UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
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Tegal
Corporation
2201
South McDowell Boulevard
Petaluma,
California 94954
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD JULY 21, 2006
The
Annual Meeting of Stockholders of Tegal Corporation (the "Company") will be
held
at the Company’s Petaluma offices at 2201 South McDowell Boulevard on July 21,
2006, at 10:00 a.m. local time for the following purposes:
| 1. |
To
elect five (5) directors of the Company to hold office for a one-year
term
and until their successors are duly elected and
qualified;
|
| 2. |
To
approve a series of amendments to our Certificate of Incorporation
to
effect a reverse stock split of our common stock, whereby each outstanding
8 or 12 shares would be combined into one share and to grant authorization
to the Board of Directors to determine, at its discretion, the timing
and
the actual ratio of the reverse stock
split;
|
| 3. |
To
approve our Eighth Amended and Restated 1998 Equity Participation
Plan
pursuant to which the plan will be amended to allow for the repricing
of
issued but unexercised stock options and awards held by employees
and
consultants;
|
| 4. |
To
ratify the appointment of Moss Adams LLP as our Independent Registered
Public Accounting Firm for the fiscal year ending March 31, 2007;
and
|
| 5. |
To
transact such other business as may properly come before the meeting
or
any adjournment or postponement of the
meeting.
|
Only
stockholders of record at the close of business on May 19, 2006 will be entitled
to vote at the meeting. Each of these stockholders is cordially invited to
be
present and vote at the meeting in person. For ten days prior to the meeting,
a
complete list of stockholders of record entitled to vote at the meeting will
be
available for examination by any stockholder, for any purpose relating to the
meeting, during ordinary business hours at the Company’s Petaluma
office.
| |
By
Order of the Board of Directors
|
| |
TEGAL
CORPORATION
|
| |
|
| |
/s/
Christine T. Hergenrother
|
|
Petaluma,
California
June
21, 2006
|
CHRISTINE
T. HERGENROTHER
Vice
President, Chief Financial Officer,
Secretary
and Treasurer
|
You
are cordially invited to attend the meeting. However, whether or not you plan
to
attend the meeting in person, please complete, date and sign the accompanying
proxy and mail it promptly in the return envelope to assure that your shares
are
represented at the meeting. If you later desire to revoke your proxy, you may
do
so at any time before it is exercised.
TEGAL
CORPORATION
________________
PROXY
STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
July
21, 2006
________________
INTRODUCTION
General
Tegal
Corporation is soliciting the
enclosed
proxy
for
use
at the Annual Meeting of Stockholders to
be
held at 10:00 a.m. Pacific Time on Friday,
July 21, 2006,
and at
any adjournments or postponements of the Annual Meeting.
We will
hold the meeting at our offices at 2201 McDowell Boulevard, Petaluma, California
94954. We are soliciting proxies
for the
purposes of:
(1)
electing five directors; (2) approving
a series of amendments to our Certificate of Incorporation to effect a reverse
stock split of our common stock, whereby each outstanding 8 or 12 shares would
be combined into one share and to grant authorization to the Board of Directors
to determine, at its discretion, the timing and the actual ratio of the reverse
stock split;
(3)
approving
our Eighth Amended and Restated 1998 Equity Participation Plan pursuant to
which
the plan will be amended to allow for the repricing of issued but unexercised
stock option awards held by employees and consultants; (4)
ratifying the appointment of Moss Adams LLP as our Independent Public Registered
Accounting Firm for the fiscal year ending March 31, 2007; and (5)
transacting such other business as may properly come before the Annual Meeting
and any adjournments or postponements of the Annual Meeting. The approximate
date when this proxy statement and accompanying form of proxy are first being
sent to stockholders is June 21, 2006.
Solicitation
This
solicitation is made on behalf of our Board of Directors. Costs of the
solicitation will be borne by us. Our directors, officers and employees and
our
subsidiaries may also solicit proxies by telephone, fax or personal interview.
No additional compensation will be paid to such directors, officers or employees
or subsidiaries for such services. We will reimburse banks, brokerage firms
and
other custodians, nominees and fiduciaries for reasonable expenses incurred
by
them in sending proxy material to stockholders. We
have
retained
The Altman Group, Inc. to perform those services normally associated with
securing votes from stockholders in connection with the Annual
Meeting
at an
estimated cost of $50,000 plus out-of-pocket expenses.
The
costs
of printing, mailing, contacting banks, brokers and proxy intermediaries,
soliciting votes and other activities related to the solicitation are estimated
to be approximately $100,000.
Voting
Holders
of record of our common stock
as of
the close of business on May 19, 2006 are entitled to receive notice of, and
to
vote at, the Annual Meeting. The outstanding common stock constitutes the only
class of our securities entitled to vote at the Annual Meeting, and each share
of common stock entitles the holder to one vote. At the close of business on
May
19, 2006, there were 84,253,058 shares of common stock issued and outstanding.
Two or more stockholders representing a majority of the outstanding shares
must
be present in person or by proxy to constitute a quorum for the transaction
of
business at the Annual Meeting.
Our
transfer agent, Registrar and Transfer Company, Inc. will appoint an election
inspector for the meeting to determine whether or not a quorum is present,
and
to tabulate votes cast by proxy or in person at the Annual Meeting.
Unless
contrary instructions are indicated on the proxy, all shares represented by
valid proxies received pursuant to this solicitation (and not revoked before
they are voted) will be voted FOR:
|
|
• |
the
election of all of the directors nominated
below;
|
|
|
• |
the
approval
of a series of amendments to our Certificate of Incorporation to
effect a
reverse stock split of our common stock, whereby each outstanding
8 or 12
shares would be combined into one share of common stock and to grant
authorization to the Board of Directors to determine, at its discretion,
the timing and the actual ratio of the reverse stock
split;
|
|
|
• |
the
approval of our
Eighth Amended and Restated 1998 Equity Participation Plan pursuant
to
which the plan will be amended to allow for the repricing of issued
but
unexercised stock options and awards held by employees and consultants;
and
|
|
|
• |
the
ratification of the appointment of Moss Adams LLP as our Independent
Registered Public Accounting Firm for the fiscal year ending March
31,
2007.
|
With
respect to any other business that may properly come before the Annual Meeting
and be submitted to a vote of stockholders, proxies received by the Board of
Directors will be voted in accordance with the best judgment of the designated
proxy holders. Any proxy may be revoked at any time before it is exercised
by
filing with the Secretary an instrument revoking it or by submitting prior
to
the time of the Annual Meeting a duly executed proxy bearing a later date.
Stockholders who have executed and returned a proxy and who then attend the
Annual Meeting and desire to vote in person are requested to so notify the
Secretary prior to the time of the Annual Meeting.
Shares
represented by proxies that reflect abstentions or “broker non-votes”
(i.e.,
shares
held by a broker or nominee which are represented at the Annual Meeting, but
with respect to which such broker or nominee is not empowered to vote on a
particular proposal or proposals) will be counted as shares that are present
for
purposes of determining the presence of a quorum.
In
voting
for the election of directors each share has one vote for each position to
be
filled, and there is no cumulative voting, which means that a simple majority
of
the shares voting may elect all of the directors. Abstentions,
withheld votes
and
broker non-votes will have no effect on the outcome of the election of
directors. With the exception of Proposals No. 2, which requires the approval
of
majority of common stock entitled to be cast, in voting with respect to all
other proposals, the approval of a majority of the shares of common stock
present
or
represented by proxy
and
entitled to vote at the Annual Meeting is required for approval of the proposal.
Abstentions
therefore have the same effect as negative votes on such proposals, and broker
non-votes are not counted for any purpose in determining whether such proposals
have been approved.
Voting
Electronically Over the Internet or By Telephone
Stockholders
whose shares are registered in their own names may vote by mail or
electronically over the Internet or by telephone. Instructions for voting over
the Internet or by telephone are set forth in the enclosed proxy card. The
Internet and telephone voting facilities will close at 3:00
AM
(Eastern Time) on July 21, 2006, on the Annual Meeting day. If
your
shares are held in street name, the voting instruction form should indicate
whether the institution has a process for beneficial holders to provide voting
instructions over the Internet or by telephone. A large number of banks and
brokerage firms are participating in the ADP Investor Communication Services
online program. This program allows eligible shareholders who receive a paper
copy of the proxy statement the opportunity to vote over the Internet or by
telephone. If your voting instruction form does not reference Internet or
telephone information, please complete and return the paper voting instruction
form in the self-addressed, postage-paid envelope provided. Shareholders who
vote over the Internet or by telephone need not return a proxy card or voting
instruction form by mail but may incur costs, such as usage charges, from
telephone companies or Internet service providers.
GENERAL
INFORMATION
We
were
formed in December 1989 to acquire the operations of the former Tegal
Corporation, a division of Motorola, Inc. The predecessor company was founded
in
1972 and acquired by Motorola in 1978. Our
principal executive offices are located at 2201 South McDowell Boulevard,
Petaluma, California 94954. Our telephone number is (707) 763-5600.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
Our
Board
of Directors is currently comprised of five members. Directors are elected
at
each Annual Meeting and hold office until their successors are duly elected
and
qualified at the next Annual Meeting. Pursuant to our bylaws and a resolution
adopted by the Board of Directors, the authorized number of members of the
Board
of Directors has been set at six. Our bylaws require that there be a minimum
of
two and maximum of eight members of the Board of Directors.
In
the
absence of instructions to the contrary, the persons named as proxy holders
in
the accompanying proxy intend to vote in favor of the election of the five
nominees designated below to serve until the 2007 Annual Meeting of Stockholders
and until their respective successors shall have been duly elected and
qualified. Messrs. Krauss, Martin, Wadsworth and Mattson are current directors.
The Board of Directors expects that each of the nominees will be available
to
serve as a director, but if any such nominee should become unavailable or
unwilling to stand for election, it is intended that the shares represented
by
the proxy will be voted for such substitute nominee as may be designated by
the
Board of Directors. Because the Board of Directors remains in the process of
seeking candidates for one vacant position on the board, we have fewer nominees
named than the number fixed by our bylaws. Stockholders may not vote for a
greater number of persons than the number of nominees named.
Nominees
for Election as Director
|
Name
|
Age
|
Director
Since
|
New
Term
Will
Expire
|
|
Edward
A. Dohring
|
71
|
1996
|
2007
|
|
Jeffrey
M. Krauss
|
49
|
1992
|
2007
|
|
Ralph
S. Martin
|
50
|
2005
|
2007
|
|
Brad
S. Mattson
|
51
|
2005
|
2007
|
|
H.
Duane Wadsworth
|
69
|
2002
|
2007
|
Edward
A. Dohring has
served as a director of Tegal since September 1996. From October 1994 through
December 1998, he was the President of SVG Lithography Systems, Inc., a
subsidiary of Silicon Valley Group, Inc. From July 1992 to October 1994, he
was
President of the Track Division of Silicon Valley Group, Inc. Prior to joining
Silicon Valley Group, Inc., Mr. Dohring was the President of Advantage
Production Technology, Inc. from 1991 to 1992, when it was sold to Genus. Mr.
Dohring was a member of the Semiconductor Equipment and Materials International
Board of Directors from 1977 to 1989. He currently serves on the Board of
Directors of MTI and is a Trustee of the SUNY Maritime College.
Jeffrey
M. Krauss has
served as a director of Tegal since June 1992. Since April 2000, Mr. Krauss
has
been a Managing Member of Psilos Group Managers, LLC, a New York based venture
capital firm, and a Managing Member of the general partner of Psilos Group
Partners I, LP, Psilos Group Partners II, LP, and Psilos Group Partners II
SBIC,
LP, each a venture capital partnership. From 1990 until April 2000, Mr. Krauss
was a general partner of the general partner of Nazem & Company III, L.P.
and Nazem & Company IV, L.P., both venture capital funds. He was also a
general partner of The Transatlantic Fund, a joint venture between Nazem &
Company and Banque Nationale de Paris of France. Prior to joining Nazem &
Company, Mr. Krauss was a corporate attorney with the law firm of Simpson
Thacher & Bartlett, where he specialized in leveraged buyout transactions.
He currently serves as Chairman of the Board of Quovadx, Inc. and as a director
of APS Healthcare, Inc., One Shield, Inc., Cohesive Technologies, Inc.,
Valera
Pharmaceuticals, Inc. and VersaMed Corporation.
Ralph
S. Martin
joined
Tegal as a independent director in September 2005. Mr.
Martin is a 25-year veteran of the semiconductor capital equipment industry
who
has been an independent industry consultant since 2001. Previously, Mr. Martin
served as President of Mattson Technology, a position he held from December
1996
through January 1999. Prior to that he held other senior management positions
in
Mattson Technology, including Executive Vice President and Chief Operating
Officer and Vice President of Engineering. Mr. Martin was also a member of
the
startup team at Novellus Systems, a company founded by Brad Mattson, Tegal’s
Chairman. Prior to his tenure at Novellus, Mr. Martin held various technical
positions with GCA, LFE Corp. and MIT Center for Material Science and
Engineering.
Brad
S. Mattson
joined
Tegal as the Chairman of the Board in March 2005. Mr. Mattson is a well known
executive and entrepreneur in the semiconductor equipment industry. Most
recently Mr. Mattson was founder, CEO and Chairman of Mattson Technology where
he developed the Aspen platform and Strip system, and from which he retired
in
2001. Previous to that he was founder, CEO, and Chairman at Novellus Systems
where he developed and introduced the Concept One system which launched the
company. Prior to that, Mr. Mattson held various management, marketing, and
technical positions at Applied Materials and LFE Corporation. He is a member
of
the Board of Regents of Santa Clara University and of the Board of Directors
of
Semiconductor Equipment and Material International (“SEMI”).
Mr.
Mattson has been honored with the Entrepreneur of the Year Award in 1988, and
the Distinguished Alumni Award from San Jose State University. He also holds
12
patents in various semiconductor equipment and process related areas. Mr.
Mattson holds a Bachelor of Science degree in Aeronautics from San Jose State
University and an MBA in Finance from Santa Clara University.
H.
Duane Wadsworth
was
appointed to the Board of Directors in November 2002. He has served as President
of Wadsworth-Pacific Manufacturing Associates, a supplier of electronics to
semiconductor manufacturers, since 1963. He also serves as a director of
Micro-Mechanics Ltd. (Holding), Singapore and the Semiconductor Equipment and
Material International (“SEMI”) Board of Directors.
All
directors hold office until our next annual meeting of the stockholders and
until their successors have been duly elected or qualified. There are no family
relationships between any of our directors or executive officers.
Board
of Directors and Committees of the Board
In
fiscal
2006, the Board of Directors held fifteen meetings. All directors attended
at
least 75% of the total number of board meetings and meetings of board committees
on which the directors served during the time they served on the board or
committees.
The
Board
of Directors has determined each of the following directors is an “independent
director” as such term is defined in Marketplace Rule 4200(a)(15) of the
National Association of Securities Dealers, or NASD: Edward A. Dohring, Ralph
S.
Martin, Jeffrey M. Krauss, and H. Duane Wadsworth.
The
Board
of Directors has established a standing Audit Committee, a standing Compensation
Committee and a standing Nominating Committee. Each of our Audit Committee,
Compensation Committee and Nominating Committee is composed entirely of
independent directors in accordance with current Nasdaq listing standards.
Furthermore, each member of our Audit Committee meets the enhanced independence
standards established by the Sarbanes-Oxley Act of 2002 and related rulemaking
of the Securities and Exchange Commission (the “SEC”). The Board of Directors
has further determined that Jeffrey M. Krauss, Chairman of the Audit Committee,
is an “audit committee financial expert,” as such term is defined in Item 401(h)
of Regulation S-K promulgated by the SEC, by virtue of his relevant experience
listing in his biographical summary provided above.
Audit
Committee
The
Audit
Committee, consisting of Messrs. Dohring, Krauss (Chairman) and Wadsworth for
fiscal 2006, reviews the adequacy of internal controls and the results and
scope
of the audit and other services provided by our independent auditors. The Audit
Committee meets periodically with management and the independent auditors.
The
Audit Committee held six meetings in fiscal 2006.
The
Board of Directors
adopted
an Audit Committee Charter, a copy of which is posted
on
our
website
at
www.tegal.com.
Compensation
Committee
In
fiscal
2006, the Compensation Committee was comprised of Messrs. Dohring (Chairman),
Krauss and Wadsworth. The
Compensation Committee held five meetings in fiscal 2006. The functions of
the
Compensation Committee include establishing salaries, incentives and other
forms
of compensation for our officers and other employees and administering our
incentive compensation and benefit plans.
Nominating
Committee
The
Nominating Committee is comprised of Messrs. Wadsworth (Chairman), Krauss and
Dohring. The Nominating Committee held one meeting in fiscal 2006 and met
informally on several occasions to discuss particular candidates and matters
related to corporate governance. The functions of the Nominating Committee
are
to identify qualified candidates for election to the Board of Directors and
establish procedures for the director candidate nomination and evaluation.
The
Board
of Directors has adopted a
Nominating Committee charter, a
copy of
which is
posted
on our website at www.tegal.com.
The
Nominating Committee considers candidates for director nominees proposed by
directors, the Chief Executive Officer and stockholders. The Nominating
Committee may retain recruiting professionals to identify and evaluate
candidates for director nominees. No recruiting professionals were retained
for
this purpose during fiscal 2006.
The
Nominating Committee strives for a mix of skills and diverse perspectives that
are essential for the Board of Directors. In selecting the nominees, the
Nominating Committee assesses the independence, business judgment, management,
accounting and finance, industry and technology knowledge, understanding of
manufacturing, leadership, strategic vision, knowledge of international markets
and marketing. Further criteria include a candidate’s personal and professional
ethics, integrity and values, as well as the willingness to devote sufficient
time to attend meetings and participate effectively on the Board of
Directors.
Stockholder
Recommendations and Communication with the Board of
Directors
Stockholders
may recommend potential candidates for director. Recommended candidates are
screened according to the criteria outlined above and some recommended
candidates may be interviewed by the Nominating Committee. The same identifying
and evaluating procedures apply to all candidates for director nomination,
including candidates submitted by stockholders.
No
candidates were recommended by the stockholders during fiscal 2006.
If
you
would like the Nominating Committee to consider a prospective candidate, in
accordance with our bylaws, please submit the candidate’s name and
qualifications to: Christine Hergenrother, Secretary, Tegal Corporation, 2201
S.
McDowell Blvd, Petaluma, CA 94954.
Stockholders
may also communicate directly to members of the Board of Directors or to the
chairmen of the standing committees. Communications received in writing will
be
forwarded to the appropriate member if sent to the following
addresses:
Chairman
of the Board, c/o Tegal Corporation, 2201 S. McDowell Blvd., Petaluma, CA
94954.
Chairman
of the Nominating Committee of the Board, c/o Tegal Corporation, 2201 S.
McDowell Blvd., Petaluma, CA 94954.
Chairman
of the Audit Committee of the Board, c/o Tegal Corporation, 2201 S. McDowell
Blvd., Petaluma, CA 94954.
Chairman
of the Compensation Committee of the Board, c/o Tegal Corporation, 2201 S.
McDowell Blvd., Petaluma, CA 94954.
Director
Attendance at Annual Meetings
The
Board
of Directors encourages, but does not require, director attendance at the Annual
Meeting of Stockholders. Messrs. Dohring, Krauss, Martin, Mattson, and Wadsworth
attended last year’s annual meeting on September 13, 2005.
Director
Compensation
Our
outside directors currently receive an annual $12,000 retainer for service
on
the Board of Directors, meeting fees of $1,500 per board meeting ($750 per
meeting for special meetings held telephonically) and $1,125 per committee
meeting not held in conjunction with a full board meeting ($500 per meeting
for
committee meetings held telephonically). Furthermore, directors may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings. Additionally, each committee chair receives an annual chair
retainer of $5,000 for the Audit Committee chair, $3,000 for the Compensation
Committee chair and $3,000 for the Nominating Committee chair. In addition,
we
provide the Option Plan for Outside Directors, pursuant to which non-employee
directors receive 100,000 stock options upon initial election or appointment
to
the Board and each Director automatically receives 50,000 stock options upon
election to the Board of Directors thereafter.
Required
Vote
The
five
nominees receiving the highest number of affirmative votes of the outstanding
shares of common stock present or represented by proxy and entitled to vote
shall be elected as directors to serve until the next annual meeting of
stockholders or until their successors have been duly elected and
qualified.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.
EXECUTIVE
OFFICERS
The
following table sets forth information regarding our executive officers as
of
March 31, 2006.
|
Name
|
Age
|
Position
|
|
Brad
S. Mattson
|
51
|
Chairman
of the Board of Directors
|
|
Thomas
R. Mika
|
54
|
President
and Chief Executive Officer
|
|
Christine
T. Hergenrother
|
40
|
Vice
President, Chief Financial Officer and Treasurer
|
|
Steven
Selbrede
|
54
|
Vice
President and Chief Technology Officer
|
|
Vahan
Tchakerian
|
45
|
Vice
President, Global Sales
|
|
Murali
Narasimhan
|
41
|
Vice
President, Marketing
|
|
Scott
Brown
|
49
|
Vice
President, Sales for North America
|
Brad
S. Mattson
joined
Tegal as the Chairman of the Board in March 2005. Mr. Mattson is a well
known
executive and entrepreneur in the semiconductor
equipment
industry. Most recently Mr. Mattson was founder, CEO and Chairman of Mattson
Technology,
where he
developed
the Aspen platform and Strip system, and from which he retired in 2001. Previous
to that he was founder, CEO, and Chairman at Novellus Systems where he developed
and introduced the Concept One system which launched the company. Prior to
that,
Mr. Mattson held various management, marketing
and
technical positions at Applied Materials and LFE Corporation. He
is a
member of the Board of Regents of Santa Clara University and of the Board of
Directors of Semiconductor
Equipment and
Material International (SEMI).
Mr.
Mattson has been honored with the Entrepreneur of the Year Award in 1988, and
the Distinguished Alumni Award from San Jose State University. He also holds
12
patents in various semiconductor equipment and process related areas. Mr.
