SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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The 3D0 Company
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THE 3DO COMPANY
NOTICE OF SPECIALANNUAL MEETING OF STOCKHOLDERS
================================================================================
July 23,September 17, 2002
TO OUR STOCKHOLDERS:To Our Stockholders:
I am pleased to invite you to attend a Specialthe Annual Meeting of stockholdersStockholders of The
3DO Company as detailed below:
DATE AND TIME Tuesday, August 20,Date and Time Wednesday, October 16, at 3:00 p.m.
PLACEPlace The 3DO Company Headquarters
200 Cardinal Way
Redwood City, CA 94063
Directions to 3DOour offices may be found on the Company'sour website
at: www.3do.com/companyinfo/direction.html.
ITEM OF BUSINESSItems of Business 1. To elect two Class A directors for a three-year
term.
2. To approve the 2002 Stock Plan.
3. To approve an amendment toincrease in the Restated Certificatenumber of
Incorporation to effect a one-for-eight reverse split of
the outstanding shares of
3DO's common stock.
This item isstock reserved for issuance under the 1994
Employee Stock Purchase Plan by 375,000.
4. To confirm the re-appointment of
PricewaterhouseCoopers LLP as our independent
auditors for the fiscal year ending March 31, 2003
5. To transact any other business that may properly
come before the meeting.
These items are more fully described in the
accompanying Proxy Statement.
RECORD DATERecord Date You are entitled to vote if you were a holder of
3DOour common stock at the close of business on
July 5,September 6, 2002.
VOTING BY PROXYVoting by Proxy To assure your representation at the meeting, you are
urged to vote your shares by designating your proxies
as promptly as possible. You may vote by mail, by
telephone, or via the Internet by following the
instructions on the enclosed proxy card.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
WE ENCOURAGE YOU TO VOTE BY PROXY. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO THE SPECIAL MEETING. IF YOU DECIDE TO ATTEND THE SPECIAL MEETING AND WISH TO
CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE
MEETING.Your vote is important. Whether or not you plan to attend the Annual Meeting, we
encourage you to vote by proxy. You may revoke your proxy at any time prior to
the Annual Meeting. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so automatically by voting in person at the
Annual Meeting.
By order of the Board of Directors
William M. (Trip) Hawkins III
CHAIRMAN AND CHIEF EXECUTIVE OFFICERChairman and Chief Executive Officer
TABLE OF CONTENTS
Page
Questions and Answers 1
Information Concerning Solicitation and Voting 3
PROPOSAL - To approve the amendment to the restated certificate
of incorporation to effect a one-for-eight reverse
split of 3DO's outstanding shares of common stock 4
Certain Known Stockholders 10
Appendix A -- Proposed Amendment to Restated Certificate of
Incorporation 11
Questions and Answers 1
Information Concerning Solicitation and Voting 3
Stock Ownership 4
Proposal 1 - Election of Directors 6
Directors 7
Board Meetings and Committees 7
Compensation of Directors 8
Executive Officers 8
Executive Compensation 10
Compensation Committee Report 12
Corporate Performance Graph 15
Proposal 2 - Approval of the 2002 Stock Plan 16
Proposal 3 - Approval of an amendment to the 1994 Employee Stock Purchase Plan
to increase the number of shares reserved for issuance by 375,000 20
Proposal 4 - Confirmation of re-appointment of independent auditors 22
Audit Committee Report 23
Other Matters 24
Appendix A - The 3DO Company 2002 Stock Plan 25
Appendix B - 1994 Employee Stock Purchase Plan 35
Appendix C - Charter for the Audit Committee of the Board of Directors
of The 3DO Company 38
QUESTIONS AND ANSWERS
Although we encourage you to read the enclosed Proxy Statement in its
entirety, we include this Questions and Answers section to provide some
background information and brief answers to several questions you might have
about the enclosed proposal.proposals. In this Proxy Statement, we refer to The 3DO
Company as "3DO""we," "us," or the "Company."our."
Q. WHAT PROPOSALS ARE STOCKHOLDERS BEING ASKED TO CONSIDER AT THE UPCOMING
SPECIALANNUAL MEETING?
A. 3DO is seeking approvalYou will be voting on the following:
o To elect two Class A directors;
o To approve the 2002 Stock Plan and reservation of one proposal.500,000 shares of
common stock thereunder;
o To approve an amendment toincrease in the Restated Certificatenumber of Incorporation to effect a one-for-eight reverse
split of 3DO's outstanding shares of common stock.
Q. WHY IS 3DO SEEKING STOCKHOLDER APPROVAL FOR THIS PROPOSAL?
A. The Board approvedstock reserved
for issuance under the reverse stock split1994 Employee Stock Purchase Plan by 375,000;
o To confirm the re-appointment of PricewaterhouseCoopers LLP as
independent auditors for the following reasons:
o The Board believes a higher stock price may help generate investor
interest in 3DO and help 3DO attract and retain employees and other
service providers; and
o The Board believes the reverse stock split is the most effective
means to avoid a delisting of 3DO's common stock from the Nasdaq
National Market ("Nasdaq").fiscal year ending March 31, 2003.
Q. WHO IS ENTITLED TO VOTE?
A. You may vote if you owned our common stock as of the close of business on
July
5,September 6, 2002. Each share of our common stock is entitled to one vote.
As of July 5,September 6, 2002, 3DOwe had 61,857,4317,814,894 shares of common stock
outstanding.
Q. HOW DO I VOTE BEFORE THE SPECIALANNUAL MEETING?
A. You have three voting options:
o Over the Internet, which the Company encourageswe encourage if you have Internet access, at
the address shown on your proxy card;
o By telephone through the number shown on your proxy card; or
o By mail by completing, signing and returning the enclosed proxy card.
Q. MAY I VOTE AT THE SPECIALANNUAL MEETING?
A. You may vote your shares of common stock at the meeting if you attend in
person. Even if you plan to attend the meeting, the Company encouragesAnnual Meeting, we encourage you to
vote your shares by proxy. You may vote by proxy through the Internet, by
telephone or by mail.
Q. MAY I CHANGE MY MIND AFTER I VOTE?
A. You may change your vote at any time before the polls close at the meeting.Annual
Meeting. You may do this by (1) signing another proxy card with a later
date and returning it to 3DOus prior to the meeting,Annual Meeting, (2) voting again
by telephone or over the Internet prior to midnight on August 19,October 15, 2002, or
(3) voting again at the meeting.Annual Meeting.
1
Q. IF I HOLD SHARES THROUGH A BROKER, HOW DO I VOTE THEM?
A. Your broker should have forwarded instructions to you regarding the manner
in which you can direct your broker as to how you would like your shares of
common stock to be voted. If you have not received these instructions or
have questions about them, you should contact your broker directly.
Q. WHAT IF I RETURN MY PROXY CARD BUT DO NOT PROVIDE VOTING INSTRUCTIONS?
A. Proxies that are signed and returned but do not contain instructions will
be voted FOR the proposaldirectors and FOR the proposals in this proxy statement.Proxy Statement.
Q. WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A. It means that you have multiple accounts with brokers and/or 3DO'sour transfer
agent. Please vote all of these shares. 3DO recommendsWe recommend that you contact your
broker and/or 3DO'sour transfer agent to consolidate as many accounts as
possible under the same name and address. Our transfer agent is EquiServe
Trust Company, N.A., which may be reached by phone at 781-575-3100; by mail
at 150 Royall Street, Canton, MA 02021; or on the Internet at
WWW.EQUISERVE.COM.www.equiserve.com.
Q. HOW MAY I ATTEND THE SPECIALANNUAL MEETING?
A. The SpecialAnnual Meeting is open to all holders of 3DOour common stock. The
meetingAnnual Meeting will be held at 3DO'sour headquarters in Redwood City,
California, and directions may be found on the Company'sour website at
WWW.3DO.COM/COMPANYINFO/DIRECTION.HTML.www.3do.com/companyinfo/direction.html.
