of the Company.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan, including the proposed
amendments, is qualified in its entirety by the specific language of the Option
Plan, a copy of which is available to any stockholder upon request.
The Option Plan is administered by the Board of Directors and/or a duly
appointed committee of the Board of Directors which has discretion to determine
optionees, the number of shares to be covered by each option, the vesting
schedule and all other terms of the options. The maximum number of shares of the
Common Stock of the Company which may be issued upon the exercise of options
granted pursuant to the Option Plan is 17,200,000 shares (subject to adjustment
in the event of stock dividends, stock splits, reverse stock splits,
combinations, reclassifications, or like changes in the capital structure of the
Company). Of that number, 4,840,422 shares of Common Stock remained reserved for
issuance upon the exercise of outstanding options as of June 30, 1994, and
1,885,673 shares of Common Stock remained available for future option grants. No
optionee may be granted options to purchase in excess of 500,000 shares per
fiscal year (such limit to be subject to adjustment in the event of stock
dividends, stock splits, reverse stock splits, combinations, reclassifications,
or like changes in the capital structure of the Company). Absent approval of the
proposed amendments by the stockholders, there is no limit on the number of
shares that may be granted to any one optionee per fiscal year. After
stockholder approval of the proposed amendments, all options must be granted, if
at all, by August 11, 2004.
The Option Plan provides for the grant of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and nonqualified stock options.
Stock options may be granted to employees, prospective employees, directors and
consultants of the Company; provided, however, that Incentive Stock Options may
be granted only to employees. A director who is not also an employee of the
Company or any consultant may be granted only a nonqualified stock option. As of
June 30, 1994, 188 employees and consultants were eligible to participate in the
Option Plan.
All options granted under the Option Plan must have an exercise price
not less than the fair market value of the Common Stock of the Company, as
determined by the Board, on the date of grant. Any Incentive Stock Option
granted to a person who at the time of the grant owns stock comprising more than
10% of the total voting power of all classes of stock of the Company must have
an exercise price equal to at least 110% of the fair market value of the Common
Stock of the Company, as determined by the Board on the date of grant.
Options granted under the Option Plan may be exercised by payment of
the exercise price (1) in cash, by check or cash equivalent, (2) by tender to
the Company of shares of the Company's Common Stock which (a) either have been
owned by the optionee for more than six months or were not acquired, directly or
indirectly from the Company, and (b) have a value not less than the exercise
price, (3) by the optionee's recourse promissory note, if specifically permitted
by the Board and set forth in the option agreement, (4) by the assignment of the
proceeds of the sale of some or all of the shares being acquired upon the
exercise of an option, (5) by such other consideration as the Board may allow,
or (6) by any combination thereof. Incentive Stock Options granted under the
Option Plan are exercisable for a period of ten years from the date of grant. At
the discretion of the Board of Directors, nonqualified stock options granted
under the Option Plan may have a term longer than ten years. After expiration,
the shares subject to an unexercised option become available for future grants.
Unless otherwise provided by the Board of Directors, options are
exercisable at any time after grant. Shares purchased upon exercise of an option
are subject to the Company's right to repurchase the unvested portion of such
shares at their original purchase price upon termination of the optionee's
employment with the Company or the optionee's attempt to sell, exchange,
transfer, pledge or otherwise dispose of the unvested shares. Shares so
repurchased become available for future option grants. Unless otherwise
determined by the Board of Directors, the number of shares subject to the
Company's repurchase right decreases over a four-year period, commencing on the
option grant date or the optionee's date of hire, as specified by the Board of
Directors. Ordinarily, an option is exercisable, during the lifetime of the
optionee, only by the optionee, and is not transferable or assignable by the
optionee other than by will or the laws of descent and distribution; provided,
however, that the Board may provide that Nonqualified Stock Options may be
assigned or transferred to third parties.
In the event of a Transfer of Control (as defined in the Option Plan),
the unexercisable and/or unvested portion of all outstanding options will become
immediately exercisable and vested as of a date 30 days prior to the Transfer of
Control, unless the acquiring company either assumes the options granted under
the Option Plan or else substitutes its own options for the Option Plan options.
Any options which are neither assumed or substituted for by the acquiring
company nor exercised as of the date of the Transfer of Control will terminate
effective as of the date of the Transfer of Control.
The Board of Directors may terminate or amend the Option Plan at any
time; provided, however, that without the approval of the stockholders of the
Company, the Board may not amend the Option Plan to increase the number of
shares of Common Stock covered thereby, to change the class of persons eligible
to receive Incentive Stock Options or to expand the class of persons eligible to
receive nonqualified stock options.
SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation. Furthermore, the tax
consequences of options are complex and subject to change, and a taxpayer's
particular situation may be such that some variation of the described rules is
applicable.
Optionees should consult their own tax advisors prior to the exercise
of any option and prior to the disposition of any shares of Common Stock
acquired upon the exercise of an option.