Mattson holds a Bachelor of Science degree in Aeronautics from San Jose State
University and an MBA in Finance from Santa Clara University.
Thomas
R. Mika
was
appointed our
President
and Chief Executive Officer in
March
2005.
Mr.
Mika has more than 25 years of senior management, finance and consulting
experience. Serving
on our
Board of
Directors of Tegal since 1992, Mr. Mika played a key role in managing the
activities leading to our
initial public offering
in 1995.
He has been head of the Compensation Committee, a member of the Audit Committee
and was one of the longest serving member on our
Board of
Directors until his appointment as Executive Vice President & Chief
Financial Officer in August 2002.
Prior to
becoming
our Executive Vice President and Chief Financial Officer,
Mr.
Mika founded IMTEC, a boutique investment firm active in the management of
several companies. In addition
to completing multiple private equity financings, joint ventures, acquisitions
and license agreements on behalf of his clients, he took senior positions with
Soupmasters International, Inc., where he was its President & CEO, and Disc
International, Ltd., a software firm, where he served as its Chief Executive.
Mr. Mika was also a director of Metrologix, a semiconductor metrology company,
from the time of its initial start-up until its sale to KLA-Tencor Corp. Prior
to forming IMTEC, Mr. Mika was a managing consultant with Cresap, McCormick
& Paget and a
policy
analyst for the National Science Foundation. He holds a Bachelor of Science
degree in microbiology from the University of Illinois at Urbana-Champaign
and a
Master of Business Administration degree from the Harvard Graduate School of
Business, where he was a Harvard University Fellow.
Christine
Hergenrother
was
appointed our
Vice
President, Chief Financial Officer, Secretary and Treasurer in
March
2005. Prior to that,
Ms.
Hergenrother served
as
our
Director
of Corporate Development since
June
2004, with principal responsibility for Sarbanes-Oxley and general SEC
compliance matters. Between September 2002
and
March 2004, Ms. Hergenrother was the Corporate Controller of Amarin
Pharmaceuticals, Inc. From February 1997 until September 2002, Ms. Hergenrother
held increasingly responsible positions within the finance department of Tegal.
Prior to Tegal, she was a senior accountant at Mindscape Inc. and a staff
auditor at the firm of Pisenti & Brinker, LLP. Ms. Hergenrother holds a
Bachelor of Science degree in Business Management from Illinois State
University. Ms. Hergenrother is a member of the American Institute of Certified
Public Accountants and the California Society of CPA’s.
Steven
Selbrede joined
Tegal as Vice President and Chief Technology Officer in May 2004. In this
capacity, he is responsible for coordinating, developing and overseeing the
technical direction of the corporation. Mr. Selbrede is a 27-year veteran of
the
semiconductor industry, most recently employed as an independent consultant,
and
previously holding senior Research & Development management positions with
Mattson Technology, where he was employed since 1994, Watkins Johnson, Genus,
Samsung and National Semiconductor. Mr. Selbrede was responsible for the
development of the Mattson ICP Strip and Aspen III PECVD tools. He holds a
Master's degree in Physics from The University of Illinois and a Master's degree
in Materials Science and Engineering from Stanford University.
Vahan
Tchakerian
joined
Tegal as Vice President of Global Sales in June 2004. From 2002 to 2004, Mr.
Tchakerian was Vice President of Sales, North America for FEI Company, a leading
supplier of 3D structural process management systems. In 2001, Mr. Tchakerian
served as Director of Sales for SEZ America, a supplier of surface preparation
equipment, and in 2000 was Vice President of Sales and Business Development
for
Cetec Automation. Mr. Tchakerian is a 20-year veteran of the semiconductor
industry and a co-founder of Jasmine Sales Group, a manufacturer’s rep company,
serving as its President from 1993 until 2000. Previously he was with Prism
Technologies and DuPont Photomasks. Mr. Tchakerian holds a Bachelor of Science
degree in Chemical Engineering from the University of California,
Berkeley.
Murali
Narasimhan
joined
Tegal as Vice President of Marketing in October 2005. Prior to joining Tegal,
Mr. Narasimhan was a Senior Director of Strategic Marketing in the Films
Metrology Division of KLA-Tencor, a position that he held since 2001, and a
Senior Director of Segment Marketing in KLA’s Wafer Inspection Division for a
year prior to that posting. From 1994 through 2000, Mr. Narasimhan held
increasingly responsible positions in product support, process engineering
and
global product management within various deposition product divisions of Applied
Materials including PVD, Integrated Liner Barrier and Cu Barrier-seed and
Electroplating. He has also worked previously as a process engineer with
SONY-Materials Research Corporation and Plasma-Therm, Inc. Mr. Narasimhan holds
M.S. degrees in Engineering Management, Materials Science and Engineering,
as
well as a B.S. in Metallurgical Engineering. He is an author of numerous
publications in the area of Integrated Circuit processing and holds several
patents.
Scott
Brown
joined
Tegal as Vice President of Sales for North American in February 2006. Prior
to
joining Tegal, Mr. Brown was Senior Vice President of North American Sales
and
Operations for Trikon Technologies, Inc., which was recently merged with Aviza
Technologies, Inc. From 1984 through 2000, Mr. Brown held senior sales
management roles with Trikon/Electrotech, Eaton Semiconductor, Sputtered Films,
Inc. and Materials Research Corporation. He also has extensive experience in
process engineering roles at TRW, McDonnell Douglas Commodore Semiconductor
and
Rockwell.
COMPENSATION
COMMITTEE REPORT
The
information set forth below shall not be deemed incorporated by reference by
any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended (the “Securities Act”), or
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
except to the extent we specifically incorporate this information by reference,
and shall not otherwise be deemed filed under such Acts.
The
Compensation Committee of the Board of Directors has furnished the following
report on executive compensation.
Overall
Policy
In
formulating the executive compensation program, the Compensation Committee’s
objectives were (1) to attract and retain competent executive talent and
motivate executive officers to perform to the full extent of their abilities,
(2) to tie a significant portion of executive compensation to the achievement
of
specified performance goals for Tegal, and (3) to link executive and stockholder
interests through equity based plans.
The
key
elements of our executive compensation program consist of base salary, cash
bonuses and stock options.
Base
Salary
Each
executive’s base salary is reviewed annually, but as a general rule, significant
base salary increases are limited to promotions, while lesser adjustments are
made as appropriate after taking into account such factors as internal equity,
comparable market salaries paid to individuals of comparable responsibility
and
company size and increases in levels of responsibility. All salaries are based
on sustained individual performance toward our goals and
objectives.
The
Board
of Directors has approved a severance arrangement for our executive officers
in
the event of a change of control of Tegal. If an executive officer is terminated
as a result of a change of control, we shall continue to pay such executive
officer’s base salary and certain benefits for a period of 12
months.
Bonus
Programs
In
order
to motivate executives and managers in the attainment of our annual goals and
to
enhance our ability to attract and retain key managerial employees through
a
competitive compensation package, we have adopted an annual performance bonus
plan for executives and managers designated by the Chief Executive Officer
and
approved by the Board of Directors. Each designated position has an annual
bonus
incentive target expressed as a percentage of that executive’s or manager’s base
salary. The attainment of the target bonus is determined by the degree to which
an individual achieves specific annual objectives determined annually and
reviewed and approved by the Board of Directors for all executives who report
directly to the Chief Executive Officer, and by the degree to which we achieve
our annual financial plan. Unless specifically directed by the Board of
Directors, no bonuses are to be paid unless we realize a minimum of five percent
profit before taxes as a percent of revenue. Incentives are prorated if we
exceed or fall short of our annual financial plan goals, with the incentive
maximums capped at 250% of target bonus amounts. In fiscal 2006, the Board
of
Directors approved bonuses for the Chief Executive Officer and the Chief
Financial Officer for the completion of the 2005 PIPE financing.
Equity
Compensation
We
provide long-term incentive compensation through our equity plan which generally
gives the Board of Directors authority to grant stock options as well as other
types of awards. Historically, we have granted stock options, which are
generally designed to align the interests of executives and key personnel with
those of our stockholders. However, due to our relatively low stock price versus
the price at which options had been previously granted, our stock options are
not currently realizing this purpose. Accordingly, the Committee and the Board
of Directors have determined that in order to retain executives and key
personnel it needs the flexibility to replace outstanding options with exercise
prices that exceed the current price of our stock either with new options or
other forms of equity. Accordingly, it is asking approval of Proposal No. 3,
which would allow the Compensation Committee to reprice options. This will
allow
our management to continue holding significant equity interests in the Company,
which our Board of Directors believes is necessary to retain and motivate
management.
The
Board
of Directors’ decision whether to grant options or other equity compensation and
the number of shares subject to such awards is based primarily on the individual
executive’s responsibility, performance and existing stock ownership. In fiscal
2006, the Board of Directors considered awards based on the Board of Directors’
assessment of the individual executive’s contribution to our success in meeting
our financial goals. This assessment was based primarily on our earnings and
the
level of the executive’s responsibility. The awards also were based on
non-financial performance measures such as individual performance, the
recommendations of the Chief Executive Officer and the success in implementing
our long-term strategic plan. Except for awards granted to the Chairman of
the
Board and the Chief Executive Officer, no other awards were granted in fiscal
2006.
Chief
Executive Officer Compensation
The
Compensation Committee is charged with establishing the objectives and
compensation of Thomas R. Mika, our Chief Executive Officer, who is responsible
for our strategic and financial performance. Mr. Mika became the Chief Executive
Officer in March 2005. The Compensation Committee determines our Chief Executive
Officer’s compensation package based upon the general factors discussed above
and upon an evaluation of compensation paid to chief executive officers at
comparable public companies and other companies in our industry.
Mr.
Mika’s current annual base salary is $250,000, which has been temporarily
reduced by 10% along with certain other “highly compensated” employees of Tegal.
In addition, Mr. Mika is eligible to receive an amount not less than 35% of
his
base salary upon the achievement of certain goals established by the Board
of
Directors at the beginning of each fiscal year. For fiscal 2006, such goals
related to the completion of the 2005 PIPE financing. The Board of Directors
determines the actual bonus payable based upon the recommendation of the
Compensation Committee. For fiscal 2006, Mr. Mika received a bonus for the
successful completion of a financing in the amount of $252,500 in cash and
150,000 in restricted stock units. The
restricted stock units granted to Mr. Mika are fully vested. Each restricted
stock unit will entitle Mr. Mika to receive one share of our common stock.
The
shares of our common stock distributable pursuant to the restricted stock units
will not be distributed until the earliest of: (1) June 13, 2008 (2) Mr. Mika’s
termination of employment or service with us, (3) Mr. Mika’s death or
disability, or (4) the date immediately prior to a change in control. Under
no
circumstances may the time or schedule of distribution of stock pursuant to
the
restricted stock units be accelerated. The restricted stock units will be
distributed as 150,000 shares of our common stock on the applicable distribution
date. Mr. Mika will have no voting or dividend rights prior to the time when
our
common stock is distributed pursuant to the restricted stock units.
The
Compensation Committee and Mr. Mika believe that currently he is adequately
incentivized to enhance profitability and stockholder value through his
compensation package. The Compensation Committee continues to retain the
discretion to change the amount and form of compensation payable to Mr.
Mika.
Section
162(m)
Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) limits the
tax deduction of a publicly held company allowed for compensation paid to the
Chief Executive Officer and to the four most highly compensated executive
officers other than the Chief Executive Officer (collectively the “Covered
Individuals”). Generally, the Committee desires to maintain the tax
deductibility of the compensation for executive officers to the extent it is
feasible and consistent with the objectives of the Company’s compensation
programs. The Committee considers ways to maximize the deductibility of
executive compensation, but intends to retain the discretion the Committee
deems
necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment for executive talent.
Conclusion
The
programs described above are designed to appropriately compensate and provide
incentives to executives to enhance our financial performance and long-term
stockholder value.
|
Edward
A. Dohring
Jeffrey
M. Krauss
H.
Duane Wadsworth
|
EXECUTIVE
COMPENSATION
The
following table shows, for the fiscal years ended March 31, 2006, 2005 and
2004,
the cash compensation paid by us and our subsidiaries as well as certain other
compensation paid or accrued for those years for services in all capacities
to
the person serving as the Chief Executive Officer during fiscal 2006 and the
other three most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000 in fiscal 2006 (the “Named Executive Officers”).
SUMMARY
COMPENSATION TABLE
| |
|
Annual
Compensation
|
Long-Term
Compensation
|
|
| |
|
|
|
|
Awards
|
Payouts
|
|
|
Name
and Principal Position
|
Year
|
Salary
(
$ )
|
Bonus
(
$ )
|
Other
Annual Compensation (1)
(
$ )
|
Restricted
Stock Award (s)
(
$ )
|
Securities
Under-Lying Options/ SARs
(
# )
|
LTIP
Pay-outs
(
$ )
|
All
Other Compensation
(
$ )
|
|
Thomas
R. Mika,
|
2006
|
221,784
|
252,500
|
8,056
|
145,500
|
---
|
---
|
---
|
|
President
and Chief
|
2005
|
175,049
|
---
|
7,867
|
---
|
300,000
|
---
|
---
|
|
Executive
Officer
|
2004
|
131,928
|
---
|
7,351
|
---
|
600,000
|
---
|
---
|
| |
|
|
|
|
|
|
|
|
|
Christine
T. Hergenrother,
|
2006
|
135,431
|
22,500
|
324
|
---
|
---
|
---
|
---
|
|
Vice
President and
|
2005
|
---
|
---
|
---
|
---
|
---
|
---
|
---
|
|
Chief
Financial Officer
|
2004
|
---
|
---
|
---
|
---
|
---
|
---
|
---
|
| |
|
|
|
|
|
|
|
|
|
Steven
Selbrede,
|
2006
|
142,428
|
---
|
274
|
---
|
---
|
---
|
---
|
|
Vice
President and
|
2005
|
168,505
|
20,000
|
429
|
---
|
266,500
|
---
|
---
|
|
Chief
Technology Officer
|
2004
|
---
|
---
|
---
|
---
|
---
|
---
|
---
|
| |
|
|
|
|
|
|
|
|
|
Vahan
Tchakerian,
|
2006
|
187,508
|
---
|
35,122
|
---
|
---
|
---
|
---
|
|
Vice
President of
|
2005
|
156,013
|
|
1,951
|
---
|
317,882
|
---
|
---
|
|
Global
Sales
|
2004
|
---
|
---
|
---
|
---
|
---
|
---
|
---
|
(1)
Other
annual compensation in fiscal 2006 consists of 401(k) and employer match
contributions made by us, commissions paid to Mr. Tchakerian in the amount
of
$27,742, and, for Messrs. Mika and Tchakerian, $7,425 and $6,687, respectively
in car allowances paid by us. Other annual compensation in fiscal 2005 consists
of 401 (k) and employer match contributions made by us, commissions paid to
Mr.
Tchakerian in the amount of $1,078, and, for Messrs. Mika and Tchakerian, $7,200
and $299, respectively, in car allowances paid by us. Other annual compensation
in fiscal 2004 consists of 401(k) contributions made by us, and for Mr. Mika,
$7,200 in car allowances paid by us.
OPTION
GRANTS IN FISCAL 2006
There
were no stock options granted to the Named Executive Officers during fiscal
year
2006.
AGGREGATED
OPTION EXERCISES DURING 2006 FISCAL YEAR AND
2006
FISCAL YEAR-END OPTION VALUES
The
following table sets forth information concerning exercise of stock options
during fiscal 2006 by each of the Named Executive Officers and the value of
options at the end of fiscal 2006.
|
Name
|
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
($)
|
Number
of Securities
Underlying
Unexercised
Options
at
2006
Year-End (a)
(Exercisable/
Unexercisable)
(#)
|
Value
of Unexercised
In-The-Money
Options
at
2006 Year-End (a)
(Exercisable/
Unexercisable)
($)
|
|
Thomas
R. Mika
|
—
|
—
|
802,083
/ 197,917
|
$0
/ $0
|
|
Christine
T. Hergenrother
|
—
|
—
|
65,000
/ 150,000
|
$0
/ $0
|
|
Steven
Selbrede
|
—
|
—
|
196,890
/ 81,250
|
$0
/ $0
|
|
Vahan
Tchakerian
|
—
|
—
|
111,632
/ 206,250
|
$0
/ $0
|
__________
| (a) |
Potential
unrealized value is (1) the fair market value at fiscal 2006 year-end
($0.52 per share) less the exercise price of “in-the-money” unexercised
options times (2) the number of shares represented by such
options.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Since
April 1, 2005, there has not been, nor is there currently planned, any
transaction or series of similar transactions to which we were or are a party
in
which the amount involved exceeds $60,000 and in which any director, nominee
for
director, executive officer or holder of more than 5% of our capital stock
or
any member of their immediate families had or will have a direct or indirect
material interest other than the agreements and transactions described
below.
Management
Contracts
Mr.
Mattson serves as our Executive Chairman. Mr Mattson’s current annual salary is
$80,000.
Mr.
Mika
serves as our President and Chief Executive Officer pursuant to an employment
agreement which renews annually.
Mr.
Mika’s current annual salary is $250,000, which has been temporarily reduced by
10% along with certain other “highly compensated” employees of Tegal. In
addition, Mr. Mika is eligible to receive an amount not less than 35% of his
base salary upon the achievement of certain goals established by the Board
of
Directors at the beginning of each fiscal year. The Board of Directors
determines the actual bonus payable based upon the recommendation of the
Compensation Committee. For fiscal 2006, Mr. Mika received a bonus for the
successful completion of a financing in the amount of $252,500 in cash and
150,000 in restricted stock units. We may terminate his employment with or
without cause and Mr. Mika may terminate his employment with us upon thirty
days
prior written notice. If we terminate his employment without cause, Mr. Mika
is
entitled to receive his salary and benefits for 12 months following the date
of
such termination and up to 18 months should Mr. Mika remain continuously
unemployed. If Mr. Mika voluntarily leaves the company for “good reason,” Mr.
Mika is entitled to receive up to 18 months of salary and benefits.
Mr.
Selbrede serves as our Vice President, Chief Technology Officer. Mr. Selbrede
is
eligible for any incentive bonus payments from time to time in accordance with
any incentive bonus program then in effect. Stock options in the amount of
250,000 shares were granted in May of 2004 with a 4-year vesting schedule.
In
addition, we agreed to reimburse Mr. Selbrede for his actual costs not to exceed
$15,000 incurred in relocating to the Petaluma, CA area. We may terminate his
employment with or without cause and Mr. Selbrede may terminate his employment
with us upon fourteen days prior written notice. If we terminate his employment
without cause, Mr. Selbrede is entitled to receive his salary and benefits
for 6
months following the date of such termination. If Mr. Selbrede voluntarily
leaves the company for “good reason,” he is not entitled to any salary and
benefit continuation.
In
addition, the Board of Directors has approved a severance arrangement for
executive officers in the event of a change of control of The Company. If an
executive officer is terminated as a result of a change of control, we shall
continue to pay such executive officer’s base salary and certain benefits for a
period of 12 months.
PROPOSAL
NO. 2
APPROVAL
OF A SERIES OF AMENDMENTS TO THE CERTIFICATE OF
INCORPORATION
TO
EFFECT A REVERSE STOCK SPLIT
The
Board
of Directors has considered, deemed advisable, adopted a resolution approving
and recommends to the stockholders for their approval of a series of proposed
amendments to our Certificate of Incorporation to authorize the board to effect
a reverse stock split for the purpose of increasing the per-share market price
of our common stock in order to maintain its listing on The Nasdaq Capital
Market and for other purposes as described below in this proxy statement. Under
this proposed amendment, each outstanding 8 or 12 shares of common stock would
be combined into one share of common stock (the “Reverse Stock Splits”), with
the effectiveness of one such amendment (the “Effective Reverse Stock Split”)
and the abandonment of the other amendments, or the abandonment of all such
amendments, to be determined at the discretion of the board pursuant to Section
242(c) of the Delaware General Corporation Law following the Annual
Meeting.
If
approved by the stockholders, the board would have discretion to implement
the
Effective Reverse Stock Split in any of the following ratios: 1:8 or 1:12.
The
board believes that stockholder approval of selected exchange ratios within
an
exchange ratio range (as opposed to approval of a specified exchange ratio)
would provide the board with maximum flexibility to achieve the purposes of
the
Effective Reverse Stock Split and, therefore, is in the best interests of The
Company and its stockholders. The actual timing for implementation of the
Effective Reverse Stock Split would be determined by the board based upon its
evaluation as to when such action would be most advantageous to The Company
and
its stockholders. Furthermore, notwithstanding stockholder approval, the board
also would have the discretion not to implement an Effective Reverse Stock
Split. If the board were to elect to implement an Effective Reverse Stock Split,
the board will set the exchange ratio using one of the ratios approved by the
stockholders. The board would base such a determination upon the then current
trading price of our common stock and the advice of our financial advisers,
among other things.
The
text
of the form of amendment to our Certificate of Incorporation that would be
filed
with the Secretary of State of the State of Delaware to effect the Effective
Reverse Stock Split is set forth in Appendix
A
to this
proxy statement; provided, however, that such text is subject to amendment
to
include such changes as may be required by the office of the Secretary of State
of the State of Delaware and as the board deems necessary and advisable to
effect the Effective Reverse Stock Split. If the Reverse Stock Splits are
approved by the stockholders and following such approval the board determines
that an Effective Reverse Stock Split is in the best interest of The Company
and
its stockholders, our Certificate of Incorporation would be amended
accordingly.
Purpose
of the Effective Reverse Stock Split
The
board
recommends the Effective Reverse Stock Split for the following
reasons:
| § |
The
board believes that the Effective Reverse Stock Split is the most
effective means of increasing the per-share market price of our common
stock in order to maintain our listing on the Nasdaq Capital Market;
and
|
| § |
The
board believes that a higher per-share market price of our common
stock
could encourage investor interest in The Company and promote greater
liquidity for our stockholders.
|
Our
stock
is currently listed on The Nasdaq Capital Market. The Nasdaq Stock Market’s
Marketplace Rules impose certain minimum financial requirements on us for the
continued listing of our stock. One such requirement is the minimum bid price
on
our stock of $1.00 per share. Beginning in 2002, there have been periods of
time
during which we have been out of compliance with the $1.00 minimum bid
requirements of The Nasdaq Capital Market.