Q. MAY STOCKHOLDERS ASK QUESTIONS AT THE SPECIALANNUAL MEETING?
A. Yes. Representatives of the CompanyOur representatives will answer stockholders' questions of general
interest at the end of the meeting.Annual Meeting.
Q. HOW MANY VOTES MUST BE PRESENT TO HOLD THE SPECIALANNUAL MEETING?
A. Your shares of common stock are counted as present at the meeting if you
attend the meetingAnnual Meeting and vote in person or if you properly return a
proxy by Internet, telephone or mail. In order for us to conduct our meeting,Annual
Meeting, a majority of our outstanding shares of common stock as of JulyAugust
5, 2002, must be present in person or by proxy at the meeting.Annual Meeting. This
is referred to as a quorum. Abstentions and broker non-votes will be
counted for purposes of establishing a quorum at the meeting.Annual Meeting.
Q. WHO WILL COUNT THE VOTES?
A. Employees of EquiServe Trust, N.A. will tabulate the votes and act as the
inspector of elections.
Q. WHY IS MY VOTE IMPORTANT?
A. Your vote is important because the proposal must receive the affirmative
vote of a majority of shares of common stock outstanding to pass. Also,
unlessUnless a majority of the shares of common stock outstanding as of the record date are voted
or present at the meeting,Annual Meeting, we will not have a quorum, and we will be
unable to transact any business at the SpecialAnnual Meeting. In that event, we
would need to adjourn the meeting until such time as a quorum can be
obtained. Also, proposals 2, 3 and 4 must receive the affrmative vote of a
majority of shares voted or present at the Annual Meeting to pass.
2
Q. WHERE DO I FIND THE VOTING RESULTS OF THE SPECIALANNUAL MEETING?
A. 3DOWe will announce preliminary voting results at the meeting.Annual Meeting. We will
publish the final results in our second quarterly report on Form 10-Q for
fiscal 2003. 3DOWe will file that report with the Securities and Exchange
Commission, and you may obtain a copy by contacting the SEC at 800-SEC-0330
for the location of its nearest public reference room. You may also find a
copy on the Internet through the SEC's electronic data system called EDGAR
at www.sec.gov.
THE 3DO COMPANY
PROXY STATEMENT FOR SPECIAL2002
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERALGeneral
The enclosed Proxyproxy is solicited on behalf of the Board of Directors of The
3DO Company (the "Board"), a Delaware corporation ("3DO"we," "us," or the "Company""our"), for
use at the SpecialAnnual Meeting of Stockholders (the "Special"Annual Meeting") to be held
Tuesday, August 20,Wednesday, October 16, at 3:00 p.m., local time, or at any adjournment thereof,
for the purposes set forth in this Proxy Statement and in the accompanying
Notice of SpecialAnnual Meeting of Stockholders. The SpecialAnnual Meeting will be held at 3DO's
headquarters, 200 Cardinal Way, Redwood City, CA 94063. 3DO'sour
principal executive offices, are located at 200 Cardinal Way, Redwood City, CA
94063. 3DO'sOur telephone number is (650) 385-3000. Directions to 3DOour offices may be
found on the
Company'sour website at: www.3do.com/companyinfo/direction.html.
These proxy solicitation materials were mailed on or about July 23,September 16,
2002, to all stockholders entitled to vote at the SpecialAnnual Meeting.
RECORD DATE AND SHARE OWNERSHIPRecord Date and Share Ownership
Stockholders of record at the close of business on July 5,September 6, 2002, who
owned common stock, are entitled to notice of the meetingAnnual Meeting and to vote at
the meeting.Annual Meeting. At the record date (the "Record Date"), 61,857,4317,814,894 shares of
3DO'sour common stock were issued and outstanding and held of record by approximately
819833 stockholders. VOTING AND SOLICITATIONAlso at the Record Date, 15,820 shares of series A convertible
preferred stock had been issued and 10,868 shares were outstanding. The series A
convertible preferred stock has no voting rights.
Voting and Solicitation
Proxies properly executed, duly returned to us and not revoked, will be
voted in accordance with the specifications given. Where no specifications are
given, such proxies will be voted as our management may propose. It is not
expected that any matters other than those referred to in this Proxy Statement
will be brought before the Annual Meeting. If, however, any matter not described
in this Proxy Statement is properly presented for action at the Annual Meeting,
the persons named in the enclosed form of proxy will have discretionary
authority to vote according to their best judgment. Each common stockholder is
entitled to one (1) vote for each share of common stock held by such stockholders on
the record date on the matter presented at the SpecialAnnual Meeting. The required
quorum for the transaction of business at the SpecialAnnual Meeting is a majority of
the votes eligible to be cast by holders of shares of 3DO'sour common stock issued
and outstanding on the Record Date. Shares that are voted "FOR," "AGAINST," or
"ABSTAIN" (the "Votes Cast") are treated as being present at the SpecialAnnual Meeting for purposes of
establishing a quorum and are also treated as shares entitled to vote at the
SpecialAnnual Meeting with respect to the proposal. An abstention will have the same
effect as a vote against the proposal.proposals. Broker non-votes will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of
business. However, because under Delaware law3
business, but such non-votes will be excluded from the proposal
requires the approvalcalculation of the holders of a majority of 3DO's outstanding shares
of common stock, and not merely the approval of a majority of 3DO's outstanding
shares of common stock represented in person or by proxy at a meeting atentitled to vote with respect to any proposal for which a
quorum is present, a broker non-vote will count as aauthorization to vote
against this proposal.was withheld. A broker non-vote occurs when a broker holding shares for a
beneficial holder does not have discretionary voting power with respect to that
proposal and has not received instructions from the beneficial owner. Broker
non-votes will not affect the outcome of the voting on any matter described in
this Proxy Statement.
The New York Stock Exchange has proposed new regulations that would require
brokers or other nominees that are NYSE member organizations from voting in
favor of proposals relating to equity compensation plans unless they receive
specific instructions from the beneficial owner of the shares to vote in that
manner. This new rule may become effective before the meeting, in which case,
for shares held through a broker or other nominee who is an NYSE member
organization, your shares will only be voted in favor of proposals 2 and 3 if
you have provided specific voting instructions to your broker or other nominee
to vote your shares in favor of that proposal.
The cost of soliciting proxies will be borne by 3DO. 3DOus. We may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Proxies may also be solicited, personally or by telephone or telegram, by
certain of 3DO'sour directors, officers and employees, without additional
compensation.
REVOCABILITY OF PROXIESRevocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to theour Secretary of 3DO a written
notice of revocation, or a duly executed proxy bearing a later date, or by
attending the meetingAnnual Meeting and voting in person.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALSDeadline for Receipt of Stockholder Proposals
Proposals of our stockholders of 3DO that such stockholders desire to have
included in 3DO'sour proxy materials for its 2002our 2003 Annual Meeting of Stockholders must
have beenbe received by 3DOus no later than April 3, 2002,16, 2003, in order tothat they may be
considered for possible inclusion in our proxy statement and form of proxy
relating to that meeting.
However, if the date of the 2002 Annual Meeting of
Stockholders changes by more than 30 days from the anniversary of last year's
annual meeting (September 19, 2001), then the deadline will be a reasonable time
before 3DO begins to print and mail the proxy materials.
RULE 14A-5(E)(2) DISCLOSURE
(COMPANY WITH ADVANCE NOTICE PROVISION IN THE BYLAWS)
If a stockholder wishes to present a proposal at 3DO's Annual Meeting of
Stockholdersour annual meeting in the
year 20022003 and the proposal is not intended to be included in the our proxy
statement relating to that meeting, the stockholder must give advance notice to
us during the period prior to such meeting that is determined in accordance with
3DO's Bylaws.the Bylaws (the "Bylaw Notice Period"), as described below in the section
entitled "Other Matters." The Bylaw notice periodNotice Period with respect to the 20022003
Annual Meeting of Stockholders will run from June 21, 2002,July 18, 2003, until July 21, 2002,August 17, 2003, assuming that
the annual meeting is held within 30 days before and 60 days after September 19, 2002October 16,
2003 (the anniversary of lastthis year's annual meeting)Annual Meeting). If a stockholder gives
notice of a proposal outside of the Bylaw Notice Period, the stockholder will
not be permitted to present the proposal to the stockholders for a vote at the
meeting.