INCENTIVE STOCK OPTIONS. Options designated as Incentive Stock Options
are intended to fall within the provisions of Section 422 of the Code. An
optionee recognizes no taxable income as the result of the grant or exercise of
such an option.
For optionees who do not dispose of their shares for two years
following the date the option was granted nor within one year following the
transfer of the shares upon exercise of the option, the gain on sale of the
shares (which is defined to be the difference between the sale price and the
purchase price of the shares) will be taxed as long-term capital gain. If an
optionee is entitled to a long-term capital gain treatment upon a sale of the
stock, the Company will not be entitled to any deduction for federal income tax
purposes. If an optionee disposes of shares within two years after the date of
grant or within one year from the date of exercise (a "disqualifying
disposition"), the difference between the option price and the fair market value
of the shares on the date of exercise (not to exceed the gain realized on the
sale if the disposition is a transaction with respect to which a loss, if
sustained, would be recognized) will be taxed at ordinary income rates at the
time of disposition. Any gain in excess of that amount will be a capital gain.
If a loss is recognized, there will be no ordinary income, and such loss will be
a capital loss. A capital gain or loss will be long-term if the optionee's
holding period is more than twelve months. Generally, any ordinary income
recognized by the optionee upon the disposition of the stock would be deductible
by the Company for federal income tax purposes.
The difference between the option price and the fair market value of
the shares on the determination date of an Incentive Stock Option (which is
generally the date of exercise) is an adjustment in computing the optionee's
alternative minimum taxable income and may be subject to an alternative minimum
tax which is paid if such tax exceeds the regular tax for the year. Special
rules may apply with respect to certain subsequent sales of the shares in a
disqualifying disposition, certain basis adjustments for purposes of computing
the alternative minimum taxable income on a subsequent sale of the shares and
certain tax credits which may arise with respect to optionees subject to the
alternative minimum tax.
NONQUALIFIED STOCK OPTIONS. Nonqualified stock options have no special
tax status. An optionee generally recognizes no taxable income as a result of
the grant of such an option. Upon exercise of an option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
price and the fair market value of the shares on the determination date (which
is generally the date of exercise). If the optionee is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are not vested and/or the sale of the shares at a profit would
subject the optionee to suit under Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), in which case the determination date
is the later of (i) the date on which the shares vest, or (ii) the date the sale
of the shares at a profit would no longer subject the optionee to suit under
Section 16(b) of the Exchange Act. (Section 16(b) of the Exchange Act generally
is applicable only to officers, directors and beneficial owners of more than 10%
of the Common Stock of the Company.) If the determination date is after the
exercise date, the optionee may elect, pursuant to Section 83(b) of the Code, to
have the exercise date be the determination date by filing an election with the
Internal Revenue Service not later than thirty days after the date the option is
exercised. Upon the sale of stock acquired by the exercise of a nonqualified
stock option, any gain or loss, based on the difference between the sale price
and the fair market value on the date of recognition of income, will be taxed as
capital gain or loss. A capital gain or loss will be long-term if the optionee's
holding period is more than twelve months from the date of recognition of
income. No tax deduction is available to the Company with respect to the grant
of the option or the sale of the stock acquired pursuant to such grant.
Generally, the Company would be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of the
option.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual
Meeting of Stockholders, at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present and voting, either
in person or by proxy, is required for approval of this proposal. Abstentions
and broker non-votes will each be counted as present for purposes of determining
the presence of a quorum. Abstentions will have the same effect as a negative
vote. Broker non-votes, on the other hand, will have no effect on the outcome of
the vote. The Company's management believes that in order to attract and retain
additional key employees essential to the success of the Company, it is
necessary to amend and restate the Option Plan. THEREFORE, THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL TO AMEND AND RESTATE THE OPTION
PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Price Waterhouse LLP
as independent accountants to audit the financial statements of the Company for
the fiscal year ending June 30, 1995. Price Waterhouse LLP has acted in such
capacity since its appointment during the fiscal year ended June 30, 1985. A
representative of Price Waterhouse LLP is expected to be present at the Annual
Meeting with the opportunity to make a statement if the representative desires
to do so, and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS RATIFY THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
THE FISCAL YEAR ENDING JUNE 30, 1995. If the appointment is not ratified,
management will consider the appointment of other independent accountants. The
affirmative vote of a majority of the votes cast at the Annual Meeting of
Stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum, but will not be counted as having been voted on the
proposal.
STOCKHOLDERS' PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the stockholders of the Company must be received by the Company at
its offices at 2950 Zanker Road, San Jose, California 95134, not later than June
2, 1995, and satisfy the conditions established by the Securities and Exchange
Commission for stockholder proposals to be included in the Company's proxy
statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of the Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the meeting
is as hereinabove set forth. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
Jeffery Anne Tatum, Secretary
September 30, 1994