On
August
18, 2005, we were notified by the Nasdaq that the bid price of our common stock
closed below the minimum $1.00 per share requirement for continued inclusion
under the Nasdaq’s Marketplace rules. We had 180 calendar days, or until
February 13, 2006, to regain compliance. If, at anytime before February 13,
2006, the bid price of our common stock had closed at or above $1.00 per share
for a minimum of 10 consecutive business days, we would have regained compliance
with the Nasdaq’s Marketplace rules.
In
accordance with Nasdaq Marketplace Rules, on February 13, 2006 we were granted
an additional 180 days to regain compliance because we met all the listing
requirements except for the minimum bid price requirement. If we are unable
to
meet the minimum $1.00 per share trading price requirement for a period of
at
least ten consecutive business days prior to Friday, August 11, 2006, we may
be
delisted by the Nasdaq Capital Market. If an initial delisting decision is
made
by the Nasdaq’s staff, we may appeal the decision as permitted by Nasdaq rules.
If we are delisted and cannot obtain listing on another major market or
exchange, our stock’s liquidity would suffer, and we would likely experience
reduced investor interest. Such factors may result in a decrease in our stock’s
trading price. Delisting also may restrict us from issuing additional securities
or securing additional financing.
Alternatives
to trading on the Capital Market include being listed for trading the OTC
Bulletin board or in the “pink sheets” maintained by the National Quotation
Bureau, Inc. However, the alternatives of the OTC Bulletin board and the “pink
sheets” are generally considered to be less efficient and less broad-based than
the Nasdaq Capital Market, and therefore less desirable.
We
believe that delisting from the Nasdaq Capital Market could adversely affect
(i)
the liquidity and marketability of shares of our common stock; (ii) the trading
price of our common stock; and (iii) our relationships with vendors and
customers. We also believe that the Nasdaq Capital Market provides a broader
market for our common stock than would the OTC Bulletin board or the “pink
sheets” and is, therefore, preferable to those alternatives. We believe that a
reverse stock split may have the effect of increasing the trading price of
our
common stock to a level high enough to satisfy the Nasdaq minimum bid price
requirement for continued listing of our common stock on the Nasdaq Capital
Market, and that a reverse stock split would be the most effective means
available to avoid a delisting of our common stock. During the period from
January 1, 2006 to May 19, 2006, the closing sales price per share of our common
stock ranged from a high of $.71 to a low of $0.50. The closing sales price
on
May 19, 2006 was $0.54.
Increased
Investor Interest.
We also
believe that an increase in the per-share price of our common stock could
encourage increased investor interest in our common stock and possibly promote
greater liquidity for our stockholders. We believe that the current low
per-share price of our common stock, which we believe is due in part to the
recent weakness in the market for small cap technology stocks, has had a
negative effect on the marketability of our common stock. We believe there
are
several reasons for this effect. First, many institutional investors view stocks
trading at low prices as unduly speculative in nature and, as a result, avoid
investing in such stocks. Second, because the brokers’ commissions on
lower-priced stocks generally represent a higher percentage of the stock price
than commissions on higher priced stocks, the current per-share price of our
common stock can result in individual stockholders paying transaction costs
(commissions, markups or markdowns) that constitute a higher percentage of
their
total share value than would be the case if the share price of our common stock
were substantially higher. This factor may also limit the willingness of
institutional investors to purchase our common stock. Third, a variety of
policies and practices of brokerage firms discourage individual brokers within
those firms from dealing in low-priced stocks. These policies and practices
pertain to the payment of brokers’ commissions and to time-consuming procedures
that make the handling of low-priced stocks unattractive to brokers from an
economic standpoint. Fourth, many brokerage firms are reluctant to recommend
low-priced stocks to their customers. Finally, the analysts at many brokerage
firms do not monitor the trading activity or otherwise provide coverage of
low-priced stocks.
Although
any increase in the market price of our common stock resulting from the
Effective Reverse Stock Split may be proportionately less than the decrease
in
the number of outstanding shares, we anticipate that the Effective Reverse
Stock
Split will result in an increase in the bid price for our common stock that
will
be large enough to avoid delisting from the Nasdaq Capital Market and possibly
to reduce the effect of some of the policies, practices and circumstances
referred to above.
Possibility
that the Effective Reverse Stock Split Will Fail to Achieve the Desired Effects;
Other Possible Consequences
Stockholders
should note that the effect of the Effective Reverse Stock Split upon the market
price for our common stock cannot be accurately predicted. In particular, we
cannot assure you that prices for shares of our common stock after the Effective
Reverse Stock Split will be eight or twelve times, as applicable, the prices
for
shares of our common stock immediately prior to the Effective Reverse Stock
Split. Furthermore, we cannot assure you that the market price of our common
stock immediately after the proposed Effective Reverse Stock Split will be
maintained for any period of time. Even if an increased per-share price can
be
maintained, the Effective Reverse Stock Split may not achieve the desired
results that have been outlined above. Moreover, because some investors may
view
the Effective Reverse Stock Split negatively, we cannot assure you that the
Effective Reverse Stock Split will not adversely impact the market price of
our
common stock or, alternatively, that the market price following the Effective
Reverse Stock Split will either exceed or remain in excess of the current market
price.
While
we
expect the Effective Reverse Stock Split to be sufficient to prevent Nasdaq
from
delisting our common stock, it is possible that, even if the Effective Reverse
Stock Split results in a bid price for our common stock that exceeds $1.00
per
share, we may not be able to continue to satisfy the additional criteria for
continued listing of our common stock on the Nasdaq Capital Market. We would
also need to satisfy additional criteria to continue to have our common stock
eligible for continued listing on the Nasdaq Capital Market. These criteria
require that:
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we
have stockholders’ equity of at least $2.5 million or a market value of
listed securities of $35 million, or net income from continuing operations
(in the latest fiscal year or in 2 of the last 3 fiscal years) of
$500,000;
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§ |
the
market value of the public float of our common stock be at least
$5
million (public float defined under Nasdaq’s rules as the shares held by
persons other than officers, directors and beneficial owners of greater
than 10% of our total outstanding
shares);
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§ |
there
be at least 300 round lot holders (defined as persons who own at
least
100
shares of our common stock);
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§ |
there
be at least two market makers for our common stock;
and
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§ |
we
comply with certain corporate governance
requirements.
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We
believe that we satisfy all of these other continued listing criteria as of
the
mailing date of these proxy materials. However, we cannot assure you that we
will be successful in continuing to meet all requisite continued listing
criteria.
If
the
Effective Reverse Stock Split is implemented, some stockholders may consequently
own less than 100 shares of common stock. A purchase or sale of less than 100
shares (an “odd lot” transaction) may result in incrementally higher trading
costs through certain brokers, particularly “full service” brokers. Therefore,
those stockholders who own less than 100 shares following the Effective Reverse
Stock Split may be required to pay higher transaction costs if they sell their
shares in us.
We
believe that the Effective Reverse Stock Split may result in greater liquidity
for our stockholders. However, it is also possible that such liquidity could
be
adversely affected by the reduced number of shares outstanding after the
Effective Reverse Stock Split.
Board
Discretion to Implement Effective Reverse Stock Split
If
the
Reverse Stock Splits are approved by our stockholders at the annual meeting,
the
Effective Reverse Stock Split will be effected, if at all, only upon a
determination by the board that one of the Reverse Stock Splits (with an
exchange ratio determined by the board as described above) is in the best
interests of The Company and its stockholders. Such determination shall be
based
upon the advice of our financial advisors and certain other factors, including
meeting the continued listing requirements for the Nasdaq Capital Market,
existing and expected marketability and liquidity of our common stock,
prevailing market conditions and the likely effect on the market price of our
common stock. Notwithstanding approval of the Reverse Stock Splits by the
stockholders, the board may, in its sole discretion, abandon all of the proposed
amendments and determine prior to the effectiveness of any filing with the
Delaware Secretary of State not to effect any of the Reverse Stock Splits,
as
permitted under Section 242(c) of the Delaware General Corporation Law.
Effect
of the Effective Reverse Stock Split on Registration and Voting Rights
Our
common stock is currently registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and we are subject to the
periodic reporting and other requirements of the Exchange Act. The Effective
Reverse Stock Split would not affect the registration of our common stock under
the Exchange Act. After the Effective Reverse Stock Split, our common stock
would continue to be reported on the Nasdaq Capital Market under the symbol
“TGAL” (although Nasdaq would likely add the letter “D” to the end of the
trading symbol for a period of 20 trading days to indicate that the Effective
Reverse Stock Split has occurred).
Proportionate
voting rights and other rights of the holders of common stock would not be
affected by the Effective Reverse Stock Split (other than as a result of the
payment of cash in lieu of fractional shares as described below). For example,
a
holder of 2% of the voting power of the outstanding shares of common stock
immediately prior to the effective time of the Effective Reverse Stock Split
would continue to hold 2% of the voting power of the outstanding shares of
common stock after the Effective Reverse Stock Split. Although the Effective
Reverse Stock Split would not affect the rights of stockholders or any
stockholder’s proportionate equity interest in The Company (subject to the
treatment of fractional shares), the number of authorized shares of common
stock
would not be reduced and would increase significantly the ability of the board
to issue such authorized and unissued shares without further stockholder action.
The number of stockholders of record would not be affected by the Effective
Reverse Stock Split (except to the extent that any stockholder holds only a
fractional share interest and receives cash for such interest after the
Effective Reverse Stock Split).
Effect
of the Effective Reverse Stock Split on the Authorized but Unissued Shares
of
Common Stock
The
number of authorized but unissued shares of common stock effectively will be
increased significantly by the Effective Reverse Stock Split. For example,
based
on the 84,253,058 shares of common stock outstanding on May 19, 2006, and the
200,000,000 shares of common stock that are authorized under the Certificate
of
Incorporation, a one-for-twelve Effective Reverse Stock Split would have the
effect of increasing the number of authorized but unissued shares of common
stock from 115,746,942 to 192,978,912. A one-for-eight Effective Reverse Stock
Split would have the effect of increasing the number of authorized but unissued
shares of common stock from 115,746,942 to 189,468,367. The issuance in the
future of such additional authorized shares may have the effect of diluting
the
earnings per share and book value per share, as well as the stock ownership
and
voting rights, of the currently outstanding shares of common stock. In addition,
the effective increase in the number of authorized but unissued shares of common
stock may be construed as having an anti-takeover effect. Although we are not
proposing the Reverse Stock Splits for this purpose, we could, subject to the
board’s fiduciary duties and applicable law, issue such additional authorized
shares to purchasers who might oppose a hostile takeover bid or any efforts
to
amend or repeal certain provisions of our Certificate of Incorporation or
bylaws. Such a use of these additional authorized shares could render more
difficult, or discourage, an attempt to acquire control of us through a
transaction opposed by the board.
Effect
of the Effective Reverse Stock Split on Stock Options, Warrants and Par
Value
The
Effective Reverse Stock Split would reduce the number of shares of common stock
available for issuance under our Seventh Amended and Restated 1998 Equity
Participation Plan, Employee Stock Purchase Plan, 1990 Stock Option Plan,
Amended and Restated Equity Incentive Plan and Fifth Amended and Restated Stock
Option Plan for Outside Directors in proportion to the exchange ratio of the
Effective Reverse Stock Split. The total number of shares of common stock
currently authorized for issuance but unissued at May 19, 2006 under these
plans
23,464,942
(prior
to giving effect to the Effective Reverse Stock Split) A one-for-twelve
Effective Reverse Stock Split would have the effect of reducing the shares
of
common stock authorized for issuance under these plans to 1,955,411. A
one-for-eight Effective Reverse Stock Split would have the effect of reducing
the shares of common stock authorized for issuance under these plans to
2,933,117. We also have outstanding certain stock options and warrants to
purchase shares of common stock. Under the terms of the outstanding stock
options and warrants, the Effective Reverse Stock Split will effect a reduction
in the number of shares of common stock issuable upon exercise of such stock
options and warrants in proportion to the exchange ratio of the Effective
Reverse Stock Split and will effect a proportionate increase in the exercise
price of such outstanding stock options and warrants. In connection with the
Effective Reverse Stock Split, the number of shares of common stock issuable
upon exercise or conversion of outstanding stock options and warrants will
be
rounded to the nearest whole share and no cash payment will be made in respect
of such rounding. No fractional shares of common stock will be issued in
connection with the proposed Effective Reverse Stock Split. Holders of common
stock who would otherwise receive a fractional share of common stock pursuant
to
the Effective Reverse Stock Split will receive cash in lieu of the fractional
share as explained more fully below.
The
par
value of our common stock and preferred stock would remain at $0.01 per share
following the effective time of the Effective Reverse Stock Split.
Effective
Date
If
the
proposed Reverse Stock Splits are approved at the Annual Meeting and the board
elects to proceed with the Effective Reserve Stock Split in one of the approved
ratios, the Effective Reverse Stock Split would become effective as of 5:00
p.m.
Eastern time on the date of filing (the “Effective Date”) of the applicable
certificate of amendment to the Certificate of Incorporation with the office
of
the Secretary of State of the State of Delaware. Except as explained below
with
respect to fractional shares, on the Effective Date, shares of common stock
issued and outstanding immediately prior thereto will be, automatically and
without any action on the part of the stockholders, combined, converted and
changed into new shares of common stock in accordance with the Effective Reverse
Stock Split ratio determined by the board within the limits set forth in this
proposal.
Exchange
of Stock Certificates
Shortly
after the Effective Date, each holder of an outstanding certificate theretofore
representing shares of common stock will receive from the Register and Transfer
Company, Inc., as our exchange agent (the “Exchange Agent”) for the Effective
Reverse Stock Split, instructions for the surrender of such certificate to
the
Exchange Agent. Such instructions will include a form of transmittal letter
to
be completed and returned to the Exchange Agent. As soon as practicable after
the surrender to the Exchange Agent of any certificate that prior to the
Effective Reverse Stock Split represented shares of common stock, together
with
a duly executed transmittal letter and any other documents the Exchange Agent
may specify, the Exchange Agent shall deliver to the person in whose name such
certificate had been issued certificates registered in the name of such person
representing the number of full shares of common stock into which the shares of
common stock previously represented by the surrendered certificate shall have
been reclassified and a check for any amounts to be paid in cash in lieu of
any
fractional share. Until surrendered as contemplated herein, each certificate
that immediately prior to the Effective Reverse Stock Split represented any
shares of common stock shall be deemed at and after the Effective Reverse Stock
Split to represent the number of full shares of common stock contemplated by
the
preceding sentence. Each certificate representing shares of common stock issued
in connection with the Effective Reverse Stock Split will continue to bear
any
legends restricting the transfer of such shares that were borne by the
surrendered certificates representing the shares of common stock.
No
service charges, brokerage commissions or transfer taxes shall be payable by
any
holder of any certificate that prior to approval of the Effective Reverse Stock
Split represented any shares of common stock, except that if any certificates
of
common stock are to be issued in a name other than that in which the
certificates for shares of common stock surrendered are registered, it shall
be
a condition of such issuance that:
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The
person requesting such issuance pay to us any transfer taxespayable
by
reason of such issuance or any prior transfer of such certificate,
or
establish to our satisfaction that such taxes have been paid or are
not
payable;
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Such
transfer comply with all applicable federal and state securities
laws;
and
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Such
surrendered certificate be properly endorsed and otherwise be in
proper
form for transfer.
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No
Appraisal Rights
Under
Delaware law, our stockholders would not be entitled to dissenter’s or appraisal
rights with respect to the Effective Reverse Stock Split.
Cash
Payment in Lieu of Fractional Shares
In
lieu
of any fractional shares to which a holder of common stock would otherwise
be
entitled as a result of the Effective Reverse Stock Split, we shall pay cash
equal to such fraction multiplied by the average of the high and low trading
prices of our common stock on the Nasdaq Capital Market during regular trading
hours for the five trading day period ending on the last business day
immediately preceding the Effective Date.
Federal
Income Tax Consequences of the Effective Reverse Stock
Split
The
following is a summary of the material United States federal income tax
consequences of the Effective Reverse Stock Split, but does not purport to
be a
complete analysis of all the potential tax considerations relating thereto.
This
summary is based upon the provisions of the Internal Revenue Code of 1986,
as
amended, or the Code, Treasury regulations promulgated thereunder,
administrative rulings and judicial decisions, all as of the date hereof. These
authorities may be changed, possibly retroactively, so as to result in United
States federal income tax consequences different from those set forth below.
We
have not sought any ruling from the Internal Revenue Service, or IRS, with
respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree with such
statements and conclusions.
This
summary also does not address the tax considerations arising under the laws
of
any foreign, state or local jurisdiction. In addition, this discussion does
not
address tax considerations applicable to an investor’s particular circumstances
or to investors that may be subject to special tax rules, including, without
limitation:
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banks,
insurance companies, or other financial
institutions;
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persons
subject to the alternative minimum
tax;
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tax-exempt
organizations;
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persons
that are partnerships or other pass-through entities;
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dealers
in securities or currencies;
|
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traders
in securities that elect to use a mark-to-market method of accounting
for
their securities holdings;
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persons
that own, or are deemed to own, more than five percent of our Company
(except to the extent specifically set forth
below);
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certain
former citizens or long-term residents of the United
States;
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persons
who hold our common stock as a position in a hedging transaction,
“straddle,” “conversion transaction” or other risk reduction transaction;
or
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persons
deemed to sell our common stock under the constructive sale provisions
of
the Code.
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YOU
ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL
AS
ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON
STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER
THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER
ANY
APPLICABLE TAX TREATY.
The
Company
We
believe the Effective Reverse Stock Split will constitute a reorganization
as
described in Section 368(a)(1)(E) of the Code. Accordingly, we will not
recognize taxable income, gain or loss in connection with the Effective Reverse
Stock Split split.
Stockholders
Who Receive Shares of Post-Effective Reverse Stock Split Common Stock
A
stockholder who receives only shares of post-Effective Reverse Stock Split
common stock in the transaction will not recognize gain or loss or dividend
income as a result of the Effective Reverse Stock Split, and the tax basis
and
holding period of such stockholder in shares of pre-Effective Reverse Stock
Split common stock will carry over as the tax basis and holding period of such
stockholder’s shares of post-Effective Reverse Stock Split common
stock.
A
stockholder who receives both shares of post-Effective Reverse Stock Split
common stock and cash in lieu of a fractional share will be treated as having
exchanged a portion of his or her shares of pre-Effective Reverse Stock Split
common stock for the shares of post-Effective Reverse Stock Split common stock
and as having had the balance of his or her pre-Effective Reverse Stock Split
shares redeemed by us in exchange for the cash payment. Gain, if any, realized
by such stockholders on the transaction will be recognized in an amount not
in
excess of the cash received. Recognized gain will be taxed either as a dividend
to the extent of the stockholder’s ratable share of our earnings and profits, if
any (as that term is used in Section 316 of Code) or as capital gain. The
determination whether the receipt of cash has the effect of the distribution
of
a dividend is made by applying the rules under Section 302 of the Code (see
“Stockholders Who Receive Only Cash” below). The tax basis and holding period of
such stockholder in shares of pre-Effective Reverse Stock Split common stock
generally will carry over as the tax basis and holding period of such
stockholder’s shares of post-Effective Reverse Stock Split common
stock.
Stockholders
Who Receive Only Cash
A
stockholder who receives only cash in the Effective Reverse Stock Split will
be
treated as having such shares redeemed in a taxable transaction governed by
Section 302 of the Code and, depending on a stockholder’s situation, the
transaction will be taxed as either:
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A
sale or exchange of the redeemed shares, in which case the stockholder
will recognize gain or loss equal to the difference between the cash
payment and the stockholder’s tax basis for the redeemed shares; or
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A
cash distribution which is treated: (a) first, as a taxable dividend
to
the extent of allocable earnings and profits, if any; (b) second
as a
tax-free return of capital to the extent of the stockholder’s tax basis in
the redeemed shares; and (c) finally, as gain from the sale or exchange
of
the redeemed shares.
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Amounts
treated as gain or loss from the sale or exchange of redeemed shares will be
capital gain or loss. Amounts treated as a taxable dividend are ordinary income
to the recipient; however, a corporate taxpayer (other than an S corporation)
may be allowed a dividends received deduction subject to applicable limitations
and other special rules. With respect to non-corporate taxpayers for taxable
years beginning before January 1, 2011, dividends are generally taxed at the
lower applicable capital gains rate provided certain holding period requirements
are met.
Under
Section 302 of the Code, a redemption of shares from a stockholder as part
of
the Efffective Reverse Stock Split will be treated as a sale or exchange of
the
redeemed shares if:
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the
Effective Reverse Stock Split results in a “complete termination” of
stockholder’s interest in the
company;
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the
receipt of cash is “substantially disproportionate” with respect to the
stockholder; or
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the
receipt of cash is “not essentially equivalent to a dividend” with respect
to the stockholder.
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These
three tests (the “Section 302 Tests”) are applied by taking into account not
only shares that a stockholder actually owns, but also shares that the
stockholder constructively owns pursuant to Section 318 of the Code. Under
the
constructive ownership rules of Section 318 of the Code, a stockholder is deemed
to constructively own shares owned by certain related individuals and entities
in which the stockholder has an interest in addition to shares directly owned
by
the stockholder. For example, an individual stockholder is considered to own
shares owned by or for his or her spouse and his or her children, grandchildren
and parents (“family attribution”). In addition, a stockholder is considered to
own a proportionate number of shares owned by estates or certain trusts in
which
the stockholder has a beneficial interest, by partnerships in which the
stockholder is a partner, and by corporations in which 50% or more in value
of
the stock is owned directly or indirectly by or for such stockholder. Similarly,
shares directly or indirectly owned by beneficiaries of estates of certain
trusts, by partners of partnerships and, under certain circumstances, by
stockholders of corporations may be considered owned by these entities (“entity
attribution”). A stockholder is also deemed to own shares which the stockholder
has the right to acquire by exercise of an option or by conversion or exchange
of a security. Constructively owned shares may be reattributed to another
taxpayer. For example, shares attributed to one taxpayer as a result of entity
attribution may be attributed from that taxpayer to another taxpayer through
family attribution.