PROPOSAL
PROPOSAL TO APPROVE THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-EIGHT REVERSE SPLIT OF 3DO'S OUTSTANDING
SHARES OF COMMON STOCK
GENERAL
The Board has unanimously adopted a resolution approving, declaring
advisable and recommendingBylaw Notice Period with respect to the stockholders for their approval an amendment
to Article IV of 3DO's Restated Certificate of Incorporation effecting a
one-for-eight reverse split of 3DO's outstanding shares of common stock.
The text of the proposed amendment to effect the reverse stock split is
attached hereto as Appendix A (the "Certificate of Amendment"). The Certificate
of Amendment will effect a one-for-eight reverse split of the shares of 3DO's
common stock issued and outstanding, but will not change the number of
authorized shares of common stock or preferred stock, the number of treasury
shares held by 3DO or the par value of 3DO's common stock or preferred stock.
4
PURPOSE
The Board approved the reverse stock split for the following reasons:
o The Board believes a higher stock price may help generate investor
interest in 3DO and help 3DO attract and retain employees and other
service providers; and
o The Board believes the reverse stock split may be the most effective
means to avoid a delisting of 3DO's common stockthis year's Annual Meeting was from the Nasdaq
National Market ("Nasdaq").
POTENTIAL INCREASED INVESTOR INTEREST. On July 5, 2002, 3DO's common stock
closed at $0.47 per share. In approving the reverse stock split, the Board
considered that 3DO's common stock may not appeal to brokerage firms that are
reluctant to recommend lower-priced securities to their clients. Investors may
also be dissuaded from purchasing lower-priced stocks because the brokerage
commissions, as a percentage of the total transaction, tend to be higher for
such stocks. Moreover, the analysts at many brokerage firms do not monitor the
trading activity or otherwise provide coverage of lower-priced stocks. Also, the
Board believes that most investment funds are reluctant to invest in
lower-priced stocks.
The Board believes that some potential employees and service providers are
less likely to work for a company with a low stock price, regardless of the size
of the company's market capitalization. If the reverse stock split successfully
increases the per share price of 3DO's common stock, the Board believes this
increase will enhance 3DO's ability to attract and retain employees and service
providers.
NASDAQ LISTING. 3DO's common stock is quoted on Nasdaq under the symbol
"THDO." On
June 21, 2002, 3DO receiveduntil July 21, 2002. No stockholder gave notice from Nasdaq that its common stock
had failed to maintain Nasdaq's minimum bid price closing requirement of $1.00
and that such failure had continued beyond the ninety (90) day probationary
period allowed under the Nasdaq National Marketplace Rules. The letter specified
that, as a result of 3DO's failure to maintain the minimum bid price closing
requirement, 3DO's common stock would be delisted at the close of business on
July 1, 2002. However, 3DO appealed the decision, and the delisting was stayed
pending a hearing before the Nasdaq Qualifications Panel. This hearing is
scheduled to occur on August 8, 2002. 3DO believes that the panel may look
favorably on 3DO's reverse split proposal and may provide 3DO with time to
effect the split pending approval by the stockholders at the Special Meeting.
If, following the reverse stock split, the per share price of 3DO's common stock
is above $1.00 for ten (10) consecutive trading days, 3DO believes Nasdaq may
withdraw the delisting action. The Board believes that maintaining Nasdaq
listing may provide a broader market for 3DO's common stock and facilitate the
use of 3DO's common stock in financing transactions. The Board approved the
reverse stock split partly as a means of increasing the share price of 3DO's
common stock above $1.00 per share. If the stockholders do not approve the
reverse stock split proposal and the stock price does not otherwise increase to
greater than $1.00 per share, 3DO expects the common stock to be immediately
delisted from the Nasdaq.
Delisting could reduce the ability of holders of 3DO's common stock to
purchase or sell shares of 3DO common stock as quickly and as inexpensively as
they have done historically, and may have an adverse effect on the trading price
of our common stock. Delisting could also adversely affect 3DO's relationships
with vendors and customers.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK. If 3DO's common stock is
suspended from trading on the Nasdaq National Market or fails to continue to be
listed on the Nasdaq National Market, then holders of our Series A Redeemable
Convertible Preferred Stock would have the right to force 3DO to redeem their
shares of preferred stock at a substantial premium to the market price of the
common stock. On July 5, 2002, there were 10,868 shares of Series A Redeemable
Convertible Preferred Stock issued and outstanding. As of that date, each share
of Series A Redeemable Convertible Preferred Stock was convertible into 1,287
shares of common stock.
5
THE REVERSE STOCK SPLIT MAY NOT RESULT IN AN INCREASE IN THE PER SHARE PRICE OF
3DO'S COMMON STOCK; THERE ARE OTHER RISKS ASSOCIATED WITH THE REVERSE STOCK
SPLIT
3DO cannot predict whether the reverse stock split will increase the
market price for 3DO's common stock. The history of similar stock split
combinations for companies in like circumstances is varied. There is no
assurance that:
o the market price per new share of 3DO common stock (the "New
Shares") after the reverse stock split will rise in proportion to
the reduction in the number of old shares of 3DO common stock (the
"Old Shares") outstanding before the reverse stock split;
o the reverse stock split will result in a per share price that will
attract brokers and investors who do not trade in lower priced
stocks;
o the reverse stock split will result in a per share price that will
increase 3DO's ability to attract and retain employees and other
service providers;
o the market price per New Share will either exceed or remain in
excess of the $1.00 minimum bid price as required by Nasdaq or that
3DO will otherwise meet the requirements of Nasdaq for continued
inclusion for trading on Nasdaq.
The market price of 3DO's common stock will also be based on 3DO's
performance and other factors, some of which are unrelated to the number of
shares outstanding. If the reverse stock split is effected and the market price
of 3DO's common stock declines, the percentage decline as an absolute number and
as a percentage of 3DO's overall market capitalization may be greater than would
occur in the absence of a reverse stock split. Furthermore, liquidity of 3DO's
common stock could be adversely affected by the reduced number of shares that
would be outstanding after the reverse stock split.
PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT
CORPORATE MATTERS. The reverse stock split would have the following
effects on the number of 3DO's shares of common stock outstanding:
o each eight (8) Old Shares owned by a stockholder would be exchanged
for one (1) New Share;
o the number of shares of 3DO's common stock issued and outstanding
will be reduced from approximately sixty-two million (62,000,000)
shares to approximately seven million seven hundred fifty thousand
(7,750,000) shares;
o all outstanding options and warrants entitling the holders thereof
to purchase shares of 3DO's common stock will enable such holders to
purchase, upon exercise of their options or warrants, one-eighth
(1/8th) of the number of shares of 3DO's common stock that such
holders would have been able to purchase upon exercise of their
options or warrants immediately preceding the reverse stock split at
an exercise price equal to eight (8) times the exercise price
specified before the reverse stock split, resulting in approximately
the same aggregate price being required to be paid therefor upon
exercise thereof immediately preceding the reverse stock split; and
o the number of shares reserved for issuance under 3DO's existing
stock option plans and employee stock purchase plans will be reduced
to one-eighth (1/8th) of the number of shares currently included in
such plans.
6
The reverse stock split will be effected simultaneously for all 3DO's
common stock, and the exchange number will be the same for all of 3DO's common
stock. The reverse stock split will affect all of 3DO's stockholders uniformly
and will not affect any stockholder's percentage ownership interests in 3DO,
except to the extent that the reverse stock split results in any of 3DO's
stockholders owning a fractional share. As described below, stockholders holding
fractional shares will be entitled to cash payments in lieu of such fractional
shares. Such cash payments will reduce the number of post-split stockholders to
the extent there are stockholders presently holding fewer than eight (8) shares.
This, however, is not the purpose for which 3DO is effecting the reverse stock
split. Common stock issued pursuant to the reverse stock split will remain fully
paid and non-assessable. 3DO will continue to be subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended.
FRACTIONAL SHARES. No scrip or fractional certificates will be issued in
connection with the reverse stock split. Stockholders who otherwise would be
entitled to receive fractional shares because they hold a number of Old Shares
not evenly divisible by eight (8) will be entitled, upon surrender of
certificate(s) representing such shares, to a cash payment in lieu thereof. The
cash payment will equal the fraction to which the stockholder would otherwise be
entitled multiplied by the average of the closing prices (as adjusted to reflect
the reverse stock split) of our common stock, as reported in The Wall Street
Journal, during the sixty (60) trading days preceding the date that is five (5)
days before the effective time of the reverse stock split. If such price is not
available, the fractional share payment will be based on the average of the last
bid and ask prices of our common stock on such days or other prices determined
by the Board. The ownership of a fractional interest will not give the holder
thereof any voting, dividend or other rights except to receive payment therefor
as described herein.
Stockholders should be aware that, under the escheat laws of the various
jurisdictions where stockholders reside, where 3DO is domiciled and where the
funds will be deposited, sums due for fractional interests that are not timely
claimed after the effective time may be required to be paid to the designated
agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to
receive such funds may have to seek to obtain them directly from the state to
which they were paid.
AUTHORIZED SHARES; FUTURE FINANCINGS. Upon effectiveness of the reverse
stock split, the number of authorized shares of common stock that are not issued
or outstanding would increase from approximately sixty-three million
(63,000,000) shares to approximately one hundred seventeen million (117,000,000)
shares, which include treasury shares. 3DO will continue to have 4,984,180
authorized but unissued shares of preferred stock. Authorized but unissued
shares will be available for issuance, and 3DO may issue such shares in
financings or otherwise. If 3DO issues additional shares, the ownership interest
of holders of 3DO's common stock may also be diluted. Also, the issued shares
may have rights, preferences or privileges senior to those of 3DO's common
stock. 3DO currently intends to raise approximately $5,000,000 in additional
capital to fund its operations in the next few months and may issue debt or
equity securities or a combination. 3DO does not know whether it will be able to
obtain such financing on satisfactory terms, if at all. 3DO's additional future
capital needs will be highly dependent on its ability to control expenses,
manage the restructuring of our operations, as well as the market's demand for
its products. Thus, any projections of future cash needs and cash flows are
subject to substantial uncertainty. If 3DO's available funds and cash generated
from operations are insufficient to satisfy 3DO's liquidity requirements, 3DO
may seek to sell additional equity or debt securities, obtain a line of credit
or curtail its existing operations. In addition, from time to time 3DO may
evaluate other methods of financing to meet its capital needs on terms that are
attractive to 3DO. If the reverse stock split proposal is not approved by the
stockholders at the Special Meeting, 3DO's ability to raise additional capital
could be adversely affected.
ACCOUNTING MATTERS. The reverse stock split will not affect the par value
of 3DO's common stock. As a result, on the effective date of the reverse stock
split, the stated capital on 3DO's balance sheet attributable to 3DO's common
stock will be reduced to one-eighth (1/8th) of its present amount, and the
additional paid-in capital account shall be credited with the amount by which
the stated capital is reduced. The per share net income or loss and net book
value of 3DO's common stock will be increased because there will be fewer shares
of 3DO's common stock outstanding.
7
POTENTIAL ANTI-TAKEOVER EFFECT. Although the increased proportion of
unissued authorized shares of common stock to issued shares could, under certain
circumstances, have an anti-takeover effect (for example, by permitting
issuances that would dilute the stock ownership of a person seeking to effect a
change in the composition of 3DO's Board or contemplating a tender offer or
other transaction for the combination of 3DO with another company), the reverse
stock split proposal is not being proposed in response to any effort of which
3DO is aware to accumulate 3DO's shares of common stock or obtain control of
3DO, nor is it part of a plan by management to recommend a series of similar
amendments to 3DO's Board and stockholders. Other than the reverse stock split
proposal, 3DO's Board does not currently contemplate recommending the adoption
of any other amendments to 3DO's Restated Certificate of Incorporation that
could be construed to affect the ability of third parties to take over or change
the control of 3DO.
PROCEDURE FOR EFFECTING REVERSE STOCK SPLIT AND EXCHANGE OF STOCK CERTIFICATES
If 3DO's stockholders approve the reverse stock split and the Board still
believes that the reverse stock split is in the best interests of 3DO and its
stockholders, 3DO will file an amendment to its Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware. The reverse
stock split will become effective at the time specified in the amendment, which
will most likely be some time shortly after the filing of the amendment and
which 3DO refers to as the "effective time." Beginning at the effective time,
each certificate representing Old Shares will be deemed for all corporate
purposes to evidence ownership of New Shares.
As soon as practicable after the effective time, stockholders will be
notified that the reverse stock split has been effected. 3DO expects that its
transfer agent, EquiServe Trust Company, N.A., will act as exchange agent for
purposes of implementing the exchange of stock certificates. Holders of Old
Shares will be asked to surrender to the exchange agent certificates
representing Old Shares in exchange for certificates representing New Shares in
accordance with the procedures to be set forth in the letter of transmittal 3DO
sends to its stockholders. No new certificates will be issued to a stockholder
until such stockholder has surrendered such stockholder's outstanding
certificate(s), together with the properly completed and executed letter of
transmittal, to the exchange agent. Any Old Shares submitted for transfer,
whether pursuant to a sale, other disposition or otherwise, will automatically
be exchanged for New Shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK
CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO
SO.
Even if the stockholders approve the reverse stock split, 3DO reserves the
right to not effect the reverse stock split if in the Board's opinion it would
not be in the best interests of 3DO and its stockholders to effect such reverse
stock split.
NO DISSENTER'S RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW
3DO's stockholders are not entitled to dissenter's rights with respect
to the reverse stock split, and 3DO will not independently provide stockholders
with any such right.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of certain material federal income tax
consequences of the reverse stock split and does not purport to be a complete
discussion of all of the possible federal income tax consequences of the reverse
stock split and is included for general information only. Further, it does not
address any state, local or foreign income or other tax consequences. For
example, the state and local tax consequences of the reverse stock split may
vary significantly as to each stockholder, depending upon the state in which he
or she resides. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the United States federal income tax law as of the
date hereof, which is subject to change retroactively as well as prospectively.
This summary also assumes that the Old Shares were, and the New Shares will be,
held as a "capital asset," as defined in the Internal Revenue Code of 1986, as
amended (the "Code") (i.e., generally,
8
property held for investment). The tax treatment of a stockholder may vary
depending upon the particular facts and circumstances of such stockholder. Each
stockholder is urged to consult with such stockholder's own tax advisor with
respect to the tax consequences of the reverse stock split.
Other than the cash payments for fractional shares discussed below, no
gain or loss should be recognized by a stockholder upon such stockholder's
exchange of Old Shares for New Shares pursuant to the reverse stock split. The
aggregate tax basis of the New Shares received in the reverse stock split
(including any fraction of a New Share deemed to have been received) will be the
same as the stockholder's aggregate tax basis in the Old Shares exchanged
therefor. In general, stockholders who receive cash upon redemption of their
fractional share interests in the New Shares as a result of the reverse stock
split will recognize gain or loss based on their adjusted basis in the
fractional share interests redeemed. The federal income tax liability, if any,
generated by the receipt of cash in lieu of a fractional interest should not be
material in amount in view of the low value of the fractional interest. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the reverse stock
split.
3DO's view regarding the tax consequence of the reverse stock split is not
binding on the Internal Revenue Service or the courts. Accordingly, each
stockholder should consult with his or her
own tax advisor with respectintent to all
ofpresent a stockholder proposal from the potential tax consequences to him or her of the reverse stock split.
VOTE REQUIRED; RECOMMENDATION OF BOARD
The affirmative vote of the holders of a majority of all outstanding
shares of 3DO's common stock entitled to vote onfloor at this proposal will be required
for approval of the amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTyear's Annual
Meeting.