A
stockholder who receives only cash in the Effective Reverse Stock Split and
does
not constructively own any shares of post-Effective Reverse Stock Split common
stock after the Effective Reverse Stock Split will have his or her interest
in
the Company completely terminated by the Effective Reverse Stock Split and
will
therefore receive sale or exchange treatment on his or her pre-Effective Reverse
Stock Split common stock. That is, such a stockholder will recognize gain or
loss equal to the difference between the cash payment and the stockholder’s tax
basis for his or her pre-Effective Reverse Stock Split common
shares.
A
stockholder who receives only cash in the Effective Reverse Stock Split and
would only constructively own shares of post-Effective Reverse Stock Split
common stock after the Effective Reverse Stock Split as a result of family
attribution may be able to avoid constructive ownership of the shares of
post-Effective Reverse Stock Split common stock by waiving family attribution
and, thus, be treated as having had his or her interest in the Company
completely terminated by the Effective Reverse Stock Split. Among other things,
waiving family attribution requires (a) that the stockholder have no interest
in
the Company (including as an officer, director, employee or stockholder) other
than an interest as a creditor and does not acquire such an interest during
the
ten-year period immediately following the Effective Reverse Stock Split other
than stock acquired by bequest or inheritance and (b) including an election
to
waive family attribution in the stockholder’s tax return for the year in which
the Effective Reverse Stock Split occurs.
A
stockholder who receives cash in the Effective Reverse Stock Split and
immediately after the Effective Reverse Stock Split actually or constructively
owns shares of post-Effective Reverse Stock Split common stock must compare
(a)
his or her percentage ownership immediately before the Effective Reverse Stock
Split (i.e.,
the
number of voting shares actually or constructively owned by him or her
immediately before the Effective Reverse Stock Split divided by the number
of
voting shares outstanding immediately before the Effective Reverse Stock Split)
with (b) his or her percentage ownership immediately after the Effective Reverse
Stock Split (i.e.,
the
number of voting shares actually or constructively owned by him or her
immediately after the Effective Reverse Stock Split divided by the number of
voting shares outstanding immediately after the Effective Reverse Stock
Split).
If
the
stockholder’s post-Effective Reverse Stock Split ownership percentage is less
than 80% of the stockholder’s pre-Effective Reverse Stock Split ownership
percentage, the receipt of cash is “substantially disproportionate” with respect
to the stockholder, and the stockholder will, therefore, receive sale or
exchange treatment on the portion of his or her shares of pre-Effective Reverse
Stock Split common stock exchanged for cash in lieu of fractional
shares.
If
the
receipt of cash by a stockholder fails to constitute an “exchange” under the
“substantially disproportionate” test or the “complete termination” test, the
receipt of cash may constitute an “exchange” under the “not essentially
equivalent to a dividend” test. The receipt of cash by a stockholder will be
“not essentially equivalent to a dividend” if the transaction results in a
“meaningful reduction” of the stockholder’s proportionate interest in the
Company. If (a) the stockholder exercises no control over the affairs of the
Company (e.g.,
is not
an officer, director or high ranking employee), (b) the stockholder’s relative
stock interest in the Company is minimal, and (c) the stockholder’s
post-Effective Reverse Stock Split ownership percentage is less than the
stockholder’s pre-Effective Reverse Stock Split ownership percentage, the
receipt of cash will generally be “not essentially equivalent to a dividend”
with respect to the stockholder and the stockholder will, therefore, receive
sale or exchange treatment on the portion of his or her shares of pre-Effective
Reverse Stock Split common stock exchanged for cash in lieu of fractional
shares.
In
all
other cases, cash in lieu of fractional shares received by a stockholder who
immediately after the Effective Reverse Stock Split actually or constructively
owns shares of post-Effective Reverse Stock Split common stock will be treated:
(a) first, as a taxable dividend to the extent of allocable earnings and
profits, if any; (b) second as a tax-free return of capital to the extent of
the
stockholder’s tax basis in the redeemed shares; and (c) finally, as gain from
the sale or exchange of the redeemed shares.
Backup
Tax Withholding
We
are
required to furnish to the record holders of common stock, other than
corporations and other exempt holders, and to the IRS, information with respect
to dividends paid on the common stock.
You
may
be subject to backup withholding with respect to proceeds received from a
disposition of the shares of common stock. Certain holders (including, among
others, corporations and certain tax-exempt organizations) are generally not
subject to backup withholding. You will be subject to backup withholding if
you
are not otherwise exempt and you (a) fail to furnish your taxpayer
identification number (“TIN”), which, for an individual, is ordinarily his or
her social security number; (b) furnish an incorrect TIN; (c) are notified
by
the IRS that you have failed to properly report payments of interest or
dividends; or (d) fail to certify, under penalties of perjury, that you have
furnished a correct TIN and that the IRS has not notified you that you are
subject to backup withholding. Backup withholding is not an additional tax
but,
rather, is a method of tax collection. You generally will be entitled to credit
any amounts withheld under the backup withholding rules against your United
States federal income tax liability provided that the required information
is
furnished to the IRS in a timely manner.
We
will
not recognize any gain or loss as a result of the Effective Reverse Stock
Split.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE
AUTHORIZATION FOR THE REVERSE STOCK SPLIT.
PROPOSAL
NO. 3
APPROVAL
OF THE EIGHTH AMENDED AND
RESTATED
1998 EQUITY PARTICIPATION PLAN
On
May
24, 2006,
our
Board of Directors, subject to stockholder approval, unanimously adopted the
Eighth Amended and Restated 1998 Equity Participation Plan of Tegal Corporation
(the “Plan”). The 1998 Equity Participation Plan, as amended and restated since
last approved by Tegal stockholders, has been amended to specifically allow
the
repricing of any issued but unexercised stock option or Stock Appreciation
Rights (“SARs”) held by employees and consultants.
If we
do not obtain stockholder approval, we will not implement the proposed 1998
Equity Participation Plan. However, the Seventh Amended and Restated 1998
Participation Plan will remain in effect.
The
Board
of Directors believes that approval of the the Plan is
necessary.
The
Board
of Directors believes that the amendment and restatement of the 1998 Equity
Participation Plan is
necessary
in order
to retain current employees and to be able to provide them with the appropriate
equity incentives. All outstanding options have an exercise price in excess
of
the current fair market value, with the average exercise price being $1.11.
Accordingly, the original purpose of the options in linking executives’
interests to shareholders is not being realized at this time. Given the industry
practice of providing meaningful equity based compensation, the Board believes
that it may be necessary to replace the current options with either new options
or other forms of equity. Such a replacement could be considered a repricing
of
such options. Current Nasdaq rules, require shareholder approval of an option
repricing unless the plan specifically provides for the ability to reprice
options and stock appreciation rights. [Accordingly, the Board is recommending
adoption of the amended and restated 1998 Equity Participation Plan in order
to
give it the flexibility to reprice options to the extent it determines repricing
is necessary to retain current employees.] or [Accordingly, the Board is
recommending adoption of the amended and restated 1998 Equity Participation
Plan
in order to allow it to reprice options in order to retain current
employees.]
The
amended and restated Plan will become effective immediately upon stockholder
approval at the Annual Meeting.
The
original purpose of the Plan is:
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• |
to
enable The Company to retain the services of consultants while preserving
The Company’s cash reserves by granting equity
awards or restricted stock units in
lieu of cash payments;
|
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|
• |
to
provide an incentive for key employees and consultants of The Company
to
further the growth, development and financial success of The Company
by
personally benefiting through the ownership of The Company’s stock and/or
rights which recognize such growth, development and financial success;
and
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• |
to
enable The Company to obtain and retain the services of key employees
considered essential in the long-range success of The Company by
offering
them an opportunity to own stock in The Company and/or rights which
will
reflect the growth, development and financial success of The Company.
|
Summary
As
of
March 31, 2006, 20,000,000
shares were reserved for issuance under the Plan, of which
10,824,676
remained
available for issuance, and 8,055,510 shares were subject to outstanding awards.
The
principal features of the Plan are summarized below, but the summary is
qualified in its entirety by reference to the Plan which is attached as Appendix
B to this proxy statement.
The
Plan
provides for the award of non-qualified and incentive stock options, restricted
stock, restricted stock units and stock appreciation rights (“SARs”) and
dividend equivalents (collectively “Awards”).
The
Plan
provides that the maximum number of shares that may be subject to any Awards
granted under the Plan to any individual in any fiscal year cannot exceed
4,000,000.
The
shares available for
issuance under the Plan
may be
either previously authorized but unissued shares or treasury shares, and may
be
equity securities other than common stock. The Plan provides for appropriate
adjustments in the number and kind of shares subject to the Plan and to
outstanding Awards thereunder (including acceleration of vesting in some
instances) in the event of a change in control or a recapitalization such as
a
stock split or stock dividend. If any portion of an Award terminates or lapses
unexercised, the shares which were subject to the unexercised portion of such
Award, will continue to be available for issuance under the Plan. In addition,
shares of restricted stock which are surrendered by the holder or repurchased
by
us and shares which are delivered to us by a participant or withheld by us
upon
the exercise of an Award in payment of the exercise price or in satisfaction
of
tax withholding obligations may again be optioned, granted or awarded under
the
Plan. No shares may again be optioned, granted or awarded under the Plan if
such
action would cause any option intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code of 1986, as amended (“Internal
Revenue Code”) to so qualify.
The
Compensation Committee of the Board of Directors administers the Plan. The
Compensation Committee consists of two or more independent directors appointed
by and holding office at the pleasure of the Board of Directors, each of whom
is
both a “non-employee director” for purposes of Rule 16b-3 (“Rule 16b-3”) under
the Exchange Act and an “outside director” for purposes of Section 162(m) of the
Internal Revenue Code. Appointment of committee members shall be effective
upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board of Directors. Vacancies in the committee
may be filled by the Board of Directors. The Compensation Committee will have
the power to interpret the Plan and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules. The Board of Directors will have
discretion to exercise any and all rights and duties of the committee under
the
Plan except with respect to matters which under Rule 16b-3 or Section 162(m)
of
the Internal Revenue Code, or any regulations or rules issued thereunder, are
required to be determined in the sole discretion of the Compensation
Committee.
Awards
under the Plan may be granted to individuals selected by the Compensation
Committee who are then our employees or consultants. Incentive stock options
may
only be granted to employees.
The
terms
and conditions of each award will be set forth in a separate award agreement
between the holder of the award and us.
Nonqualified
stock options (“NQSOs”) provide for the right to purchase common stock at a
specified price which, except with respect to NQSOs intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code, may be less than fair market value on the date of grant (but not less
than
85% of fair market value), and usually will become exercisable, in the
discretion of the Compensation Committee in one or more installments after
the
grant date, subject to the participant’s continued provision of services to us
and/or subject to the satisfaction of individual or company performance targets
established by the Compensation Committee. NQSOs may be granted for any term
specified by the Compensation Committee.
Incentive
Stock Options (“ISOs”) will be designed to comply with the provisions of the
Internal Revenue Code and will be subject to certain restrictions contained
in
the Internal Revenue Code. Among such restrictions, ISOs must have an exercise
price not less than the fair market value of a share of common stock on the
date
of grant, may only be granted to employees, must expire within a specified
period of time following the optionee’s termination of employment, and must be
exercised within the ten years after the date of grant. In the case of an ISO
granted to an individual who owns (or is deemed to own) at least 10% of the
total combined voting power of all classes of our stock or the stock of our
parent or subsidiary corporations, the Plan provides that the exercise price
must be at least 110% of the fair market value of a share of common stock on
the
date of grant, and the ISO must expire upon the fifth anniversary of the date
of
its grant.
Restricted
stock may be sold to participants at various prices (but not below par value)
and made subject to such restrictions as may be determined by the Compensation
Committee. Restricted stock, typically, may be repurchased by us at the original
purchase price if the conditions or restrictions are not met. In general,
restricted stock may not be sold, or otherwise transferred or pledged, until
restrictions are removed or expire. Purchasers of restricted stock will have
all
the rights of a stockholder with respect to such restricted stock, including
the
right to receive all dividends and other distributions paid or made with respect
to the shares prior to the time when the restrictions lapse.
Restricted
stock units represent the right to receive shares of stock on a deferred basis.
Stock distributed pursuant to restricted stock units may be issued for a nominal
purchase price and restricted stock units may be subject to vesting over time
or
upon attainment of performance targets. Stock distributed pursuant to a
restricted stock unit award will not be issued before the restricted stock
unit
award has vested, and a participant granted a restricted stock unit award
generally will have no voting or dividend rights prior to the time when the
stock is distributed. The restricted stock unit award will specify when the
stock is to be distributed. The Compensation Committee may provide that the
stock will be distributed pursuant to a restricted stock unit award on a
deferred basis pursuant to a timely irrevocable election by the participant.
The
issuance of the stock distributable pursuant to a restricted stock unit award
may not occur prior to the earliest of: (1) a date or dates set forth in the
applicable award agreement, (2) the participant’s termination of employment or
service with us (or in the case of any officer who is a “specified employee” as
defined in Section 409A(a)(2)(B)(i) of the Code, six months after such
termination), (3) an unforeseeable financial emergency affecting the
participant, or (4) a change in control, as described below. Under no
circumstances may the time or schedule of distribution of stock pursuant to
a
restricted stock unit award be accelerated.
SARs
may
be granted in connection with stock options, or separately. SARs granted by
the
Compensation Committee in connection with stock options typically will provide
for payments to the holder based upon increases in the price of our common
stock
over the exercise price of the related option. SARs granted by the Compensation
Committee independent of a stock option typically will provide for payments
to
the holder based upon increases in the price of our common stock over the
exercise price of such independent SAR. Except as required by Section 162(m)
of
the Internal Revenue Code with respect to a SAR which is intended to qualify
as
performance-based compensation as described in Section 162(m) of the Internal
Revenue Code, there are no restrictions specified in the Plan on the exercise
of
SARs or the amount of gain realizable therefrom, although restrictions may
be
imposed by the Compensation Committee in the SAR agreements. The Compensation
Committee may elect to pay SARs in cash or in common stock or in a combination
of both.
Dividend
Equivalent rights give the holder the right to receive payments equal to the
amount of dividends that the holder would otherwise receive on shares subject
to
any other Award.
Subject
to stockholder approval of this Proposal 3, the Plan has been amended to
expressly provide that the Compensation Committee may reduce or lower the
exercise price, purchase price or initial value of stock options and SARs after
they have been granted without prior stockholder approval. Without the approval
of the amendment to the Plan described in this Proposal 3, the Plan will
continue to not permit repricing of such awards.
The
Compensation Committee may at any time amend, suspend or terminate the Plan.
However, no such amendment may, unless appropriate stockholder approval of
such
amendment is obtained, (1) increase the maximum number of shares which may
be
acquired pursuant to awards granted under the Plan (except for adjustments
described above) or (2) increase the maximum number of shares of common stock
(4,000,000) for which awards may be issued during any fiscal year to any
participant. No amendment of the Plan may alter or impair any rights or
obligations under any awards already granted unless the holder of the award
consents or the award otherwise provides.
Assuming
approval of this Proposal No. 3, no awards may be granted under the Plan after
July 21, 2016.
Securities
Laws and Federal Income Taxes
The
following discussion is a general summary of the material federal income tax
consequences to participants in the Plan. The discussion is based on the
Internal Revenue Code, regulations thereunder, rulings and decisions now in
effect, all of which are subject to change. The summary does not discuss all
aspects of federal income taxation that may be relevant to a particular
participant in light of such participant’s personal investment circumstances.
Also, state and local income taxes are not discussed and may vary from locality
to locality. Accordingly, holders should not rely thereon for individual tax
advice, as each taxpayer’s situation and the consequences of any particular
transaction will vary depending upon the specific facts and circumstances
involved. Each taxpayer is advised to consult with his or her own tax advisor
for particular federal, as well as state and local, income and any other tax
advice.
Securities
Laws. The
Plan
is intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the SEC thereunder, including, without limitation, Rule 16b-3.
The Plan will be administered, and awards will be granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To
the
extent permitted by applicable law, the Plan and awards granted thereunder
shall
be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
Nonqualified
Stock Options. NQSOs
are
not intended to be incentive stock options under Section 422 of the Internal
Revenue Code. The grant of an NQSO is generally not a taxable event either
for
the optionee or for The Comapny. Upon the exercise of an NQSO, the optionee
generally will recognize ordinary income in an amount equal to the excess of
the
fair market value of the shares acquired upon exercise, determined at the date
of exercise, over the exercise price of such option. Subject to Section 162(m)
of the Internal Revenue Code, The Company will be entitled to a business expense
deduction equal to such amount in the fiscal year of the Company in which the
optionee exercises the NQSO. The ordinary income recognized by the optionee
is
subject to income and employment tax withholding. The optionee’s tax basis in
the shares acquired pursuant to the exercise of an NQSO will be equal to the
option price paid plus the amount of ordinary income recognized upon exercise.
Any gain or loss on a disposition of the common stock acquired upon the exercise
of an NQSO will be treated as short-term or long-term capital gain or loss,
subject to income taxation at short-term or long-term capital gains rates
depending on the holding period of the optionee measured from the date of the
exercise of such option. There are generally no federal income tax consequences
to The Company by reason of the disposition by an optionee of common stock
acquired upon the exercise of an NQSO.
Incentive
Stock Options. Generally,
an optionee recognizes no taxable income upon the grant or exercise of an ISO
that meets the requirements of Section 422 of the Code. However, the amount
by
which the fair market value of the common stock acquired at the time of exercise
exceeds the option exercise price (the “spread”) is taken into the account in
determining the amount, if any, of the alternative minimum tax due from the
optionee in the year in which the option is exercised.
If
an
optionee holds the common stock acquired through the exercise of an ISO for
more
than two years from the date on which the option was granted and more than
one
year from the date on which the option was exercised, and if the optionee is
an
employee of the Company at all times from the date of the grant of the ISO
through the date that is three months before the date of exercise, any gain
or
loss on the subsequent disposition of such common stock will be taxed to such
optionee as long-term capital gain or loss equal to the difference between
consideration received upon such disposition and the option exercise
price.
Generally,
if an optionee disposes of the common stock received on exercise of an ISO
less
than two years after the date the option was granted or less than one year
after
the date the option was exercised, it is considered to be a “disqualifying
disposition.” At the time of such disqualifying disposition, the optionee will
recognize ordinary income in the amount equal to the lesser of (i) the fair
market value of the common stock on the date of exercise over the option
exercise price; or (ii) the amount received for the common stock over the option
exercise price. Any gain in excess of this amount will be taxed as capital
gain.
To
the
extent that an optionee recognizes ordinary income by reason of a disqualifying
disposition of common stock acquired upon the exercise of any ISO, the Company
generally will be entitled to a corresponding business expense deduction in
the
fiscal year of the Company in which the disqualifying disposition
occurs.
Restricted
Stock. A
holder
of restricted stock generally will recognize ordinary income in an amount equal
to the excess of the fair market value of the common stock (determined without
regard to any restrictions other than those that by their terms never lapse)
over the amount, if any, paid for the common stock on the earlier of the date
on
which: (i) the common stock is no longer subject to a substantial risk of
forfeiture or (ii) is transferable (without the transferee being subject to
a
substantial risk of forfeiture For purposes of determining the holder’s income
resulting from the receipt of the common stock, the fair market value will
be
determined as of that date.
In
the
alternative, if the holder files an election with the Internal Revenue Service
pursuant to Section 83(b) of the Code within 30 days of the receipt of the
common stock pursuant to an award of restricted stock, the holder will be taxed
in the year the common stock is received on the difference between the fair
market value of the common stock at the time of receipt and the amount paid
for
the common stock, if any. This amount will be taxed as ordinary income. If
shares with respect to which a Section 83(b) election has been made are later
forfeited, the holder generally will be entitled to a capital loss only in
an
amount equal to the amount, if any, that the holder had paid for the forfeited
shares, not the amount that the holder had recognized as income as a result
of
the Section 83(b) election. Subject to Section 162(m) of the Internal Revenue
Code, the Company is entitled to a business expense deduction that corresponds
to the amount of ordinary income recognized by the holder in the Company’s
fiscal year in which such ordinary income is recognized by the
holder.
Restricted
Stock Units.
For
federal income tax purposes, if an individual is granted restricted stock units,
he or she generally will not have taxable income on the grant of the restricted
stock units, nor will the Company then be entitled to any deduction. However,
when shares of our common stock are distributed to the individual pursuant
to
the restricted stock units, he or she generally will recognize ordinary income,
and the Company will be entitled to a corresponding deduction, for an amount
equal to the difference between the fair market value of the shares at the
date
of distribution over the purchase price per share for the stock issuable
pursuant to the restricted stock units.
Stock
Appreciation Rights. Generally,
the holder of a SAR recognizes no income upon the grant of a SAR. Upon exercise,
the holder will recognize as ordinary income the excess of the value of the
SAR
on the date of exercise over the value as of the date of grant. The Company
is
entitled to a business expense deduction that corresponds to the amount of
ordinary income recognized by the holder in the Company’s fiscal year in which
the SAR is exercised.
Section
162(m) Limitation. In
general, under Section 162(m) of the Internal Revenue Code, income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises,
transfers of property and benefits paid under non-qualified plans) for certain
executive officers exceeds $1 million in any one year. However, under Section
162(m), the deduction limit does not apply to certain “performance-based
compensation.”