Stock Ownership
The following table sets forth certain information regardingknown to us with respect
to beneficial ownership of 3DO'sour common stock as of the record date (except as otherwise
noted)September 6, 2002, by
(i)o each of its directors, (ii) its Chief Executive Officer and the
four most highly compensated executive officers who earned more than $100,000
during the fiscal year ended March 31, 2002, and who were still officers of 3DO
on the record date, (iii) all of its directors and executive officers as a
group, and (iv) each person or entity who isstockholder known by us to own beneficiallybe the beneficial owner of more than 5%
percent of 3DO'sour common stock.
This table is based on information provided to us or filed withstock;
o each director;
o the SEC by
its directors,executive officers listed in the Summary compensation Table; and
o all current executive officers and principal stockholders. Unless otherwise
indicated, the address for each stockholder listed in the following table is c/o
The 3DO Company,directors as a group.
4
- --------------------------------------------------------------------------------
Shares Beneficially Owned (1)
Five Percent Stockholders, ------------------------------
Directors and Executive Officers Number Percent
- --------------------------------------------------------------------------------
Gaia Offshore Master Fund, Ltd. 417,753 (2) 5.1%
750 Lexington Ave.
New York, NY 10022
- --------------------------------------------------------------------------------
HFTP Investment, LLC
750 Lexington Ave. 462,587 (3) 5.6%
New York, NY 10022
- --------------------------------------------------------------------------------
William M. (Trip) Hawkins III
200 Cardinal Way 3,111,678 (4) 36.0%
Redwood City, California 94063. Except94063
- --------------------------------------------------------------------------------
James Alan Cook 129,143 (5) 1.6%
- --------------------------------------------------------------------------------
William H. Dully 3,126 (6) *
- --------------------------------------------------------------------------------
Stephen E. Fowler 66,023 (7) *
- --------------------------------------------------------------------------------
Richard A. Gelhaus 0 *
- --------------------------------------------------------------------------------
Richard J. Hicks III 7,645 (8) *
- --------------------------------------------------------------------------------
David J. Klein 26,672 (9) *
- --------------------------------------------------------------------------------
William A. Hall 28,856 (10) *
- --------------------------------------------------------------------------------
H. William Jesse, Jr. 29,625 (11) *
- --------------------------------------------------------------------------------
Richard S. F. Lehrberg 5,729 (12) *
- --------------------------------------------------------------------------------
All executive officers and directors 3,437,690 (13) 38.4%
as otherwise indicated, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned. Applicable percentage ownership of
common shares in the following tables is based on 61,857,431 shares of common
stock outstanding as of the record date. The number does not include shares of
treasury stock.
9
- --------------------------------------------------- -------------------------------------
SHARES BENEFICIALLY OWNED (1)
FIVE PERCENT STOCKHOLDERS, -----------------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT
- --------------------------------------------------- ------------------ ------------------
Gaia Offshore Master Fund, Ltd.
750 Lexington Ave. 3,342,023(2) 5.1%
New York, NY 10022
- --------------------------------------------------- ------------------ ------------------
HFTP Investment, LLC
750 Lexington Ave. 8,700,694(3) 12.3%
New York, NY 10022
- --------------------------------------------------- ------------------ ------------------
William M. (Trip) Hawkins III 24,750,823(4) 36.2%
- --------------------------------------------------- ------------------ ------------------
James Alan Cook 1,017,367(5) 1.6%
- --------------------------------------------------- ------------------ ------------------
William H. Dully 25,000(6) *
- --------------------------------------------------- ------------------ ------------------
Stephen E. Fowler 523,127(7) *
- --------------------------------------------------- ------------------ ------------------
Richard A. Gelhaus 0 *
- --------------------------------------------------- ------------------ ------------------
Paul Grace 314,209(8) *
- --------------------------------------------------- ------------------ ------------------
Dominic Wheatley 171,542(9) *
- --------------------------------------------------- ------------------ ------------------
William A. Hall 226,683(10) *
- --------------------------------------------------- ------------------ ------------------
H. William Jesse, Jr. 231,166(11) *
- --------------------------------------------------- ------------------ ------------------
Richard S. F. Lehrberg 37,500(12) *
- --------------------------------------------------- ------------------ ------------------
All executive officers and directors 27,297,417(13) 38.5%
as a group (10 persons)
- --------------------------------------------------- ------------------ ------------------
a group (10 persons)
- --------------------------------------------------------------------------------
*Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stockcommon stock beneficially owned. As of July 5,September 6, 2002, there were
61,857,4317,814,894 shares of common stock outstanding. This number does not include
shares of treasury stock.
(2) Represents common shares issuable upon conversion ofconvertible from Series A redeemable convertible
preferred shares as of June 14, 2002, according to Company
records.September 6, 2002.
(3) Represents common shares issuable upon conversion ofconvertible from Series A redeemable convertible
preferred shares as of June 14, 2002, according to Company
records.September 6, 2002.
(4) Includes 3,994,752517,171 shares subject to an option exercisable within 60 days of
July 5, 2002, and 2,582,032September 6, 2002. Includes 322,753 shares subject to warrants exercisable
within 60 days of July 5,September 6, 2002.
(5) Includes 1,006,749127,816 shares subject to an option exercisable within 60 days of
July 5,September 6, 2002.
(6) Includes 3,126 shares subject to an option exercisable within 60 days of
September 6, 2002.
(7) Includes 62,320 shares subject to an option exercisable within 60 days of
September 6, 2002.
(8) Includes 997 shares held by Mr. Hicks' spouse.
(9) Includes 26,672 shares subject to an option exercisable within 60 days of
September 6, 2002.
(10) Includes 25,000 shares subject to an option exercisable within 60 days of
July 5,September 6, 2002.
(7)(11) Includes 493,50025,000 shares subject to an option exercisable within 60 days of
July 5, 2002.
(8)September 6, 2002
(12) Includes 290,7935,729 shares subject to an option exercisable within 60 days of
July 5, 2002.
(9) Includes 146,042 shares subject to an option exercisable within 60 days of
July 5, 2002.
(10) Includes 195,833 shares subject to an option exercisable within 60 days of
July 5, 2002.
(11) Includes 194,166 shares subject to an option exercisable within 60 days of
July 5, 2002.
(12) Includes 37,500 shares subject to an option exercisable within 60 days of
July 5,September 6, 2002.
(13) Includes shares held beneficially by executive officers and directors as
shown in the footnotes to the foregoing table. Includes 8,966,3671,146,311 shares
subject to options and warrants exercisable within 60 days of July 5,September 6,
2002, by all current executive officers and directors.
105
APPENDIXPROPOSAL 1
ELECTION OF TWO DIRECTORS
Two Class A PROPOSED AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
A new paragraphdirectors are to Article IV ofbe elected at the Company'sAnnual Meeting. Our Restated
Certificate of Incorporation provides for a classified Board of Directors so
that, as nearly as possible, one-third of our Board of Directors is elected each
year to serve a three-year term. Currently, the Board of Directors consists of
four directorships with staggered terms expiring at this Annual Meeting and at
the Annual Meetings of Stockholders in 2003 and 2004. William A. Hall and
Richard S. F. Lehrberg are the directors whose terms as a director expire at
this Annual Meeting. Mr. Hall and Mr. Lehrberg have been nominated by the Board
of Directors for re-election as directors at the Annual Meeting, each for a
three-year term that will expire at the 2005 Annual Meeting of Stockholders. Mr.
Hall was previously elected by the stockholders. Mr. Lehrberg was appointed by
the Board of Directors on November 28, 2001, to fill a vacancy left by Charles
Hirschhorn, who resigned from the Board of Directors effective September 19,
2001. If Mr. Hall and Mr. Lehrberg are re-elected as directors at the Annual
Meeting, they will serve until their successors have been duly elected and
qualified.
- ----------------------------------------------------------------------------
Name of Nominee Age Company Position Director Since
- ----------------------------------------------------------------------------
William A. Hall 70 Director 1997
- ----------------------------------------------------------------------------
Richard S. F. Lehrberg 54 Director 2001
- ----------------------------------------------------------------------------
William A. Hall has been one of our directors since June 1997. Mr. Hall has
been a partner in Lincolnshire Management, Inc., a private equity investment
firm, since June 1994. Since 1993, he has also been the Vice Chairman and
majority stockholder of U.S. Animation, Inc., a video animation conglomerate,
and since 1991, the owner of W.A.H. Management/Consulting, a management
consulting firm. He founded Sight & Sound Distributing Company, a wholesale
distributor of video media, in December 1984 and served as its President and
Chief Executive Officer until 1999. Mr. Hall is also a director of Chromium
Graphics, Inc.; Northsound Music, Inc.; Orlimar Golf; Valley Media, an
international distributor of CDs and videos; and Lincolnshire Management, Inc.
Mr. Hall's term as a director expires at the 2002 Annual Meeting of
Stockholders.
Richard S. F. Lehrberg has been a director since November 2001. Since
January 2000, he has been head of Lehrberg Associates, an international
licensing and distribution consultant. Previously he was Executive Vice
President of Interplay Entertainment, a video game publisher, from February 1991
to December 1999, and he served on Interplay's board of directors from February
1991 to September 2001. Mr. Lehrberg's term as a director expires at the 2002
Annual Meeting of Stockholders.
Required Vote
Those nominees receiving the greatest number of affirmative votes at the
Annual Meeting will be elected to the Board of Directors. Accordingly,
directions to withhold authority and broker non-votes will have no effect on the
outcome of the vote. Our Restated Certificate of Incorporation does not allow
for cumulative voting in the election of directors. A stockholder executing the
enclosed proxy may vote for the nominee or may withhold such vote from the
nominee. In each case where the stockholder has appropriately specified how the
proxy is to be voted, it will be voted in accordance with such stockholder's
specifications. Although it is not contemplated that our nominees will become
unable to serve prior to the Annual Meeting, the persons named on the enclosed
proxy will have the authority to vote for the election of any nominee designated
by the Board of Directors to fill any vacancy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NOMINEES.
6
DIRECTORS AND EXECUTIVE OFFICERS
Directors
The members of our Board of Directors and certain information about
them (including terms of service) are set forth below:
- -----------------------------------------------------------------------------------------
Director
Director Age Company Positions Since
- -----------------------------------------------------------------------------------------
William M. (Trip) Hawkins III 48 Chairman of the Board and 1991
Chief Executive Officer
- -----------------------------------------------------------------------------------------
William A. Hall (1) (2) (3) 70 Director 1997
- -----------------------------------------------------------------------------------------
H. William Jesse, Jr. (1) (2) (3) 50 Director 1997
- -----------------------------------------------------------------------------------------
Richard S. F. Lehrberg (1) (2) (3) 54 Director 2001
- -----------------------------------------------------------------------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee
Information concerning Mr. Hall and Mr. Lehrberg may be found under the
caption "Proposal One - Election of Two Directors" above.
William M. (Trip) Hawkins III, our founder, has been Chairman of the Board
and Chief Executive Officer since September 1991. He also served as our
President from September 1991 until October 1995, and he served as Secretary
from September 1991 through February 1993. Mr. Hawkins' term as a director
expires at the 2004 Annual Meeting of Stockholders.
H. William Jesse, Jr. has been a director since September 1997. He is
Chairman of Jesse Hansen & Co, an organization of strategic and financial
advisors to high-growth consumer companies. He founded the firm in 1986 and
served as its President and CEO through March of 1998. Mr. Jesse has been a
director of Peet's Coffee & Tea, Inc. since August 1998 and served as Chairman
of the Board from January 2001 to May 2002. From 1988 to April 2002, Mr. Jesse
served as Chairman and CEO of Vineyard Properties Corporation, a developer of
wine grape vineyards. Mr. Jesse's term as a director expires at the 2003 Annual
Meeting of Stockholders.
Board Meetings and Committees
Our Board of Directors has three standing committees: the Audit Committee,
the Compensation Committee, and the Nominating Committee. Directors Hall, Jesse,
and Lehrberg are currently the members of the Audit Committee, which reviews the
results and scope of the audit and other services provided by our independent
auditors; the Compensation Committee, which makes recommendations concerning
salaries and incentive compensation for our employees; and the Nominating
Committee, which reviews and makes recommendations on the composition of the
Board of Directors and its committees and evaluates and recommends candidates
for election to the Board of Directors.
During our 2002 fiscal year, the Board of Directors met six times and took
action by written consent eight times; the Audit Committee met four times; the
Compensation Committee met four times and took action by written consent four
times; and the Nominating Committee met once. In fiscal year 2002, no director
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors held when he was a director and of the committees of the
Board of Directors held during the period that he served as a committee member.
7
Compensation of Directors
Directors receive no fees for services provided in that capacity but are
reimbursed for out-of-pocket expenses in connection with attendance at Board of
Directors' meetings.
Pursuant to the terms of the 1995 Director Option Plan, as amended, each
non-employee director is automatically granted an option to purchase 6,250
shares of our common stock upon his or her election as a director. Yearly
thereafter on the date of the Annual Meeting of Stockholders, each non-employee
director is also granted automatically an option for the number of shares for
subsequent options, which are determined according to the following schedule:
6,250 shares if the fair market value of our common stock on the grant date
is less than $120.00 per share;
5,000 shares if the fair market value of our common stock on the grant date
between $120.00 and $160.00 per share;
3,750 shares if the fair market value of our common stock on the grant date
is between $160.00 and $240.00 per share;
2,500 shares if the fair market value of our common stock on the grant date
is between $240.00 and $400.00 per share;
1,250 shares if the fair market value of our common stock on the grant date
is $400.00 or more per share.
Executive Officers
Our executive officers and certain information about them as of September
6, 2002 are listed below:
- ---------------------------------------------------------------------------------------------------------
Name Age Positions
- ---------------------------------------------------------------------------------------------------------
William M. (Trip) Hawkins III 48 Chairman of the Board and Chief Executive Officer
- ---------------------------------------------------------------------------------------------------------
James Alan Cook 53 Executive Vice President, General Counsel and Secretary
- ---------------------------------------------------------------------------------------------------------
William H. Dully 38 Chief Operating Officer
- ---------------------------------------------------------------------------------------------------------
Stephen E. Fowler 43 Executive Vice President, Business Development & President, 3DO
Europe Ltd.
- ---------------------------------------------------------------------------------------------------------
Richard A. Gelhaus 59 Senior Vice President and Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------
Paul Grace 43 Senior Vice President, Product Development
- ---------------------------------------------------------------------------------------------------------
Dominic Wheatley 43 Chairman of the Board, 3DO Europe Ltd.
- ---------------------------------------------------------------------------------------------------------
Information concerning Mr. Hawkins may be found under the caption
"Directors" above.
James Alan Cook became our Executive Vice President, General Counsel and
Secretary in April 1996. He had been Senior Vice President, General Counsel and
Secretary since July 1994, and from January 1993 until July 1994, he served as
our Vice President, General Counsel and Secretary. From January 1990 until
January 1993, he was a partner in the law firm of Cook and Lefevre.
William H. Dully joined us as our Chief Operating Officer in January 2002.
From January 1998 to December 2001 he served as Chief Operating Officer of The
Upper Deck Company, a publisher of trading
8
cards. From 1993 to December 1997, Mr. Dully served as Director of Sales &
Operations of Upper Deck Authenticated, a subsidiary of The Upper Deck Company.
Stephen E. Fowler was appointed our Executive Vice President and President
of 3DO Europe, Ltd. in July 2000. Previously, he served as our Senior Vice
President, Operations and President of 3DO Europe, Ltd. from June 1999 to July
2000; Senior Vice President, Sales & Operations from April 1998 to June 1999;
Senior Vice President, Operations from May 1997 to April 1998; Vice President,
Operations from October 1995 to May 1997; Vice President, Developer & Customer
Services from June 1994 to October 1995; and Senior Director, Developer Services
from January 1993 to June 1994. Mr. Fowler has resigned from 3DO effective
September 25, 2002.