Under
Section 162(m), stock options and SARs will satisfy the “performance-based
compensation” exception if the award of the options or SARs are made by a Board
of Directors committee consisting solely of two or more “outside directors,” the
plan sets the maximum number of shares that can be granted to any person within
a specified period and the compensation is based solely on an increase in the
stock price after the grant date (i.e. the option or SAR exercise price is
equal
to or greater than the fair market value of the stock subject to the award
on
the grant date). Other types of awards such as restricted stock may only qualify
as “performance-based compensation” if such awards are only granted or payable
to the recipients based upon the attainment of objectively determinable and
pre-established performance goals which are established by a qualifying
committee and which relate to performance targets which are approved by the
corporation’s shareholders.
The
Plan
has been designed to permit a committee of outside directors, within the meaning
of Section 162(m), to grant stock options and SARs that will qualify as
“performance-based compensation.” In addition, in order to permit awards other
than stock options and SARs to qualify as “performance-based compensation”, the
Plan provides that the Compensation Committee may designate as “Section 162(m)
Participants” certain employees whose compensation for a given fiscal year may
be subject to the limit on deductible compensation imposed by Section 162(m)
of
the Internal Revenue Code. The Compensation Committee may grant awards to
Section 162(m) Participants that vest or become exercisable upon the attainment
of performance targets established by the Compensation Committee.
Section
409A of the Internal Revenue Code.
Section
409A of the Internal Revenue Code, which was added by the American Jobs Creation
Act of 2004, provides certain new requirements on non-qualified deferred
compensation arrangements. These include new requirements on an individual’s
election to defer compensation and the individual’s selection of the timing and
form of distribution of the deferred compensation. Also, Section 409A generally
provides that distributions must be made on or following the occurrence of
certain events (i.e., the individual’s separation from service, a predetermined
date, or the individual’s death). Section 409A imposes restrictions on an
individual’s ability to change his or her distribution timing or form after the
compensation has been deferred. For certain individuals who are officers,
Section 409A requires that such individual’s distribution commence no earlier
than six months after such officer’s separation from service.
Certain
awards under the Plan may be subject to the requirements of Section 409A in
form
and in operation. For example, the following types of awards generally will
be
subject to Section 409A: non-qualified stock options granted with an exercise
price less than fair market value on the date of grant, restricted stock unit
awards, stock appreciation rights that may be settled in cash and other awards
that provide for deferred compensation.
If
a Plan
award is subject to and fails to satisfy the requirements of Section 409A,
the
recipient of that award may recognize the compensation deferred under the award
as ordinary income when such amounts are vested, which may be prior to when
the
compensation is actually or constructively received. Also, if an award that
is
subject to Section 409A fails to comply, Section 409A imposes an additional
20%
federal income tax on the deferred compensation recognized as ordinary income,
as well as interest on such deferred compensation. The Internal Revenue Service
has not issued regulations under Section 409A and, accordingly, the requirements
of Section 409A (and the application of those requirements to awards issued
under the Plan) are not entirely clear.
Plan
Benefits
The
following table presents those Named Executive Officers, executive officers
as a
group, and non-executive officer employees as a group having received option
grants and restricted stock units under the Plan since its inception:
|
Name
of Individual or Group
|
Number
of Units Granted
|
Dollar
Value of Units Granted(1)
|
|
Thomas
R. Mika
|
1,150,000
|
$900,550
|
|
Christine
T. Hergenrother
|
215,000
|
$163,509
|
|
Steven
Selbrede
|
278,140
|
$285,949
|
|
Vahan
Tchakerian
|
317,882
|
$323,923
|
|
All
executive officers (7 individuals), as a
group
|
5,161,022
|
$3,620,321
|
|
All
employees who are not executive officers, as a group
|
2,699,396
|
$2,398,753
|
__________
| (1) |
Dollar
Value of Shares Granted is an estimate based on the values calculated
when
applying the Black-Scholes Single Option Valuation Method, which
does not
take into account the vesting term and consequent exercisability
of any
individual option. The restricted stock units are valued at the closing
price of our stock on the day of
grant.
|
On
July
5, 2005, the Compensation Committee approved the issuance of 600,000 restricted
stock units under the Plan to Brad Mattson, the Chairman of our Board of
Directors. The restricted stock units are fully vested. Each restricted stock
unit will entitle Mr. Mattson to receive one share of our common stock. The
shares of our common stock distributable pursuant to the restricted stock units
will not be distributed until the earliest of: (1) March 6, 2006, (2) Mr.
Mattson’s termination of employment or service with us, (3) Mr. Mattson’s death
or disability, or (4) the date immediately prior to a change in control. Under
no circumstances may the time or schedule of distribution of stock pursuant
to
the restricted stock units be accelerated. The restricted stock units will
be
distributed in a lump sum in shares of our common stock on the applicable
distribution date (except in the case of a distribution commencing on March
6,
2006, in which case the shares will be distributed in three equal quarterly
installments on March 6, 2006, May 29, 2006 and August 28, 2006). Mr. Mattson
will have no voting or dividend rights prior to the time when our common stock
is distributed pursuant to the restricted stock units.
In
addition, Mr. Mattson was granted an additional 400,000 restricted stock units
under the Plan on September 13, 2005. Each restricted stock unit entitles Mr.
Mattson to receive one share of our common stock. The shares of our common
stock
distributable pursuant to the restricted stock units will not be distributed
until the earliest of: (1) November 20, 2006, (2) Mr. Mattson’s termination of
employment or service with us, (3) Mr. Mattson’s death or disability, or (4) the
date immediately prior to a change in control. Under no circumstances may the
time or schedule of distribution of stock pursuant to the restricted stock
units
be accelerated. The restricted stock units will be distributed in a lump sum
in
shares of our common stock on the applicable distribution date (except in the
case of a distribution commencing on November 20, 2006, in which case the shares
will be distributed in two equal installments on November 27, 2006 and February
26, 2007). Mr. Mattson will have no voting or dividend rights prior to the
time
when our common stock is distributed pursuant to the restricted stock units.
On
July
5, 2005, the Compensation Committee also approved the issuance of 150,000
restricted stock units under the Plan to Thomas R. Mika, our Chief Executive
Officer. The restricted stock units granted to Mr. Mika are fully vested. Each
restricted stock unit will entitle Mr. Mika to receive one share of our common
stock. The shares of our common stock distributable pursuant to the restricted
stock units will not be distributed until the earliest of: (1) June 13, 2008
(2)
Mr. Mika’s termination of employment or service with us, (3) Mr. Mika’s death or
disability, or (4) the date immediately prior to a change in control. Under
no
circumstances may the time or schedule of distribution of stock pursuant to
the
restricted stock units be accelerated. The restricted stock units will be
distributed 150,000 in shares of our common stock on the applicable distribution
date. Mr. Mika will have no voting or dividend rights prior to the time when
our
common stock is distributed pursuant to the restricted stock units.
All
future grants under the Plan are within the discretion of the Compensation
Committee and the benefits of such grants are, therefore, not determinable.
Required
Vote
The
approval of a majority of the shares of common stock present
or represented by proxy and entitled
to vote
at
the Annual Meeting is
required for approval of Proposal
No. 3.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE EIGHTH
AMENDED AND RESTATED 1998 EQUITY PARTICIPATION PLAN.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER
EQUITY
COMPENSATION PLANS
The
following table sets forth information as of March 31, 2006 for all of our
equity compensation plans, including our 1998 Equity Participation Plan, our
1990 Stock Option Plan, our Equity Incentive Plan and our Stock Option Plan
for
Outside Directors.
|
Plan
Category
|
Number
of Securities to be Issued upon Exercise of all
Outstanding
Awards
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of Securities
Remaining
Available for
Future
Issuance Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected
in Column(a))
|
| |
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders
|
9,157,664
|
$1.19
|
13,799,676
(1)
|
|
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
|
Total
|
9,157,664
|
$1.19
|
13,799,676
(1)
|
__________
(1) Excludes
507,602 shares remaining available for future issuance under our Employee
Qualified Stock Purchase Plan.
PRINCIPAL
STOCKHOLDERS AND
OWNERSHIP
OF STOCK BY MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of shares of our common stock by our directors, the individuals named in the
Summary Compensation Table, all directors and executive officers as a group
and
beneficial owners of more than 5% of our common stock as of May 19, 2006. For
purposes of this proxy, beneficial ownership of securities is defined in
accordance with the rules of the SEC and means generally the power to vote
or
dispose of securities, regardless of any economic interest therein. An asterisk
denotes beneficial ownership of less than 1%.
|
Name
of Beneficial Owner
|
Position
|
Shares
Beneficially Owned (1) (
# )
|
Percent
Of Class (1)
(
% )
|
|
Brad
S. Mattson (2)
|
Chairman
of the Board
|
2,310,000
|
2.74
|
|
Thomas
R. Mika (3)
|
President
& CEO
|
1,026,500
|
1.22
|
|
Christine
T. Hergenrother (4)
|
Vice
President & CFO
|
81,042
|
*
|
|
Steven
Selbrede (5)
|
Vice
President & CTO
|
409,390
|
*
|
|
Vahan
Tchakerian (6)
|
Vice
President of Global Sales
|
178,299
|
*
|
|
Ralph
Martin (7)
|
Director
|
100,000
|
*
|
|
Jeffrey
M. Krauss (8)
|
Director
|
370,665
|
*
|
|
Edward
A. Dohring (9)
|
Director
|
362,665
|
*
|
|
Duane
Wadsworth (10)
|
Director
|
201,665
|
*
|
|
Directors
and Executive Officers as a group (11 individuals) (11)
|
|
5,040,226
|
5.98
|
|
5%
Stockholders
|
|
|
|
|
Bonanza
Capital (12)
|
Investor
|
9,230,769
|
10.57
|
|
Special
Situations Funds (13)
|
Investor
|
24,334,728
|
26.11
|
______
| (1) |
Applicable
percentage of ownership is based on 84,253,058 shares of common stock
outstanding as of May 19, 2006. The number of shares of common stock
beneficially owned and calculation of percent ownership of each person
or
group of persons named above, in each case, takes into account those
shares underlying warrants and stock options that are currently
exercisable, but which may or may not be subject to our repurchase
rights
held by such person or persons but not for any other
person.
|
| (2) |
Includes
options to purchase 1,400,000 shares of common stock which are exercisable
within 60 days and excludes options to purchase 0 shares which are
not so
exercisable.
|
| (3) |
Includes
options to purchase 812,500 shares of common stock which are exercisable
within 60 days and excludes options to purchase 187,500 shares which
are
not so exercisable.
|
| (4) |
Includes
options to purchase 78,542 shares of common stock which are exercisable
within 60 days and excludes options to purchase 136,458 shares which
are
not so exercisable.
|
| (5) |
Includes
options to purchase 209,390 shares of common stock which are exercisable
within 60 days and excludes options to purchase 68,750 shares which
are
not so exercisable.
|
| (6) |
Includes
options to purchase 178,299 shares of common stock which are exercisable
within 60 days and excludes options to purchase 139583 shares which
are
not so exercisable.
|
| (7) |
Includes
options to purchase 100,000 shares of common stock which are exercisable
within 60 days and excludes options to purchase 0 shares which are
not so
exercisable.
|
| (8) |
Includes
options to purchase 341,665 shares of common stock which are exercisable
within 60 days and excludes options to purchase 8,335 shares which
are not
so exercisable.
|
| (9) |
Includes
options to purchase 361,665 shares of common stock which are exercisable
within 60 days and excludes options to purchase 8,335 shares which
are not
so exercisable.
|
| (10) |
Includes
options to purchase 161,665 shares of common stock which are exercisable
within 60 days and excludes options to purchase 8,335 shares which
are not
so exercisable.
|
| (11) |
Includes
options to purchase 3,643,726 shares of common stock which are exercisable
within 60 days and excludes options to purchase 1,357,296 shares
which are
not so exercisable.
|
| (12) |
Includes
6,153,846 shares of common stock and 3,076,923 shares of common stock
underlying warrants beneficially owned by Bonanza Capital. Bonanza
Master
Fund LTD holds 5,033,846 shares of common stock and 2,516,923 shares
of
common stock underlying warrants; Bonanza Capital holds 1,120,000
shares
of common stock and 560,000 shares of common stock underlying warrants.
Brian Ladin is the portfolio manager for Bonanza Capital, whose offices
are located at 300 Crescent Court, Suite 1740, Dallas, TX
75201.
|
| (13) |
Includes
15,384,615 shares of common stock and 8,950,113 shares of common
stock
underlying warrants beneficially owned by Special Situations Funds.
Special Situations Fund III, L.P., holds 662,086 shares of common
stock
and 331,042 shares of common stock underlying warrants; Special Situations
Fund III QP, L.P. holds 7,553,299 shares of common stock and 3,776,650
shares of common stock underlying warrants; Special Situations Cayman
Fund, L.P., holds 2,076,923 shares of common stock and 1,038,462
shares of
common stock underlying warrants; Special Situations Private Equity
Fund,
L.P., holds 2,141,538 shares of common stock and 1,816,712 shares
of
common stock underlying warrants; Special Situations Technology Fund,
L.P., holds 404,615 shares of common stock and 287,292 shares of
common
stock underlying warrants; and Special Situations Technology Fund
II,
L.P., holds 2,546,154 shares of common stock and 1,699,955 shares
of
common stock underlying warrants. MGP Advisers Limited ("MGP") is
the
general partner of Special Situations Fund III, L.P. and Special
Situations Fund III QP, L.P. AWM Investment Company, Inc. (“AWM”) is the
general partner of MGP and the general partner of and investment
adviser
to the Special Situations Cayman Fund, L.P. SST Advisers, L.L.C.
("SSTA")
is the general partner of and investment adviser to the Special Situations
Technology Fund, L.P. and the Special Situations Technology Fund
II, L.P.
MG Advisers, L.L.C. (“MG”) is the general partner of and investment
adviser to the Special Situations Private Equity Fund, L.P. Austin
W.
Marxe and David M. Greenhouse are the principal owners of MGP, AWM,
SSTA
and MG. Through their control of MGP, AWM, SSTA and MG, Messrs. Marxe
and
Greenhouse share voting and investment control over the portfolio
securities of each of the funds listed above. Special Situations
Funds are
located at 527 Madison Avenue, Suite 2600, New York, NY 10022.
|
Effective
January 1, 2006 Special Situations Fund III, L.P. split into two funds, the
Special Situations Fund III, L.P. and the Special Situations Fund III QP, L.P.
MGP Advisers Limited Partnership is the investment adviser and general partner
to both funds.
PROPOSAL
NO. 4
RATIFICATION
OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
Our
Board
of Directors appointed the firm of Moss Adams LLP, Independent Registered Public
Accounting Firm, to audit our financial statements for the fiscal year ending
March 31, 2007.
We
expect representatives of Moss Adams LLP to be present at the Annual Meeting
and will
have the opportunity to respond to appropriate questions and to make a statement
if they desire.
Previous
Changes in Independent Registered
Public Accounting Firm
On
July
8, 2004, our Audit Committee dismissed PricewaterhouseCoopers LLP, our
Independent Registered Public Accounting Firm. We decided to change accounting
firms in order to reduce costs as part of our ongoing efforts to reduce
operating expenses. PricewaterhouseCoopers LLP’s reports on our consolidated
financial statements as of, and for the years ended, March 31, 2004 and 2003
contained no adverse opinion or disclaimer of opinion and were not qualified
or
modified as to uncertainty, audit scope or accounting principle, except for
an
explanatory paragraph included in each of such reports which explanatory
paragraph identified factors raising substantial doubt about our ability to
continue as a going concern.
During
the period from April 1, 2002 through July 8, 2004, there were no disagreements
with PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto
in
its reports on our consolidated financial statements as of and for the years
ended March 31, 2004 and 2003. During the period from April 1, 2002 through
July
8, 2004, there were no reportable events, as that term is defined in Item
304(a)(1)(v) of Regulation S-K, except for a reportable condition related to:
our accounting for its 2% Convertible Debentures Due 2011 (the “2% Convertible
Debentures”) together with related debt issuance costs; and the expertise of our
accounting personnel with respect to generally accepted accounting principles
related to complex financing and other transactions. In response to the
reportable condition, we restated its financial results and filed an amended
quarterly report on Form 10-Q/A for the quarter ended December 31, 2003, which
corrected an error in the accounting for the 2% Convertible Debentures and
related debt issuance costs. The restatement reflected increased interest
expense, net loss, net loss per share, accumulated deficit and additional
paid-in capital as well as decreased current assets. The restatement did not
impact any reported revenue, operating expenses or operating loss. Management
believes that the reportable condition has been remediated. As of June 15,
2004,
all of our 2% Convertible Debentures had been converted into our common stock.
In addition, we expanded and enhanced our accounting function to include
sufficient knowledge of generally accepted accounting principles related to
complex financing and other transactions by adding a new certified public
accountant to our accounting staff on June 15, 2004.
We
have
provided PricewaterhouseCoopers LLP with a copy of the foregoing disclosures.
A
copy of PricewaterhouseCoopers LLP’s letter dated July 13, 2004, stating its
agreement with such statements, was filed as Exhibit 16.1 to our Current Report
on Form 8-K filed July 14, 2004.
On
July
8, 2004, our Audit Committee of the Board of Directors appointed Moss Adams
LLP
as our new Independent Registered Public Accounting Firm as of July 9, 2004.
During the two most recent fiscal years and through June 2, 2006, neither we
nor
anyone on its behalf consulted Moss Adams LLP regarding either the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on our
consolidated financial statements, nor has Moss Adams LLP provided to us a
written report or oral advice regarding such principles or audit
opinion.
Audit
Fees
The
aggregate fees billed for professional services rendered by Moss Adams, LLP
for
the audit of our annual financial statements for the fiscal year ended March
31,
2006, the reviews of the financial statements included in our quarterly reports
on Form 10-Q for the fiscal year ending March 31, 2006, and services that are
normally provided by the Moss Adams, LLP in connection with statutory and
regulatory filings and engagements for that fiscal year were approximately
$370,000. The
aggregate fees for the services listed above rendered by Moss Adams LLP for
the
fiscal year ending March 31, 2005 were approximately $205,000.
Financial
Information Systems Design and Implementation Fees
Moss
Adams LLP did not render any professional services to us of the type described
in Rule 2-01(c)(4)(ii) of Regulation S-X during the fiscal year ended March
31,
2006 or the fiscal year ended March 31, 2005.
Audit-Related
Fees
The
aggregate fees billed by PricewaterhouseCoopers LLP for assurance and related
services that were reasonably related to the performance of the audit or review
of The Company’s financial statements and are not reported above under “Audit
Fees” were approximately $35,000 for the fiscal year ended March 31, 2006. The
services for the fees disclosed under this category were for work done in
relation to the review of prior year numbers in the Company’s form 10-K, Form
S-8, and Form S-3. Audit-related fees were $8,000 during fiscal year ended
March
31, 2005. The services for the fees disclosed under this category were for
work
done in relation to the review of prior year numbers in the Company’s Form
10-K.
Tax
Fees
The
aggregate fees billed by PricewaterhouseCoopers LLP for professional services
rendered for tax compliance, tax advice, and tax planning were $3,500 during
the
fiscal year ended March 31, 2005.
The
aggregate fees billed by Burr, Pilger & Mayer, LLP for professional services
rendered for tax compliance, tax advice, and tax planning were approximately
$45,000 for the fiscal year ended March 31, 2006 and approximately $45,000
during the fiscal year ended March 31, 2005.
Audit
Committee Pre-Approval Policies
The
Audit
Committee has adopted a policy that requires the Audit Committee to approve
all
audit and permissible non-audit services to be provided by the independent
auditors. The Audit Committee has established a general pre-approval policy
for
certain audit and non-audit services, up to a specified amount for each
identified service that may be provided by the independent auditors. The
Chairman of the Audit Committee may specifically approve any service within
the
pre-approved audit and non-audit service category if the fees for such service
exceed the maximum set forth in the policy, as long as the excess fees are
not
reasonably expected to exceed $50,000. Any such approval by the Chairman must
be
reported to the Audit Committee at its next scheduled meeting. The general
pre-approval fee levels for all services to be provided by the independent
auditors are reviewed annually by the Audit Committee. The Company’s non-audit
services, other than the annual tax return, provided by PricewaterhouseCoopers
LLP and Moss Adams, LLP were 40% of the total audit fees for the fiscal year
ended March 31, 2006. The Company’s annual tax return services provided by Burr,
Pilger & Mayer were 19% of the total audit fees for the fiscal year ended
March 31, 2006.
Required
Vote
Ratification
of the appointment of Moss Adams LLP as our Independent Registered Public
Accounting Firm is not required by our bylaws or other applicable legal
requirements. However, our board is submitting the selection of Moss Adams
LLP
to our stockholders for ratification as a matter of good corporate practice.
If
our stockholders fail to ratify the selection, the Audit Committee of the Board
of Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee at its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if it determines that such a change would be in our best interests and
in
the best interests of our stockholders.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MARCH 31,
2007.
AUDIT
COMMITTEE REPORT
Notwithstanding
anything to the contrary set forth in any of the Company’s filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934, the following
Audit Committee Report shall not be incorporated by reference into any such
filings and shall not otherwise be deemed to be filed under such
Acts.
The
Audit
Committee of our Board of Directors is comprised of independent directors as
required by the listing standards of the Nasdaq National Market. The Audit
Committee operates pursuant to a written charter adopted by our Board of
Directors, a copy of which has been filed with the SEC.
The
role
of the Audit Committee is to oversee our financial reporting process on behalf
of the Board of Directors. Our management has the primary responsibility for
our
financial statements as well as our financial reporting process, principles
and
internal controls. The Independent
Registered Public Accounting Firm is
responsible for performing an audit of our financial statements and expressing
an opinion as to the conformity of such financial statements with generally
accepted accounting principles.
In
this
context, the Audit Committee has reviewed and discussed our audited financial
statements as of and for the year ended March 31, 2006 with management and
the
Independent
Registered Public Accounting Firm.
The
Audit Committee has discussed with the Independent Registered Public Accounting
Firm the matters required to be discussed by Statement on Auditing Standards
No.
61 (Communication with Audit Committees), as currently in effect. In addition,
the Audit Committee has received the written disclosures and the letter from
the
Independent Registered Public Accounting Firm required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), as
currently in effect, and it has discussed with the Independent Registered Public
Accounting Firm their independence from us. The Audit Committee has also
considered whether the Independent
Registered Public Accounting Firm’s
provision of information technology services and other non-audit services to
us
is compatible with maintaining the Independent Registered Public Accounting
Firm’s independence.
Based
on
the reports and discussions described above, the Audit Committee recommended
to
the Board of Directors that the audited financial statements be included in
our
Annual Report on Form 10-K for the year ended March 31, 2006, for filing with
the Securities and Exchange Commission.
Submitted
on May
24,
2006 by the members of the Audit Committee of the Board of
Directors.
|
Jeffrey
M. Krauss
Edward
A. Dohring
H.
Duane Wadsworth
|
CODE
OF BUSINESS CONDUCT AND ETHICS
Our
Code
of Business Conduct and Ethics is available
to stockholders, upon written request, and is posted on the Company’s website at
www.tegal.com. If
you
would like a copy of our Code, please send your request to: Christine
Hergenrother, Secretary, Tegal Corporation, 2201 S. McDowell Blvd, Petaluma,
CA
94954.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act, requires our officers and directors, and persons
who
own more than ten percent of a registered class of our equity securities, to
file reports of ownership and changes in ownership (Forms 3, 4 and 5) with
the
SEC. Officers, directors and greater-than-ten-percent holders are required
to
furnish us with copies of all such forms which they file.
To
our
knowledge, based solely on our review of such reports or written representations
from certain reporting persons, we believe that all of the filing requirements
applicable to our officers, directors, greater than 10% beneficial owners and
other persons subject to Section 16 of the Exchange Act were complied with
during the year ended March 31, 2006.
DEADLINE
FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR
THE 2007 ANNUAL MEETING
Stockholder
proposals to be presented at the 2007 annual meeting must be received at our
principal executive offices no later than April 22, 2007 in order to be
considered for inclusion in the proxy materials to be disseminated by the Board
of Directors for such annual meeting. To be eligible for inclusion in such
proxy
materials, such proposals must conform to the requirements set forth in
Regulation 14A under the Exchange Act as well as in our bylaws.
Stockholder
proposals to be presented at the 2007 annual meeting must be received at our
principal executive offices no later than, July 6, 2007 in order to be
considered for inclusion on the 2007 annual meeting agenda. To be eligible
for
inclusion on the agenda, such proposals must conform to the requirements set
forth in Regulation 14A under the Exchange Act as well as in our
bylaws.
OTHER
MATTERS
We
are
not aware of any matters that may come before the meeting other than those
referred to in the notice of Annual Meeting of Stockholders. If any other matter
shall properly come before the Annual Meeting, however, the persons named in
the
accompanying proxy intend to vote all proxies in accordance with their best
judgment.
Our
2006
annual report for the fiscal year ended March 31, 2006 has been mailed with
this
proxy statement.
| |
By
Order of the Board of Directors
|
| |
TEGAL
CORPORATION
|
| |
|
| |
/s/
Christine T. Hergenrother
|
|
Petaluma,
California
June
21, 2006
|
CHRISTINE
T. HERGENROTHER
Vice
President, Chief Financial Officer,
Secretary
and Treasurer
|
STOCKHOLDERS
OF RECORD ON MAY 19, 2006 MAY OBTAIN COPIES OF TEGAL’S ANNUAL REPORT ON FORM
10-K (EXCLUDING EXHIBITS) AND ALL AMENDMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BY WRITING TO INVESTOR RELATIONS, TEGAL CORPORATION, 2201
SOUTH MCDOWELL BOULEVARD, PETALUMA, CALIFORNIA 94954.
APPENDIX
A
FORM
OF
CERTIFICATE
OF AMENDMENT
TO
CERTIFICATE
OF INCORPORATION
OF
TEGAL CORPORATION
It
is
hereby certified that:
1. The
name
of the Corporation (hereinafter called the “Corporation”) is Tegal
Corporation.
2. The
Certificate of Incorporation is hereby amended by striking out Article FOURTH
thereof and by substituting in lieu of said Article the following new
Article:
“FOURTH: The
total
number of shares of all classes of capital stock which the Corporation shall
have authority to issue is Two Hundred Five Million (205,000,000) shares,
comprised of Two Hundred Million (200,000,000) shares of Common Stock, par
value
$0.01 per share, and Five Million (5,000,000) shares of Preferred Stock, par
value $0.01 per share. Effective as of 5:00 p.m., Eastern time, on the date
this
Certificate of Amendment is filed with the Secretary of State of the State
of
Delaware, each [Insert
either: eight
(8)
or twelve
(12)] shares
of
the Corporation’s Common Stock, par value $0.01 per share, issued and
outstanding shall, automatically and without any action on the part of the
respective holders thereof, be combined, converted and changed into one (1)
share of Common stock, par value $0.01 per share, of the Corporation;
provided,
however,
that
the Corporation shall issue no fractional shares of Common Stock, but shall
instead pay to any stockholder who would be entitled to receive a fractional
share as a result of the actions set forth herein a sum in cash equal to such
fraction multiplied by the average of the high and low prices of the
Corporation’s Common Stock as reported on the Nasdaq Capital Market for the five
trading-day period ending on the last business day before the date this
Certificate of Amendment is filed with the Secretary of State of the State
of
Delaware. The designation, powers, preferences and relative, participating,
optional or other special rights, including voting rights, qualifications,
limitations or restrictions of the Preferred Stock shall be established by
resolution of the Board of Directors pursuant to Section 151 of the General
Corporation Law of the State of Delaware.”
3. The
amendment of the Certificate of Incorporation herein certified was submitted
to
the stockholders of the Corporation and was duly approved by the required vote
of stockholders of the Corporation in accordance with the provisions of Sections
222 and 242 of the General Corporation Law of the State of Delaware. The total
number of outstanding shares entitled to vote or consent to this Amendment
was
_____________ shares of Common Stock. A majority of the outstanding shares
of
Common Stock, voting together as a single class, voted in favor of this
Certificate of Amendment. The vote required was a majority of the outstanding
shares of Common Stock, voting together as a single class.
IN
WITNESS WHEREOF, Tegal Corporation has caused this Certificate of Amendment
to
be signed by its Chief Executive Officer as of July __, 2006.
|
Thomas
R. Mika
President
& Chief Executive Officer
|
APPENDIX
B
THE
EIGHTH AMENDED AND RESTATED
1998
EQUITY PARTICIPATION PLAN
OF
TEGAL
CORPORATION
Tegal
Corporation, a Delaware corporation (the “Company”), hereby amends and restates
the Seventh Amended and Restated 1998 Equity Participation Plan of Tegal
Corporation (as so amended, the “Plan”), incorporating certain amendments
adopted by the Board of Directors on May 24, 2006. The Plan shall become
effective on the date it is approved by the Company’s stockholders. The Plan was
initially adopted by the Board of Directors on July 16, 1998 and the
stockholders of the Company on September 15, 1998, with an initial effective
date of July 16, 1998. The Plan was amended and restated by the Board of
Directors on July 21, 1999 and such amendment was approved by the stockholders
on September 21, 1999. The Plan was again amended and restated on July 8, 2000
by the Board of Directors and such amendment was approved by the stockholders
on
September 19, 2000. The Plan was amended and restated a third time on September
25, 2001 by the Board of Directors and such amendment did not require
shareholder approval. The Plan was amended and restated a fourth time on
September 9, 2002 and was approved by our stockholders on October 22, 2002.
The
Plan was amended and restated a fifth time on June 30, 2003 and was approved
by
our stockholders on September 8, 2003. The Plan was amended and restated a
sixth
time on July 23, 2004 and was approved by our stockholders on September 21,
2004. The Plan was amended and restated a seventh time on July 5, 2005 and
was
approved by our stockholders on August 8, 2005. The purposes of the Plan are
as
follows:
(1)
To
provide an additional incentive for key Employees and Consultants (as such
terms
are defined below) to further the growth, development and financial success
of
the Company by personally benefiting through the ownership of Company stock
and/or rights which recognize such growth, development and financial
success.
(2)
To
enable
the Company to obtain and retain the services of key Employees and Consultants
considered essential to the long range success of the Company by offering them
an opportunity to own stock in the Company and/or rights which will reflect
the
growth, development and financial success of the Company.
I.
DEFINITIONS
A. General.
Wherever the following terms are used in the Plan, they shall have the meanings
specified below, unless the context clearly indicates otherwise.
B. Administrator.
“Administrator” shall mean the entity that conducts the general administration
of the Plan as provided herein. With reference to the administration of the
Plan
with respect to any Award granted under the Plan, the term “Administrator” shall
refer to the Committee unless the Board has assumed the authority for
administration of the Plan generally as provided in Section 11.1.
C. Award.
“Award”
shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award,
a
Dividend Equivalent award or a Stock Appreciation Right which may be awarded
or
granted under the Plan (collectively, “Awards”).
D. Award
Agreement.
“Award
Agreement” shall mean a written agreement executed by an authorized officer of
the Company and the Holder which shall contain such terms and conditions with
respect to an Award as the Administrator shall determine, consistent with the
Plan.
E. Award
Limit.
“Award
Limit” shall mean 4,000,000 shares of Common Stock, as adjusted pursuant to
Section 12.3 of the Plan.
F. Board.
“Board”
shall mean the Board of Directors of the Company.
G. Change
in Control.
“Change
in Control” shall mean a change in ownership or control of the Company effected
through any of the following transactions:
(a) any
person or related group of persons (other than the Company or a person that,
prior to such transaction, directly or indirectly controls, is controlled by,
or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of securities of the Company (or a successor of the Company) possessing more
than twenty-five percent (25%) of the total combined voting power of the then
outstanding securities of the Company or such successor; or
(b) at
any
time that the Company has registered shares under the Exchange Act, at least
40%
of the directors of the Company constitute persons who were not at the time
of
their first election to the Board, candidates proposed by a majority of the
Board in office prior to the time of such first election; or
(c) the
dissolution of the Company or liquidation of more than 75% in value of the
Company or a sale of assets involving 75% or more in value of the assets of
the
Company, (x) any merger or reorganization of the Company whether or not another
entity is the survivor, (y) a transaction pursuant to which the holders, as
a
group, of all of the shares of the Company outstanding prior to the transaction
hold, as a group, less than 50% of the combined voting power of the Company
or
any successor company outstanding after the transaction, or (z) any other event
which the Board determines, in its discretion, would materially alter the
structure of the Company or its ownership.
H. Code.
“Code”
shall mean the Internal Revenue Code of 1986, as amended.
I. Committee.
“Committee” shall mean the Compensation Committee of the Board, or another
committee or subcommittee of the Board, appointed as provided in Section
11.1.
J. Common
Stock.
“Common
Stock” shall mean the common stock of the Company, par value $.01 per share, and
any equity security of the Company issued or authorized to be issued in the
future, but excluding any preferred stock and any warrants, options or other
rights to purchase Common Stock.
K. Company.
“Company” shall mean Tegal Corporation, a Delaware corporation.
L. Consultant.
“Consultant” shall mean any consultant or adviser if:
a. the
consultant or adviser renders bona fide services to the Company;
b. the
services rendered by the consultant or adviser are not in connection with the
offer or sale of securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company’s securities;
and
c. the
consultant or adviser is a natural person who has contracted directly with
the
Company to render such services.
M. Director.
“Director” shall mean a member of the Board.
N. Dividend
Equivalent.
“Dividend Equivalent” shall mean a right granted to a Holder pursuant to Section
11.1 to receive the equivalent value (in cash or shares of Common Stock) of
dividends paid on Common Stock.
O. DRO.
“DRO”
shall mean a domestic relations order as defined by the Code or Title I of
the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
P. Employee.
“Employee” shall mean any officer or other employee (as defined in accordance
with Section 3401(c) of the Code) of the Company, or of any corporation which
is
a Subsidiary.
Q. Exchange Act.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended.
R. Fair
Market Value.
“Fair
Market Value” of a share of Common Stock as of a given date shall be (a) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any (or as reported on any composite
index which includes such principal exchange), on the trading day previous
to
such date, or if shares were not traded on the trading day previous to such
date, then on the next preceding date on which a trade occurred, or (b) if
Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, the mean between the closing representative bid and asked
prices for the Common Stock on the trading day previous to such date as reported
by NASDAQ or such successor quotation system; or (c) if Common Stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the Fair Market Value of a share of Common Stock as established by
the
Administrator acting in good faith.
S. Holder.
“Holder” shall mean a person who has been granted or awarded an
Award.
T. Incentive
Stock Option.
“Incentive Stock Option” shall mean an option which conforms to the applicable
provisions of Section 422 of the Code and which is designated as an Incentive
Stock Option by the Administrator.
U. Independent
Director.
“Independent Director” shall mean a member of the Board who is not an Employee
of the Company.
V. Non-Qualified
Stock Option.
“Non-Qualified Stock Option” shall mean an Option which is not designated as an
Incentive Stock Option by the Administrator.
W. Option.
“Option” shall mean a stock option granted under Article IV of the Plan. An
Option granted under the Plan shall, as determined by the Administrator, be
either a Non-Qualified Stock Option or an Incentive Stock Option; provided,
however, that Options granted to Consultants shall be Non-Qualified Stock
Options.
X. Performance
Criteria.
“Performance Criteria” shall mean the following business criteria with respect
to the Company, any Subsidiary or any division or operating unit: (a) net
income, (b) pre-tax income, (c) operating income, (d) cash flow, (e) earnings
per share, (f) return on equity, (g) return on invested capital or assets,
(h)
cost reductions or savings, (i) funds from operations, (j) appreciation in
the
fair market value of Common Stock and (k) earnings before any one or more of
the
following items: interest, taxes, depreciation or amortization.
Y. Plan.
“Plan”
shall mean The Eighth Amended and Restated 1998 Equity Participation Plan of
Tegal Corporation.
Z. Restricted
Stock.
“Restricted Stock” shall mean Common Stock awarded under Article VII of the
Plan.
AA. Restricted
Stock Unit.
“Restricted Stock Unit” shall mean a right to receive a share of Common Stock
during specified time periods granted pursuant to Section 11.2
BB. Rule
16b-3.
“Rule
16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule
may be amended from time to time.
CC. Section
162(m) Participant.
“Section 162(m) Participant” shall mean any key Employee designated by the
Administrator as a key Employee whose compensation for the fiscal year in which
the key Employee is so designated or a future fiscal year may be subject to
the
limit on deductible compensation imposed by Section 162(m) of the
Code.
DD. Securities
Act.
“Securities Act” shall mean the Securities Act of 1933, as amended.
EE. Stock
Appreciation Right.
“Stock
Appreciation Right” shall mean a stock appreciation right granted under Article
VIII of the Plan.
FF. Subsidiary.
“Subsidiary” shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent
(50%)
or more of the total combined voting power of all classes of stock in one of
the
other corporations in such chain.
GG. Substitute
Award.
“Substitute Award” shall mean an Option granted under this Plan upon the
assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock.
HH. Termination
of Consultancy.
“Termination of Consultancy” shall mean the time when the engagement of a Holder
as a Consultant to the Company or a Subsidiary is terminated for any reason,
with or without cause, including, but not by way of limitation, by resignation,
discharge, death, disability or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its absolute discretion, shall determine
the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions
of
whether a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant’s service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
II. Termination
of Employment.
“Termination of Employment” shall mean the time when the employee-employer
relationship between a Holder and the Company or any Subsidiary is terminated
for any reason, with or without cause, including, but not by way of limitation,
a termination by resignation, discharge, death, disability or retirement; but
excluding (a) terminations where there is a simultaneous reemployment or
continuing employment of a Holder by the Company or any Subsidiary, (b) at
the
discretion of the Administrator, terminations which result in a temporary
severance of the employee-employer relationship, and (c) at the discretion
of
the Administrator, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Administrator, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Employment, including, but not by way of limitation, the question of whether
a
Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination
of
Employment; provided, however, that, with respect to Incentive Stock Options,
unless otherwise determined by the Administrator in its discretion, a leave
of
absence, change in status from an employee to an independent contractor or
other
change in the employee-employer relationship shall constitute a Termination
of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2)
of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee’s
service at any time for any reason whatsoever, with or without cause, except
to
the extent expressly provided otherwise in writing.
II.
SHARES
SUBJECT TO PLAN
A. Shares
Subject to Plan.
a. The
shares of stock subject to Awards shall be Common Stock, initially shares of
the
Company’s Common Stock, par value $.01 per share. The aggregate number of such
shares which may be issued upon exercise of such Options or rights or upon
any
such awards under the Plan shall not exceed 20,000,000. The shares of Common
Stock issuable upon exercise of such Options or rights or upon any such awards
may be either previously authorized but unissued shares or treasury
shares.
b. The
maximum number of shares which may be subject to Awards, granted under the
Plan
to any individual in any fiscal year shall not exceed the Award Limit. To the
extent required by Section 162(m) of the Code, shares subject to Options which
are canceled continue to be counted against the Award Limit.
B. Add-back
of Options and Other Rights.
If any
Option, or other right to acquire shares of Common Stock under any other Award
under the Plan, expires or is canceled without having been fully exercised,
or
is exercised in whole or in part for cash as permitted by the Plan, the number
of shares subject to such Option or other right but as to which such Option
or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Awards which are adjusted
pursuant to Section 12.3 and become exercisable with respect to shares of stock
of another corporation shall be considered cancelled and may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. Shares
of Common Stock which are delivered by the Holder or withheld by the Company
upon the exercise of any Award under the Plan, in payment of the exercise price
thereof or tax withholding thereon, may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. If any shares of
Restricted Stock are surrendered by the Holder or repurchased by the Company
pursuant to Section 7.4 or 7.5 hereof, such shares may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
III.
GRANTING
OF AWARDS
A. Award
Agreement.
Each
Award shall be evidenced by an Award Agreement. Award Agreements evidencing
Awards intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall contain such terms and conditions as
may
be necessary to meet the applicable provisions of Section 162(m) of the Code.
Award Agreements evidencing Incentive Stock Options shall contain such terms
and
conditions as may be necessary to meet the applicable provisions of Section
422
of the Code.
B. Provisions
Applicable to Section 162(m) Participants.
a. The
Committee, in its discretion, may determine whether an Award is to qualify
as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code.
b. Notwithstanding
anything in the Plan to the contrary, the Committee may grant any Award to
a
Section 162(m) Participant, including Restricted Stock the restrictions with
respect to which lapse upon the attainment of performance goals which are
related to one or more of the Performance Criteria.
c. To
the
extent necessary to comply with the performance-based compensation requirements
of Section 162(m)(4)(C) of the Code, with respect to any Award granted under
Article VII which may be granted to one or more Section 162(m) Participants,
no
later than ninety (90) days following the commencement of any fiscal year in
question or any other designated fiscal period or period of service (or such
other time as may be required or permitted by Section 162(m) of the Code),
the
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the fiscal
year
or other designated fiscal period or period of service, (iii) establish the
various performance targets, in terms of an objective formula or standard,
and
amounts of such Awards, as applicable, which may be earned for such fiscal
year
or other designated fiscal period or period of service and (iv) specify the
relationship between Performance Criteria and the performance targets and the
amounts of such Awards, as applicable, to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period
of
service. Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether
the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to
take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.
d. Furthermore,
notwithstanding any other provision of the Plan, any Award which is granted
to a
Section 162(m) Participant and is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and the Plan
shall be deemed amended to the extent necessary to conform to such
requirements.
C. Limitations
Applicable to Section 16 Persons.
Notwithstanding any other provision of the Plan, the Plan, and any Award granted
or awarded to any individual who is then subject to Section 16 of the Exchange
Act, shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment
to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule. To the extent permitted by applicable law, the Plan and
Awards granted or awarded hereunder shall be deemed amended to the extent
necessary to conform to such applicable exemptive rule.
D. At-Will
Employment.
Nothing
in the Plan or in any Award Agreement hereunder shall confer upon any Holder
any
right to continue in the employ of, or as a Consultant for, the Company or
any
Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.
IV.
GRANTING
OF OPTIONS TO EMPLOYEES AND CONSULTANTS
A. Eligibility.
Any
Employee or Consultant selected by the Committee pursuant to Section 4.4(a)(i)
shall be eligible to be granted an Option.
B. Disqualification
for Stock Ownership.
No
person may be granted an Incentive Stock Option under the Plan if such person,
at the time the Incentive Stock Option is granted, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any then existing Subsidiary or parent corporation
(within the meaning of Section 422 of the Code) unless such Incentive Stock
Option conforms to the applicable provisions of Section 422 of the
Code.
C. Qualification
of Incentive Stock Options.
No
Incentive Stock Option shall be granted to any person who is not an
Employee.
D. Granting
of Options to Employees and Consultants.
a. The
Committee shall from time to time, in its absolute discretion, and subject
to
applicable limitations of the Plan:
(1) Determine
which Employees are key Employees and select from among the key Employees or
Consultants (including Employees or Consultants who have previously received
Awards under the Plan) such of them as in its opinion should be granted
Options;
(2) Subject
to the Award Limit, determine the number of shares to be subject to such Options
granted to the selected key Employees or consultants;
(3) Subject
to Section 4.3, determine whether such Options are to be Incentive Stock Options
or Non-Qualified Stock Options and whether such Options are to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code;
and
(4) Determine
the terms and conditions of such Options, consistent with the Plan; provided,
however, that the terms and conditions of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code
shall include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
b. Upon
the
selection of a key Employee or Consultant to be granted an Option, the Committee
shall instruct the Secretary of the Company to issue the Option and may impose
such conditions on the grant of the Option as it deems appropriate.
c. Any
Incentive Stock Option granted under the Plan may be modified by the Committee,
with the consent of the Holder, to disqualify such Option from treatment as
an
“incentive stock option” under Section 422 of the Code.
V.