Richard A. Gelhaus joined us in March 2002 as Senior Vice President and
Chief Financial Officer. From June 2000 to December 2001, he served as Chief
Financial Officer of the Brodia Group, an Internet-based startup. He was Chief
Financial Officer of Re: Solutions Group, Inc., a software consulting and
staffing company, from July 1999 to April 2000; Group Vice President and Chief
Financial Officer of Tri Valley Growers, a food processor, from April 1998 to
July 1999; and Chief Financial Officer and Senior Vice President of Centura
Software Corp., a developer of software and client server tools, from January
1996 to January 1998. Mr. Gelhaus has also held senior financial positions at
video game publishers Spectrum Holobyte, Inc. and Sierra On-Line, Inc.
Paul Grace was appointed Senior Vice President, Product Development in
April 2000. Previously he served as Vice President, Product Development from May
1999 to April 2000. From September 1995 to May 1999, Mr. Grace was a Vice
President, Executive in charge of production at Electronic Arts, a video game
publisher.
Dominic Wheatley was appointed Chairman of the Board of 3DO Europe Ltd. in
May 1999. He is also Chairman of Highway Capital Plc, an investment firm;
director of Telecom Plus Plc, a telecommunications company; and a director of
Statpro Group Plc, a company specializing in investment analysis software. Mr.
Wheatley founded Domark Software (later renamed Eidos), a video game publisher,
in 1984 and served as Chief Operating Officer of Eidos Plc and Chief Executive
Officer of Eidos Interactive from 1984 through 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The members of our Board of Directors, our executive officers and persons
who hold more than 10 percent of our outstanding common stock are subject to the
reporting requirements of Section 16(a) of the Securities and Exchange Act of
1934, as amended, which require them to file reports with respect to their
ownership of our securities and their transactions in such securities. Based
upon (i) the copies of Section 16(a) reports that we received from such persons
for their transactions and holdings for the fiscal year ending March 31, 2002,
and (ii) the written representations received from one or more of such persons
that no annual Form 5 reports were required to be filed by them for the 2002
fiscal year, we believe that all reporting requirements under Section 16(a) for
such fiscal year were met in a timely manner, except that Stephen E. Fowler and
H. William Jesse, Jr. each were late in filing one Form 4.
Certain Transactions and Reports
Our Restated Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our Bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. We have
indemnification agreements with our directors and officers that may require us,
among other things, to indemnify such directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct or of a
culpable nature),
9
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.
On October 9, 2001 we sold 591,626 shares of common stock at $16.48 per
share. As part of the transaction, we also issued 177,488 warrants to purchase
our common stock, which were fully executable, with an exercise price of $18.16
per share. Mr. Hawkins purchased 491,626 of these shares and was issued 147,488
warrants to purchase common stock on terms equivalent with third party
purchasers. We also issued warrants to these investors to purchase 256,947
shares of our common stock at $22.16 per share.
On December 10, 2001, we issued a total of 15,820 shares of redeemable
convertible Series A preferred and warrants to purchase 2,362,429 shares of
common stock for an aggregate purchase price of $15.8 million. Two immediate
relatives of Mr. Hawkins purchased 2,200 shares of the convertible preferred
stock and were issued 35,733 of the warrants to purchase common stock. At March
31, 2002 all of the warrants of the immediate relatives were outstanding and 200
shares of the convertible preferred stock had been converted.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us to our Chief
Executive Officer and our four most highly compensated executive officers other
than our Chief Executive Officer (collectively the "Named Officers") during the
last fiscal year.
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------
Annual
Compensation
Long-Term
Fiscal Compensation All Other
Name and Principal Position Year Salary Bonus Options/SARs # Compensation(1)
- ----------------------------------------------------------------------------------------------------------------
Trip Hawkins 2002 $1,681 -0- 0 0
Chairman and Chief 2001 $250,076 -0- 365,625 $660
Executive Officer 2000 $295,000 -0- 62,500 $660
- ----------------------------------------------------------------------------------------------------------------
James Alan Cook 2002 $310,578 -0- 21,250 $2,224(2)
Executive Vice President, 2001 $311,346 -0- 35,000 $660
General Counsel, and Secretary 2000 $297,308 $15,000 3,125 $509,098(3)
- ----------------------------------------------------------------------------------------------------------------
William H. Dully 2002 $76,832 0 62,500 $50,031(4)
Chief Operating Officer
- ----------------------------------------------------------------------------------------------------------------
Stephen E. Fowler 2002 $288,610 -0- 21,250 $59,122(5)
Executive Vice President, 3DO & 2001 $299,932 -0- 37,500 $2,329(6)
President, 3DO Europe, Ltd. 2000 $222,577 $35,400 9,376 $654,812(7
- ----------------------------------------------------------------------------------------------------------------
Richard J. Hicks III(8) 2002 $219,814 -0- 11,250 $526
Former Senior Vice President, 2001 $278,782 -0- 37,500 $660
Product Development 2000 $214,615 $30,000 6,250 $565
- ----------------------------------------------------------------------------------------------------------------
David J. Klein(9) 2002 $206,432 -0- 16,251 $485
Former Senior Vice President, Sales 2001 $215,305 -0- 25,000 $568
- ----------------------------------------------------------------------------------------------------------------
(1) The amounts include premiums paid by us for group term life insurance.
(2) Includes compensation of $1,504 realized upon the sale of shares acquired
through the 1994 Employee Stock Purchase Plan.
10
(3) Includes compensation of $508,438 realized upon the sale of shares acquired
through the exercise of vested stock options.
(4) Includes $50,000 in relocation expenses paid by us.
(5) Includes compensation of $55,989 realized upon the sale of shares acquired
through the exercise of vested stock options and $2,441 imputed income for
domestic partner benefits coverage.
(6) Includes compensation of $1,669 realized upon the sale of shares acquired
through the 1994 Employee Stock Purchase Plan.
(7) Includes compensation of
$57,936 realized upon the sale of shares acquired through the 1994 Employee
Stock Purchase Plan and compensation of $596,876 realized upon the sale of
shares acquired through the exercise of vested stock options.
(8) Mr. Hicks resigned as our officer in March 2002.
(9) Mr. Klein resigned as our officer in June 2002.
The following table sets forth certain information concerning grants of
stock options to each of the Named Officers during the fiscal year ended March
31, 2002. The table also sets forth hypothetical gains or "option spreads" for
the options at the end of their respective ten-year terms. These gains are based
on the assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the option was granted over the full option term. Actual gains, if
any, on option exercises are dependent on the future performance of our common
stock and overall market conditions.
OPTION GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------
% of Potential Realizable Value
Total At Assumed Annual Rates
Options of Stock Price Appreciation
Granted For Option Term (3)
to Employees ---------------
Date Options in Fiscal Option Expiration
Name Granted Granted (1) Year (2) Price Date 5% 10%
- -----------------------------------------------------------------------------------------------------------------------
Hawkins, Trip 0 0.00% 0 0
- -----------------------------------------------------------------------------------------------------------------------
Cook, James Alan 7/11/01 11,250 1.70% $26.40 7/11/11 $186,781.71 $473,341.51
11/28/01 10,000 1.51% $16.40 11/28/11 $103,138.72 $261,373.76
- -----------------------------------------------------------------------------------------------------------------------
Dully, William H. 1/18/02 62,500 9.43% $13.04 1/18/02 $512,549.12 $1,298,900.10
- -----------------------------------------------------------------------------------------------------------------------
Fowler, Stephen E. 7/11/01 11,250 1.70% $26.40 7/11/11 $186,781.71 $473,341.51
11/28/01 10,000 1.51% $16.40 11/28/11 $103,138.72 $261,373.76
- -----------------------------------------------------------------------------------------------------------------------
Hicks III, Richard J. 7/11/01 11,250 1.70% $26.40 7/11/11 $186,781.71 $473,341.51
- -----------------------------------------------------------------------------------------------------------------------
Klein, David J. 7/11/01 7,500 1.13% $26.40 7/11/11 $124,521.13 $315,561.01
11/28/01 8,750 1.32% $16.40 11/28/11 $90,246.38 $228,702.04
- -----------------------------------------------------------------------------------------------------------------------
(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. Our 1993 Incentive
Stock Plan (the "Incentive Plan") also provides for the grant of
non-qualified stock options. Incentive stock options may be granted under
the Incentive Plan at an exercise price no less than market value on the
date of grant. For so long as our common stock is listed on the Nasdaq
National Market, the fair market value is the closing sale price for the
common stock. Non-qualified options may be granted at an exercise price of
no less than 85% of market value on the date of grant. Options generally
become exercisable as to 25% of the shares subject to the option one year
after commencement of employment or the option grant date, and as to the
remainder in equal monthly installments (accrued on a monthly basis) over
the succeeding 36 months. The options granted on July 11,
11
2001, vest in full and become exercisable on July 1, 2005. In addition,
options accelerate in full and become immediately exercisable upon a
merger, unless such options are assumed or replaced by equivalent options
by the successor corporation. Options generally terminate on the earlier of
three months after termination of the optionee's employment by or services
to us, or ten years after grant.