TERMS
OF OPTIONS
A. Option
Price.
The
price per share of the shares subject to each Option granted to Employees and
Consultants shall be set by the Committee; provided, however, that such price
shall be no less than 85% of the Fair Market Value of a share of Common Stock
on
the date the Option is granted and:
a.
in the
case of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less
than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted;
b. in
the
case of Incentive Stock Options such price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted
(or the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code);
c. in
the
case of Incentive Stock Options granted to an individual then owning (within
the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code), such price
shall not be less than 110% of the Fair Market Value of a share of Common Stock
on the date the Option is granted (or the date the Option is modified, extended
or renewed for purposes of Section 424(h) of the Code); and
d. with
the
consent of a Holder whose rights are impaired or altered under an outstanding
Option, the exercise price per share of shares subject to a previously granted,
outstanding Option may be reduced (i) to the then-current Fair Market Value
if
the Fair Market Value of the Common Stock has declined since the date the Option
was granted, (ii) pursuant to an option exchange program, including a program
pursuant to which an outstanding Option is cancelled and any of the following
is
granted in substitution therefor (A) a new option under the Plan or another
equity plan of the Company covering the same or a different number of shares
of
Common Stock, (B) another Award, (C) cash, or (D) other valuable consideration
(as determined by the Committee, in its sole discretion); (iii) pursuant to
any
other action that is treated as a repricing under generally accepted accounting
principles.
B. Option
Term.
The
term of an Option granted to an Employee or consultant shall be set by the
Committee in its discretion; provided, however, that, in the case of Incentive
Stock Options, the term shall not be more than ten (10) years from the date
the
Incentive Stock Option is granted, or five (5) years from the date the Incentive
Stock Option is granted if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning
of
Section 422 of the Code). Except as limited by requirements of Section 422
of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy
of
the Holder, or amend any other term or condition of such Option relating to
such
a termination.
C. Option
Vesting
a. The
period during which the right to exercise, in whole or in part, an Option
granted to an Employee or a Consultant vests in the Holder shall be set by
the
Committee and the Committee may determine that an Option may not be exercised
in
whole or in part for a specified period after it is granted; provided, however,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no Option shall be exercisable by any Holder who is
then
subject to Section 16 of the Exchange Act within the period ending six months
and one day after the date the Option is granted. At any time after grant of
an
Option, the Committee may, in its sole and absolute discretion and subject
to
whatever terms and conditions it selects, accelerate the period during which
an
Option granted to an Employee or Consultant vests.
b. No
portion of an Option granted to an Employee or Consultant which is unexercisable
at Termination of Employment or Termination of Consultancy, as applicable,
shall
thereafter become exercisable, except as may be otherwise provided by the
Committee either in the Award Agreement or by action of the Committee following
the grant of the Option.
c.
To the
extent that the aggregate Fair Market Value of stock with respect to which
“incentive stock options” (within the meaning of Section 422 of the Code, but
without regard to Section 422(d) of the Code) are exercisable for the first
time
by a Holder during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any parent or subsidiary corporation,
within the meaning of Section 422 of the Code) of the Company, exceeds $100,000,
such Options shall be treated as Non-Qualified Options to the extent required
by
Section 422 of the Code. The rule set forth in the preceding sentence shall
be
applied by taking Options into account in the order in which they were granted.
For purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is
granted.
D. Substitute
Awards.
Notwithstanding the foregoing provisions of this Article V to the contrary,
in
the case of an Option that is a Substitute Award, the price per share of the
shares subject to such Option may be less than the Fair Market Value per share
on the date of grant, provided, that the excess of:
a. the
aggregate Fair Market Value (as of the date such Substitute Award is granted)
of
the shares subject to the Substitute Award; over
b. the
aggregate exercise price thereof; does not exceed the excess of;
c. the
aggregate fair market value (as of the time immediately preceding the
transaction giving rise to the Substitute Award, such fair market value to
be
determined by the Committee) of the shares of the predecessor entity that were
subject to the grant assumed or substituted for by the Company;
over
d. the
aggregate exercise price of such shares.
E. Termination.
In the
event of a Holder’s Termination of Employment or Termination of Consultancy,
such Holder may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on
the
date of termination. If, on the date of termination, the Holder is not vested
as
to his or her entire Option, the shares covered by the unvested portion of
the
Option shall immediately cease to be issuable under the Option and shall again
become available for issuance under the Plan. If, after termination, the Holder
does not exercise his or her Option within the time period specified herein,
the
Option shall terminate, and the shares covered by such Option shall again become
available for issuance under the Plan.
VI.
EXERCISE
OF OPTIONS
A. Partial
Exercise.
An
exercisable Option may be exercised in whole or in part. However, an Option
shall not be exercisable with respect to fractional shares and the Administrator
may require that, by the terms of the Option, a partial exercise be with respect
to a minimum number of shares.
B. Manner
of Exercise.
All or a portion of an exercisable Option shall be deemed exercised upon
delivery of all of the following to the Secretary of the Company or his
office:
a.
A
written notice complying with the applicable rules established by the
Administrator stating that the Option, or a portion thereof, is exercised.
The
notice shall be signed by the Holder or other person then entitled to exercise
the Option or such portion of the Option;
b.
Such
representations and documents as the Administrator, in its absolute discretion,
deems necessary or advisable to effect compliance with all applicable provisions
of the Securities Act and any other federal or state securities laws or
regulations. The Administrator may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
c.
In the
event that the Option shall be exercised pursuant to Section 10.1 by any person
or persons other than the Holder, appropriate proof of the right of such person
or persons to exercise the Option; and
d.
Full
cash payment to the Secretary of the Company for the shares with respect to
which the Option, or portion thereof, is exercised. However, the Administrator,
may in its discretion
(1) allow
a
delay in payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised;
(2)
allow
payment, in whole or in part, through the delivery of shares of Common Stock
which have been owned by the Holder for at least six months, duly endorsed
for
transfer to the Company with a Fair Market Value on the date of delivery equal
to the aggregate exercise price of the Option or exercised portion thereof;
(3) allow
payment, in whole or in part, through the surrender of shares of Common Stock
then issuable upon exercise of the Option having a Fair Market Value on the
date
of Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof;
(4)
allow
payment, in whole or in part, through the delivery of property of any kind
which
constitutes good and valuable consideration; (v) allow payment, in whole or
in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Administrator; (vi) allow payment, in whole or in part, through the delivery
of
a notice that the Holder has placed a market sell order with a broker with
respect to shares of Common Stock then issuable upon exercise of the Option,
and
that the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise
price, provided that payment of such proceeds is then made to the Company upon
settlement of such sale; or (vii) allow payment through any combination of
the
consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v)
and
(vi). In the case of a promissory note, the Administrator may also prescribe
the
form of such note and the security to be given for such note. The Option may
not
be exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited
by
law.
C.
Conditions to Issuance of Stock Certificates.
The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option
or
portion thereof prior to fulfillment of all of the following
conditions:
a.
The
admission of such shares to listing on all stock exchanges on which such class
of stock is then listed;
b.
The
completion of any registration or other qualification of such shares under
any
state or federal law, or under the rulings or regulations of the Securities
and
Exchange Commission or any other governmental regulatory body which the
Administrator shall, in its absolute discretion, deem necessary or
advisable;
c.
The
obtaining of any approval or other clearance from any state or federal
governmental agency which the Administrator shall, in its absolute discretion,
determine to be necessary or advisable;
d.
The
lapse of such reasonable period of time following the exercise of the Option
as
the Administrator may establish from time to time for reasons of administrative
convenience; and
e.
The
receipt by the Company of full payment for such shares, including payment of
any
applicable withholding tax, which in the discretion of the Administrator may
be
in the form of consideration used by the Holder to pay for such shares under
Section 6.2(d).
D. Rights
as Stockholders.
Holders
shall not be, nor have any of the rights or privileges of, stockholders of
the
Company in respect of any shares purchasable upon the exercise of any part
of an
Option unless and until certificates representing such shares have been issued
by the Company to such Holders.
E.
Ownership and Transfer Restrictions. The Administrator, in its absolute
discretion, may impose such restrictions on the ownership and transferability
of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Award Agreement and
may be referred to on the certificates evidencing such shares. The Holder shall
give the Company prompt notice of any disposition of shares of Common Stock
acquired by exercise of an Incentive Stock Option within (a) two years from
the
date of granting (including the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code) such Option to such Holder or (b)
one year after the transfer of such shares to such Holder.
F.
Additional Limitations on Exercise of Options. Holders may be required to comply
with any timing or other restrictions with respect to the settlement or exercise
of an Option, including a window-period limitation, as may be imposed in the
discretion of the Administrator.
VII.
AWARD
OF RESTRICTED STOCK
A. Eligibility.
Subject to the Award Limit.
Restricted Stock may be awarded to any Employee who the Committee determines
is
a key Employee or any Consultant who the Committee determines should receive
such an Award.
B. Award
of Restricted Stock.
a.
The
Committee may from time to time, in its absolute discretion:
(1) Determine
which Employees are key Employees and select from among the key Employees or
Consultants (including Employees or Consultants who have previously received
other awards under the Plan) such of them as in its opinion should be awarded
Restricted Stock; and
(2) Determine
the purchase price, if any, and other terms and conditions applicable to such
Restricted Stock, consistent with the Plan.
b. The
Committee shall establish the purchase price, if any, and form of payment for
Restricted Stock; provided, however, that such purchase price shall be no less
than the par value of the Common Stock to be purchased, unless otherwise
permitted by applicable state law. In all cases, legal consideration shall
be
required for each issuance of Restricted Stock.
c. Upon
the
selection of a key Employee or Consultant to be awarded Restricted Stock, the
Committee shall instruct the Secretary of the Company to issue such Restricted
Stock and may impose such conditions on the issuance of such Restricted Stock
as
it deems appropriate.
C. Rights
as Stockholders.
Subject
to Section 7.4, upon delivery of the shares of Restricted Stock to the escrow
holder pursuant to Section 7.6, the Holder shall have, unless otherwise provided
by the Committee, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his Award Agreement, including the right to
receive all dividends and other distributions paid or made with respect to
the
shares; provided, however, that in the discretion of the Committee, any
extraordinary distributions with respect to the Common Stock shall be subject
to
the restrictions set forth in Section 7.4.
D. Restriction.
All
shares of Restricted Stock issued under the Plan (including any shares received
by holders thereof with respect to shares of Restricted Stock as a result of
stock dividends, stock splits or any other form of recapitalization) shall,
in
the terms of each individual Award Agreement, be subject to such restrictions
as
the Committee shall provide, which restrictions may include, without limitation,
restrictions concerning voting rights and transferability and restrictions
based
on duration of employment with the Company, Company performance and individual
performance; provided, however, that, unless the Committee otherwise provides
in
the terms of the Award Agreement or otherwise, no share of Restricted Stock
granted to a person subject to Section 16 of the Exchange Act shall be sold,
assigned or otherwise transferred until at least six months and one day have
elapsed from the date on which the Restricted Stock was issued, and provided,
further, that, except with respect to shares of Restricted Stock granted to
Section 162(m) Participants, by action taken after the Restricted Stock is
issued, the Committee may, on such terms and conditions as it may determine
to
be appropriate, remove any or all of the restrictions imposed by the terms
of
the Award Agreement. Restricted Stock may not be sold or encumbered until all
restrictions are terminated or expire. If no consideration was paid by the
Holder upon issuance, a Holder’s rights in unvested Restricted Stock shall
lapse, and such Restricted Stock shall be surrendered to the Company without
consideration, upon Termination of Employment or, if applicable, upon
Termination of Consultancy with the Company; provided, however, that the
Committee in its sole and absolute discretion may provide that such rights
shall
not lapse in the event of a Termination of Employment following a “change of
ownership or control” (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Holder’s death or disability; provided, further, except with respect to
shares of Restricted Stock granted to Section 162(m) Participants, the Committee
in its sole and absolute discretion may provide that no such lapse or surrender
shall occur in the event of a Termination of Employment, or a Termination of
Consultancy, without cause or following any Change in Control of the Company
or
because of the Holder’s retirement, or otherwise.
E. Repurchase
of Restricted Stock.
The
Committee shall provide in the terms of each individual Award Agreement that
the
Company shall have the right to repurchase from the Holder the Restricted Stock
then subject to restrictions under the Award Agreement immediately upon a
Termination of Employment or, if applicable, upon a Termination of Consultancy
between the Holder and the Company, at a cash price per share equal to the
price
paid by the Holder for such Restricted Stock; provided, however, that the
Committee in its sole and absolute discretion may provide that no such right
of
repurchase shall exist in the event of a Termination of Employment following
a
“change of ownership or control” (within the meaning of Treasury Regulation
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company
or
because of the Holder’s death or disability; provided, further, that, except
with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide
that
no such right of repurchase shall exist in the event of a Termination of
Employment or a Termination of Consultancy without cause or following any Change
in Control of the Company or because of the Holder’s retirement, or
otherwise.
F. Escrow.
The
Secretary of the Company or such other escrow holder as the Committee may
appoint shall retain physical custody of each certificate representing
Restricted Stock until all of the restrictions imposed under the Award Agreement
with respect to the shares evidenced by such certificate expire or shall have
been removed.
G. Legend.
In
order to enforce the restrictions imposed upon shares of Restricted Stock
hereunder, the Committee shall cause a legend or legends to be placed on
certificates representing all shares of Restricted Stock that are still subject
to restrictions under Award Agreements, which legend or legends shall make
appropriate reference to the conditions imposed thereby.
H. Section
83(b) Election.
If a
Holder makes an election under Section 83(b) of the Code, or any successor
section thereto, to be taxed with respect to the Restricted Stock as of the
date
of transfer of the Restricted Stock rather than as of the date or dates upon
which the Holder would otherwise be taxable under Section 83(a) of the Code,
the
Holder shall deliver a copy of such election to the Company immediately after
filing such election with the Internal Revenue Service.
VIII.
STOCK
APPRECIATION RIGHTS
A. Grant
of Stock Appreciation Rights.
A Stock
Appreciation Right may be granted to any key Employee or Consultant selected
by
the Committee. A Stock Appreciation Right may be granted (a) in connection
and
simultaneously with the grant of an Option, (b) with respect to a previously
granted Option, or (c) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with the Plan
as
the Committee shall impose and shall be evidenced by an Award
Agreement.
B. Coupled
Stock Appreciation Rights.
a. A
Coupled
Stock Appreciation Right (“CSAR”) shall be related to a particular Option and
shall be exercisable only when and to the extent the related Option is
exercisable.
b. A
CSAR
may be granted to the Holder for no more than the number of shares subject
to
the simultaneously or previously granted Option to which it is
coupled.
c. A
CSAR
shall entitle the Holder (or other person entitled to exercise the Option
pursuant to the Plan) to surrender to the Company unexercised a portion of
the
Option to which the CSAR relates (to the extent then exercisable pursuant to
its
terms) and to receive from the Company in exchange therefore an amount
determined by multiplying the difference obtained by subtracting the Option
exercise price from the Fair Market Value of a share of Common Stock on the
date
of exercise of the CSAR by the number of shares of Common Stock with respect
to
which the CSAR shall have been exercised, subject to any limitations the
Committee may impose.
C. Independent
Stock Appreciation Rights.
a. An
Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option
and shall have a term set by the Committee. An ISAR shall be exercisable in
such
installments as the Committee may determine. An ISAR shall cover such number
of
shares of Common Stock as the Committee may determine; provided, however, that
unless the Committee otherwise provides in the terms of the ISAR or otherwise,
no ISAR granted to a person subject to Section 16 of the Exchange Act shall
be
exercisable until at least six months have elapsed from (but excluding) the
date
on which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Committee. With the consent of a Holder
whose rights are impaired or altered under an outstanding ISAR, the exercise
price per share of shares subject to a previously granted, outstanding ISAR
may
be reduced (i) to the then-current Fair Market Value if the Fair Market Value
of
the Common Stock has declined since the date the ISAR was granted, (ii) pursuant
to a Stock Appreciation Right exchange program, including a program pursuant
to
which an outstanding ISAR is cancelled and any of the following is granted
in
substitution therefor (A) a new ISAR under the Plan or another equity plan
of
the Company covering the same or a different number of shares of Common Stock,
(B) another Award, (C) cash, or (D) other valuable consideration (as determined
by the Committee, in its sole discretion); (iii) pursuant to any other action
that is treated as a repricing under generally accepted accounting principles.
An ISAR is exercisable only while the Holder is an Employee or Consultant;
provided that the Committee may determine that the ISAR may be exercised
subsequent to Termination of Employment or Termination of Consultancy without
cause, or following a Change in Control, or because of the Holder’s retirement,
death or disability, or otherwise.
b. An
ISAR
shall entitle the Holder (or other person entitled to exercise the ISAR pursuant
to the Plan) to exercise all or a specified portion of the ISAR (to the extent
then exercisable pursuant to its terms) and to receive from the Company an
amount determined by multiplying the difference obtained by subtracting the
exercise price per share of the ISAR from the Fair Market Value of a share
of
Common Stock on the date of exercise of the ISAR by the number of shares of
Common Stock with respect to which the ISAR shall have been exercised, subject
to any limitations the Committee may impose.
D. Payment
and Limitations on Exercise.
a. Payment
of the amounts determined under Section 8.2(c) and 8.3(b) above shall be in
cash, in Common Stock (based on its Fair Market Value as of the date the Stock
Appreciation Right is exercised) or a combination of both, as determined by
the
Committee. To the extent such payment is effected in Common Stock, it shall
be
made subject to satisfaction of all provisions of Section 6.3 above pertaining
to Options.
b.
Holders
of Stock Appreciation Rights may be required to comply with any timing or other
restrictions with respect to the settlement or exercise of a Stock Appreciation
Right, including a window-period limitation, as may be imposed in the discretion
of the Committee.
IX.
OTHER
TYPES OF AWARDS
A. Dividend
Equivalents.
(a) Any
Employee or Consultant selected by the Administrator may be granted Dividend
Equivalents based on the dividends on the shares of Common Stock that are
subject to any Award, to be credited as of dividend payment dates, during the
period between the date the Award is granted and the date the Award is
exercised, vests or expires, as determined by the Administrator. Such Dividend
Equivalents shall be converted to cash or additional shares of Common Stock
by
such formula and at such time and subject to such limitations as may be
determined by the Administrator.
(b) Dividend
Equivalents granted with respect to Options or Stock Appreciation Rights that
are intended to qualify as performance-based compensation as described in
Section 162(m)(C)(4) of the Code shall be payable, with respect to pre-exercise
periods, regardless of whether such Option or Stock Appreciation Right is
subsequently exercised.
B. Restricted
Stock Units.
The
Administrator is authorized to make Awards of Restricted Stock Units to any
Employee or Consultant selected
by the Administrator in such amounts and subject to such terms and conditions
as
determined by the Administrator. At the time of grant, the Administrator shall
specify the date or dates on which the Restricted Stock Units shall become
fully
vested and nonforfeitable, and may specify such conditions to vesting as it
deems appropriate. Alternatively, Restricted Stock Units may become fully vested
and nonforfeitable pursuant to the satisfaction of one or more Performance
Criteria or other specific performance criteria as the Administrator determines
to be appropriate at the time of the grant of the Restricted Stock Units or
thereafter, in each case on a specified date or dates or over any period or
periods determined by the Administrator. At the time of grant, the Administrator
shall specify the maturity date applicable to each grant of Restricted Stock
Units which shall be no earlier than the vesting date or dates of the Award
and
may be determined at the election of the Employee or Consultant to whom the
Award is granted. On the maturity date, the Company shall transfer to the Holder
one unrestricted, fully transferable share of Stock for each Restricted Stock
Unit that is vested and scheduled to be distributed on such date and not
previously forfeited. The Administrator shall specify the purchase price, if
any, to be paid by the Holder to the Company for such shares of Common
Stock;
provided, however,
that
such price shall not be less than the par value of a share of Stock on the
date
of grant, unless otherwise permitted by applicable state law.
C. Term.
Except
as otherwise provided herein, the term of any Award of Dividend Equivalents
or
Restricted Stock Units shall be set by the Administrator in its
discretion.
D. Form
of Payment.
Payments with respect to any Awards granted under Sections 9.1 and 9.2 shall
be
made in cash, in Common Stock or a combination of both, as determined by the
Administrator.
E. Award
Agreement.
All
Awards under this Article 9 shall be subject to such additional terms and
conditions as determined by the Administrator and shall be evidenced by a
written Award Agreement.
X.
COMPLIANCE
WITH SECTION 409A OF THE CODE
A. Awards
subject to Code Section 409A.
Any
Award that constitutes, or provides for, a deferral
of
compensation subject to Section 409A of the Code (a “Section
409A Award”)
shall
satisfy the requirements of Section 409A of the Code and this Article 10, to
the
extent applicable. The Award Agreement with respect to a Section 409A Award
shall incorporate the terms and conditions required by Section 409A of the
Code
and this Article 10.
B. Distributions
under a Section 409A Award.
(a) Subject
to subsection (b), any shares of Common Stock or other property or amounts
to be
paid or distributed upon the grant, issuance, vesting, exercise or payment
of a
Section 409A Award shall be distributed in accordance with the requirements
of
Section 409A(a)(2) of the Code, and shall not be distributed earlier
than:
(i) the
Holder’s separation from service, as determined by the Secretary of the
Treasury;
(ii) the
date
the Holder becomes disabled;
(iii) the
Participant’s death;
(iv) a
specified time (or pursuant to a fixed schedule) specified under the Award
Agreement at the date of the deferral compensation;
(v) to
the
extent provided by the Secretary of the Treasury, a change in the ownership
or
effective control of the Company or a Subsidiary, or in the ownership of a
substantial portion of the assets of the Company or a Subsidiary;
or
(vi) the
occurrence of an unforeseeable emergency with respect to the
Holder.
(b) In
the
case of a Holder who is a “specified employee,” the requirement of paragraph
(a)(i) shall be met only if the distributions with respect to the Section 409A
Award may not be made before the date which is six months after the Holder’s
separation from service (or, if earlier, the date of the Holder’s death). For
purposes of this subsection (b), a Holder shall be a “specified employee” if
such Holder is a key employee (as defined in Section 416(i) of the Code without
regard to paragraph (5) thereof) of a corporation any stock of which is publicly
traded on an established securities market or otherwise, as determined under
Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.
(c) The
requirement of paragraph (a)(vi) shall be met only if, as determined under
Treasury Regulations under Section 409A(a)(2)(B)(ii) of the Code, the amounts
distributed with respect to the unforeseeable emergency do not exceed the
amounts necessary to satisfy such unforeseeable emergency plus amounts necessary
to pay taxes reasonably anticipated as a result of the distribution, after
taking into account the extent to which such unforeseeable emergency is or
may
be relieved through reimbursement or compensation by insurance or otherwise
or
by liquidation of the Holder’s assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship).
(d) For
purposes of this Section, the terms specified therein shall have the respective
meanings ascribed thereto under Section 409A of the Code and the Treasury
Regulations thereunder.
C. Prohibition
on Acceleration of Benefits.
The
time or schedule of any distribution or payment of any shares of Stock or other
property or amounts under a Section 409A Award shall not be accelerated, except
as otherwise permitted under Section 409A(a)(3) of the Code and the Treasury
Regulations thereunder.
D. Elections
under Section 409A Awards.
(a) Any
deferral election provided under or with respect to an Award to any Employee
or
Consultant, or to the Holder holding a Section 409A Award, shall satisfy the
requirements of Section 409A(a)(4)(B) of the Code, to the extent applicable,
and, except as otherwise permitted under paragraph (i) or (ii) below, any such
deferral election with respect to compensation for services performed during
a
taxable year shall be made not later than the close of the preceding taxable
year, or at such other time as provided in Treasury Regulations.
(i) In
the
case of the first year in which an Eligible Individual or a Participant holding
a Section 409A Award, becomes eligible to participate in the Plan, any such
deferral election may be made with respect to services to be performed
subsequent to the election with thirty days after the date the Eligible
Individual, or the Participant holding a Section 409A Award, becomes eligible
to
participate in the Plan, as provided under Section 409A(a)(4)(B)(ii) of the
Code.
(ii) In
the
case of any performance-based compensation based on services performed by an
Eligible Individual, or the Participant holding a Section 409A Award, over
a
period of at least twelve months, any such deferral election may be made no
later than six months before the end of the period, as provided under Section
409A(a)(4)(B)(iii) of the Code.
(b) In
the
event that a Section 409A Award permits, under a subsequent election by the
Holder holding such Section 409A Award, a delay in a distribution or payment
of
any shares of Common Stock or other property or amounts under such Section
409A
Award, or a change in the form of distribution or payment, such subsequent
election shall satisfy the requirements of Section 409A(a)(4)(C) of the Code,
and:
(i) such
subsequent election may not take effect until at least twelve months after
the
date on which the election is made,
(ii) in
the
case such subsequent election relates to a distribution or payment not described
in Section 10.2(a)(ii), (iii) or (vi), the first payment with respect to such
election may be deferred for a period of not less than five years from the
date
such distribution or payment otherwise would have been made, and
(iii) in
the
case such subsequent election relates to a distribution or payment described
in
Section 10.2(a)(iv), such election may not be made less than twelve months
prior
to the date of the first scheduled distribution or payment under Section
12.2(a)(iv).
E. Compliance
in Form and Operation.
A
Section 409A Award, and any election under or with respect to such Section
409A
Award, shall comply in form and operation with the requirements of Section
409A
of the Code and the Treasury Regulations thereunder.
XI.
ADMINISTRATION
A. Compensation
Committee.
The
Compensation Committee (or another committee or a subcommittee of the Board
assuming the functions of the Committee under the Plan) shall consist solely
of
two or more Independent Directors appointed by and holding office at the
pleasure of the Board, each of whom is both a “non-employee director” as defined
by Rule 16b-3 and an “outside director” for purposes of Section 162(m) of the
Code. Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the
Board.
B. Duties
and Powers of Committee.
It
shall be the duty of the Committee to conduct the general administration of
the
Plan in accordance with its provisions. The Committee shall have the power
to
interpret the Plan and the Award Agreements, and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith, to interpret, amend or revoke any such rules and to amend any Award
Agreement provided that the rights or obligations of the Holder of the Award
that is the subject of any such Award Agreement are not affected adversely.
Any
such grant or award under the Plan need not be the same with respect to each
Holder. Any such interpretations and rules with respect to Incentive Stock
Options shall be consistent with the provisions of Section 422 of the Code.
In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan except
with respect to matters which under Rule 16b-3 or Section 162(m) of the Code,
or
any regulations or rules issued thereunder, are required to be determined in
the
sole discretion of the Committee.
C. Majority
Rule; Unanimous Written Consent.
The
Committee shall act by a majority of its members in attendance at a meeting
at
which a quorum is present or by a memorandum or other written instrument signed
by all members of the Committee.
D. Compensation;
Professional Assistance; Good Faith Actions.
Members
of the Committee shall receive such compensation, if any, for their services
as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the
Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or
other
persons. The Committee, the Company and the Company’s officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made
by
the Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination
or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
with respect to any such action, determination or interpretation.
E. Delegation
of Authority to Grant Awards.
The
Committee may, but need not, delegate from time to time some or all of its
authority to grant Awards under the Plan to a committee consisting of one or
more members of the Committee or of one or more officers of the Company;
provided, however, that the Committee may not delegate its authority to grant
Awards to individuals (i) who are subject on the date of the grant to the
reporting rules under Section 16(a) of the Exchange Act, (ii) who are Section
162(m) Participants or (iii) who are officers of the Company who are delegated
authority by the Committee hereunder. Any delegation hereunder shall be subject
to the restrictions and limits that the Committee specifies at the time of
such
delegation of authority and may be rescinded at any time by the Committee.
At
all times, any committee appointed under this Section 11.5 shall serve in such
capacity at the pleasure of the Committee.
XII.
MISCELLANEOUS
PROVISIONS
A. Not
Transferable.
No
Award under the Plan may be sold, pledged, assigned or transferred in any manner
other than by will or the laws of descent and distribution or, subject to the
consent of the Administrator, pursuant to a DRO, unless and until such Award
has
been exercised, or the shares underlying such Award have been issued, and all
restrictions applicable to such shares have lapsed; provided, however, that
the
restrictions set forth in the foregoing clause shall not apply to transfers
of
Non-Qualified Stock Options, Restricted Stock or Stock Appreciation Rights,
subject to the consent of the Administrator, by gift of an Option by an Employee
to a Permitted Transferee (as defined below) subject to the following terms
and
conditions: (i) an Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by DRO or
by
will or the laws of descent and distribution; (ii) any Option which is
transferred to a Permitted Transferee shall continue to be subject to all the
terms and considerations of the Option as applicable to the original holder
(other than the ability to further transfer the Option); (iii) the Employee
and
the Permitted Transferee shall execute any and all documents reasonably
requested by the Administrator, including, without limitation, documents to
(a)
confirm the status of the transferee as a Permitted Transferee, (b) satisfy
any
requirements for an exemption for the transfer under applicable federal and
state securities laws and (c) provide evidence of the transfer; (iv) the shares
of Common Stock acquired by a Permitted Transferee through exercise of an Option
have not been registered under the Securities Act, or any state securities
act
and may not be transferred, nor will any assignee or transferee thereof be
recognized as an owner of such shares of Common Stock for any purpose, unless
a
registration statement under the Securities Act and any applicable state
securities act with respect to such shares shall then be in effect or unless
the
availability of an exemption from registration with respect to any proposed
transfer or disposition of such shares shall be established to the satisfaction
of counsel for the Company. As used in this Section 12.1, “Permitted Transferee”
shall mean (i) one or more of the following family members of an Employee:
spouse, former spouse, child (whether natural or adopted), stepchild, any other
lineal descendant of the Employee, (ii) a trust, partnership or other entity
established and existing for the sole benefit of, or under the sole control
of,
one or more of the above family members of the Employee, or (iii) any other
transferee specifically approved by the Administrator after taking into account
any state or federal tax or securities laws applicable to transferable
Options.
No
Award
or interest or right therein shall be liable for the debts, contracts or
engagements of the Holder or his successors in interest or shall be subject
to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law, by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except
to
the extent that such disposition is permitted by the preceding
sentence.
Unless
an
Option has been transferred in accordance with this Section 12.1, (i) during
the
lifetime of the Holder, only he may exercise an Option or other Award (or any
portion thereof) granted to him under the Plan unless it has been disposed
of
pursuant to a DRO, and (ii) after the death of the Holder, any exercisable
portion of an Option or other Award may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Award Agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Holder’s will or under the then applicable laws of descent
and distribution.
B. Amendment,
Suspension or Termination of the Plan.
Except
as otherwise provided in this Section 12.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from
time
to time by the Administrator. However, without approval of the Company’s
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
12.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination
of
the Plan shall, without the consent of the Holder, alter or impair any rights
or
obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Awards may be granted or awarded
during any period of suspension or after termination of the Plan, and in no
event may any Award be granted under the Plan after the first to occur of the
following events:
a. The
expiration of ten years from the date the Plan is adopted by the Board;
or
b.
The
expiration of ten years from the date the Plan is approved by the Company’s
stockholders under Section 12.4.
The
Plan
will terminate on July 14, 2015, unless it is terminated sooner by the
Administrator pursuant to this Section 12.2.
C. Changes
in Common Stock or Assets of the Company, Acquisition or Liquidation of the
Company and Other Corporate Events.
a.
Subject
to Section 12.3 (d), in the event that the Administrator determines that any
dividend or other distribution (whether in the form of cash, Common Stock,
other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company,
or exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Administrator’s
sole discretion, affects the Common Stock such that an adjustment is determined
by the Administrator to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an Award, then the Administrator shall, in
such manner as it may deem equitable, adjust any or all of
(1) the
number and kind of shares of Common Stock (or other securities or property)
with
respect to which Awards may be granted or awarded (including, but not limited
to, adjustments of the limitations in Section 2.1 on the maximum number and
kind
of shares which may be issued and adjustments of the Award Limit),
(2) the
number and kind of shares of Common Stock (or other securities or property)
subject to outstanding Awards, and
(3) the
grant
or exercise price with respect to any Award.
b.
Subject
to Sections 12.3(b)(vii) and 12.3(d), in the event of any transaction or event
described in Section 12.3(a) or of changes in applicable laws, regulations,
or
accounting principles, the Administrator, in its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, either by the terms
of
the Award or by action taken prior to the occurrence of such transaction or
event and either automatically or upon the Holder’s request, is hereby
authorized to take any one or more of the following actions whenever the
Administrator determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Award under the Plan,
to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:
(1) To
provide for either the purchase of any such Award for an amount of cash equal
to
the amount that could have been attained upon the exercise of such Award or
realization of the Holder’s rights had such Award been currently exercisable or
payable or fully vested or the replacement of such Award with other rights
or
property selected by the Administrator in its sole discretion;
(2) To
provide that the Award cannot vest, be exercised or become payable after such
event;
(3) To
provide that such Award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in Section 5.3 or the provisions of
such Award;
(4) To
provide that such Award be assumed by the successor or survivor corporation,
or
a parent or subsidiary thereof, or shall be substituted for by similar options,
rights or awards covering the stock of the successor or survivor corporation,
or
a parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices;
(5) To
make
adjustments in the number and type of shares of Common Stock (or other
securities or property) subject to outstanding Awards, and in the number and
kind of outstanding Restricted Stock and/or in the terms and conditions of,
and
the criteria included in, outstanding options, rights and awards and options,
rights and awards which may be granted in the future;
(6) To
provide that, for a specified period of time prior to such event, the
restrictions imposed under an Award Agreement upon some or all shares of
Restricted Stock may be terminated, and some or all shares of such Restricted
Stock may cease to be subject to repurchase under Section 7.5 or forfeiture
under Section 7.4 after such event; and
(7) Notwithstanding
any other provision of the Plan, in the event of a Change in Control, each
outstanding Award shall, immediately prior to the effective date of the Change
in Control, automatically become fully exercisable for all of the shares of
Common Stock at the time subject to such rights and may be exercised for any
or
all of those shares as fully-vested shares of Common Stock.
c.
Subject
to Sections 12.3(d), 3.2 and 3.3, the Administrator may, in its discretion,
include such further provisions and limitations in any Award, agreement or
certificate, as it may deem equitable and in the best interests of the
Company.
d.
With
respect to Awards which are granted to Section 162(m) Participants and are
intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 12.3 or in
any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 12.3 or in any other provision of the Plan shall
be
authorized to the extent that such adjustment or action would cause the Plan
to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Award
is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Award shall always be rounded to the next whole number.
e. Notwithstanding
the foregoing, in the event that the Company becomes a party to a transaction
that is intended to qualify for “pooling of interests” accounting treatment and,
but for one or more of the provisions of this Plan or any Award Agreement would
so qualify, then this Plan and any Award Agreement shall be interpreted so as to
preserve such accounting treatment, and to the extent that any provision of
the
Plan or any Award Agreement would disqualify the transaction from pooling of
interests accounting treatment (including, if applicable, an entire Award
Agreement), then such provision shall be null and void. All determinations
to be
made in connection with the preceding sentence shall be made by the independent
accounting firm whose opinion with respect to “pooling of interests” treatment
is required as a condition to the Company’s consummation of such
transaction.
f. The
existence of the Plan, the Award Agreement and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Company or
the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital
structure or its business, any merger or consolidation of the Company, any
issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior
to or
affect the Common Stock or the rights thereof or which are convertible into
or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
D. Approval
of Plan by Stockholders.
The
Plan will be submitted for the approval of the Company’s stockholders within
twelve months after the date of the Board’s initial adoption of the Plan. Awards
may be granted or awarded prior to such stockholder approval, provided that
such
Awards shall not be exercisable nor shall such Awards vest prior to the time
when the Plan is approved by the stockholders, and provided further that if
such
approval has not been obtained at the end of said twelve-month period, all
Awards previously granted or awarded under the Plan shall thereupon be canceled
and become null and void. In addition, if the Board determines that Awards
other
than Options or Stock Appreciation Rights which may be granted to Section 162(m)
Participants should continue to be eligible to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria
must be disclosed to and approved by the Company’s stockholders no later than
the first stockholder meeting that occurs in the fifth year following the year
in which the Company’s stockholders previously approved the Performance
Criteria.
E. Tax
Withholding.
The
Company shall be entitled to require payment in cash or deduction from other
compensation payable to each Holder of any sums required by federal, state
or
local tax law to be withheld with respect to the issuance, vesting, exercise
or
payment of any Award. The Administrator may in its discretion and in
satisfaction of the foregoing requirement allow such Holder to elect to have
the
Company withhold shares of Common Stock otherwise issuable under such Award
(or
allow the return of shares of Common Stock) having a Fair Market Value equal
to
the sums required to be withheld.
F. Loans.
The
Committee may, in its discretion, extend one or more loans to key Employees
in
connection with the exercise or receipt of an Award granted or awarded under
the
Plan, or the issuance of Restricted Stock awarded under the Plan. The terms
and
conditions of any such loan shall be set by the Committee.
G. Forfeiture
Provisions.
Pursuant to its general authority to determine the terms and conditions
applicable to Awards under the Plan, the Administrator shall have the right
to
provide, in the terms of Awards made under the Plan, or to require a Holder
to
agree by separate written instrument, that (a)(i) any proceeds, gains or other
economic benefit actually or constructively received by the Holder upon any
receipt or exercise of the Award, or upon the receipt or resale of any Common
Stock underlying the Award, must be paid to the Company, and (ii) the Award
shall terminate and any unexercised portion of the Award (whether or not vested)
shall be forfeited, if (b)(i) a Termination of Employment or Termination of
Consultancy occurs prior to a specified date, or within a specified time period
following receipt or exercise of the Award, or (ii) the Holder at any time,
or
during a specified time period, engages in any activity in competition with
the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Administrator or (iii) the Holder incurs
a
Termination of Employment or Termination of Consultancy for cause.
H. Effect
of Plan Upon Options and Compensation Plans.
The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in the Plan shall be
construed to limit the right of the Company (a) to establish any other forms
of
incentives or compensation for Employees or Consultants of the Company or any
Subsidiary or (b) to grant or assume options or other rights or awards otherwise
than under the Plan in connection with any proper corporate purpose including
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise,
of
the business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
I. Compliance
with Laws.
The
Plan, the granting and vesting of Awards under the Plan and the issuance and
delivery of shares of Common Stock and the payment of money under the Plan
or
under Awards granted or awarded hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements)
and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under the Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance
with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to
the
extent necessary to conform to such laws, rules and regulations.
J. Titles.
Titles
are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of the Plan.
K. Governing
Law.
The
Plan and any agreements hereunder shall be administered, interpreted and
enforced under the internal laws of the State of Delaware without regard to
conflicts of laws thereof.
*
* * * *
* * * * * * * * *
I
hereby
certify that the foregoing Plan was duly adopted by the Board of Directors
of
Tegal Corporation as of May 24, 2006.
|
/s/
CHRISTINE HERGENROTHER
Christine
Hergenrother
Secretary
|
PROXY/VOTING
INSTRUCTION CARD
TEGAL
CORPORATION
THIS
PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF
DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON
JULY
21,2006.
The
undersigned hereby appoints Thomas R. Mika with full power of substitution,
as
proxy, and hereby authorizes him to represent and to vote, as designated below,
all shares of common stock of Tegal Corporation which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders to be held on July 21,
2006, and any and all adjournments or postponements of the Annual
Meeting.
PLEASE
COMPLETE, DATE, SIGN AND MAIL THIS INSTRUCTION CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS TO VOTE VIA THE INTERNET
OR
BY TELEPHONE
(CONTINUED,
AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
-FOLD
AND
DETACH HERE -
TEGAL
CORPORATION - ANNUAL MEETING, July 21, 2006
YOUR
VOTE IN IMPORTANT!
You
can vote in one of three ways:
| 1. |
Call
toll
free 1-866-395-9276
on
a Touch-Tone Phone. There is NO
CHARGE
to
you for this call.
|
or
| 2. |
Via
the Internet at and
follow the instructions.
|
or
| 3. |
Mark,
sign and date your proxy card and return it promptly in the enclosed
envelope.
|
PLEASE
SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
|
Please
mark
your
votes as
indicated
in [X]
this
example
|
THIS
PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTION IS
INDICATED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
FIVE
NOMINEES LISTED BELOW (PROPOSAL 1), FOR PROPOSAL 2, FOR PROPOSAL 3,
AND
FOR
PROPOSAL 4
The
Board
of Directors recommends that you vote FOR
the
nominees in Proposal 1, FOR adoption of Proposal 2,
FOR
adoption of Proposal 3, and FOR adoption of Proposal 4.
|
1.Election
of Directors:
01
Edward A. Dohring, 02 Jeffrey M. Krauss, 03 Brad Mattson 04 H.
Duane
Wadsworth and 05 Ralph S. Martin.
|
FOR
[ ]
|
WITHHOLD
ALL
[ ]
|
FOR
ALL
EXCEPT
[ ]
|
| |
|
|
|
|
INSTRUCTION:
To withhold authority to vote for any nominee(s), mark “For All Except”
and write that nominee(s’) name(s) or number(s) in the space provided
below.
_____________________________________________________
|
|
|
| |
|
|
|
2.
Proposal
to approve a series of amendments to our Certificate of Incorporation
to
effect a reverse stock split of our common stock, whereby each
outstanding
8 or 12 shares would be combined into one share and to grant
authorization
to the Board of Directors to determine, at its discretion, the
timing and
the actual ratio of the reverse stock split
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
| |
|
|
|
|
3.
Proposal
to approve the Eighth Amended and Restated 1998 Equity Participation
Plan
pursuant to which the plan will be amended to allow for the repricing
of
issued but unexercised stock options and awards held by employees
and
consultants.
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
| |
|
|
|
|
4.
Proposal
to ratify the appointment of Moss Adams LLP as our Independent
Registered
Public Accounting Firm for the fiscal year ending March 31,
2007.
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
| |
|
|
|
|
5.
In
their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Annual Meeting
and any
and all adjournments or postponements of the Annual Meeting.
|
|
|
|
|
ANY
PREVIOUS PROXY EXECUTED BY THE SIGNED IS HEREBY REVOKED.
Receipt
of the notice of the Annual Meeting and the proxy statement is
hereby
acknowledged.
PLEASE
BE SURE TO DATE AND SIGN THIS INSTRUCTION CARD
BELOW
|
Signature
of
Stockholder ________________________________________________
Dated _____________________ , 2006
Note:
Please sign exactly as addressed hereon. Joint owners should each sign.
Executors, administrators, trustees, guardians and attorneys should so indicate
when signing. Attorneys should submit powers of attorney. Corporations and
partnerships should sign in full corporate or partnership name by an authorized
officer.
IF
YOU
WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR INTERNET, PLEASE
READ
THE INSTRUCTIONS BELOW.
-FOLD
AND
DETACH HERE-
PROXY
VOTING INSTRUCTIONS
Stockholders
of record have three ways to vote:
| 2. |
By
Telephone (using a Touch-Tone Phone);
or
|
A
telephone or Internet vote authorizes the named proxies to vote your shares
in
the same manner as if you marked, signed, dated and returned this proxy. Please
note telephone and Internet votes must be cast prior to 3:00a.m., July 21,
2006.
It is not necessary to return this proxy if you vote by telephone or
Internet.
Vote
by Telephone
Call
Toll-Free on a Touch-Tone Phone anytime prior to 3:00 a.m., July 21,
2006
1-866-395-9276
__________________________________________
Vote
by Internet
Anytime
prior to
3:00
a.m., July 21, 2006 go to
https://www.proxyvotenow.com/tgal
___________________________________________
Please
note that the last vote received, whether by telephone, Internet or by mail,
will be the vote counted.
Your
vote is important!