(2) We granted options to purchase 650,210 shares of common stock to employees
in fiscal year 2002.
(3) The 5% and 10% assumed annualized rates of compound stock price
appreciation are based on the exercise prices shown in the table, are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or a projection by us of our future common stock
prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
None of the unexercised options was in the money at March 31, 2002.
-----------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised
Aquired Options
On Value At March 31, 2002
Name Exercise Realized Exercisable Unexercisable
------------------------------------------------------------------------------
Hawkins, Trip 0 450,755 252,371
------------------------------------------------------------------------------
Cook, James Alan 0 110,442 48,183
-----------------------------------------------------------------------------
Dully, William H. 0 0 62,500
------------------------------------------------------------------------------
Fowler, Stephen E. 3,126 $55,988.52 48,735 54,017
------------------------------------------------------------------------------
Hicks III, Richard J. 0 47,056 0
------------------------------------------------------------------------------
Klein, David J. 0 16,671 39,580
------------------------------------------------------------------------------
Total 3,126 $55,988.52 673,659 456,651
------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT
The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
General
Since our initial public offering in May 1993, the Compensation Committee
of the Board of Directors has administered our management compensation policies
and plans. We are a standing committee comprised of non-employee directors. We
approve an annual base salary for each executive officer, including the Chief
Executive Officer ("CEO"), and the criteria under which cash incentive bonuses,
if any, may be paid. We also have the authority to grant options under the
Incentive Plan.
We believe that the compensation of our executive officers should be
significantly influenced by our performance and that a substantial portion of
executives' incentives should come from equity. We also understand the need for
changing compensation strategies in a rapidly evolving and highly competitive
industry. our success is highly dependent on the personal efforts of the
Company's executive staff.
12
Compensation Vehicles
In fiscal 2002, our cash- and equity-based compensation program focused on
attracting and retaining key employees to work at a public company, which is
relying on their expertise to return us to profitability. Consistent with this
long-term orientation and in an effort to align compensation incentives with
stockholder goals, our compensation packages have included salaries competitive
with comparable positions in the technology industry and significant stock
option grants.
Cash Compensation. Before determining compensation with respect to new
officers during the past fiscal year, we reviewed base salaries proposed by Mr.
Hawkins and evaluated each new officer's experience and proposed
responsibilities and the salaries of similarly situated executives, including a
comparison to base salaries for comparable positions at other companies. As part
of a comprehensive cost-cutting program, we reduced all salaries by 10 percent
in October 2001.
Either the Board of Directors or the Compensation Committee may award cash
bonuses for exceptional contributions to our success. No cash bonuses were
awarded for fiscal 2002.
Stock Option Program. We grant options as an incentive to employees,
including all executive officers, who are expected to contribute materially to
our future success. We believe stock options encourage the achievement of
superior results over time and align employee and stockholder interests. Through
December 31, 1999, the option program incorporated five-year vesting periods to
encourage our executives to continue in our employ. Stock options granted after
January 1, 2000, generally have four-year vesting periods. It is our practice to
set option exercise prices at 100% of the fair market value of our common stock
on the date of grant.
We approve initial stock option grants for all officers in connection with
commencement of each officer's employment. These stock option grants are based
primarily on the scope of the officer's responsibilities and expected
contribution to our business, the cash compensation that the officer had
received in his/her prior employment, the competitive environment, and the cash
compensation we propose to pay. With our approval, additional options are
granted in some cases in light of the individual's achievement of specific goals
set jointly by the officer and the CEO, and the individual's level of vested and
unvested options.
CEO Compensation. In February 2001, at Mr. Hawkins' request, we reduced his
salary to $1,040 per year, and we did not adjust his salary in fiscal 2002. We
did not grant Mr. Hawkins any additional stock options.
IRS Code Section 162(m). Section 162(m) of the Internal Revenue Code of
1986, as amended, limits the deductibility by public companies of certain
executive compensation in excess of $1 million per executive per year, but
excludes from the calculation of such $1 million limit certain elements of
compensation, including performance-based compensation, provided that certain
requirements are met. None of our executive officers' cash compensation
approached the $1 million limit in fiscal year 2002. The principal non-cash
compensation of our executives is through the grant of stock options. The
provisions of Section 162(m) merit consideration, however, because, under
certain circumstances, the difference between the fair market value and the
exercise price of options, measured at the time of exercise, could be included
in the calculation under Section 162(m) of the executive officers' compensation
in the time period in which the exercise occurs. This result can be avoided if
the plans under which such options are granted comply with certain requirements
at the time of grant, including administration by a committee consisting solely
of two or more non-employee directors, and stockholder approval of the terms of
the plan, including approval of an annual limit stated in the plan on the number
of shares with respect to which options may be granted to any employee. Our
Incentive Plan is designed and administered to meet such requirements.
13
Summary
We believe that our compensation policy as practiced to date by the
Compensation Committee and the Board of Directors has been successful in
attracting and retaining qualified employees and in tying compensation directly
to corporate performance relative to corporate goals. Our compensation policy
will evolve over time as we attempt to achieve the many short-term goals we face
while maintaining our focus on building long-term stockholder value through
growth of our software publishing business.
Respectfully Submitted,
William A. Hall H. William Jesse, Jr. Richard S. F. Lehrberg
14
Corporate Performance Graph
The following graph shows a comparison of cumulative total stockholder
return on our common stock from March 31, 1997 through March 31, 2002, compared
with the Nasdaq Stock Market (U.S.) Index and the JP Morgan H & Q Technology
Index. The graph is presented pursuant to SEC rules. We believe that while total
stockholder return can be an important indicator of corporate performance, the
stock prices of companies like us are subject to a number of market-related
factors other than company performance, such as competitive announcements,
mergers and acquisitions in the industry, the general state of the economy, and
the prices of technology stocks.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG THE 3DO COMPANY, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE JP MORGAN H & Q TECHNOLOGY INDEX
*$100 Invested on 3/31/97 in stock or index-including reinvestment of dividends.
Fiscal year ending March 31.
[THE FOLLOWING INFORMATION WAS ALSO REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL]
3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02
------- ------- ------- ------- ------- -------
The 3DO Company $100.00 $102.38 $203.57 $369.07 $76.19 $ 38.86
Nasdaq Stock Market - U.S. Index $100.00 $151.57 $204.77 $380.94 $152.35 $153.42
JP Morgan H & Q Technology Index $100.00 $148.93 $208.36 $481.99 $193.16 $172.02
15
PROPOSAL 2
2002 STOCK PLAN
At our Annual Meeting, will ask you to approve our 2002 Stock Plan, which
is further described below. Our current stock option plan, the Incentive Plan,
will expire in February 2003. The 2002 Stock Plan is a broad-based plan in which
all employees are eligible to participate. Stock options are an integral part of
our overall compensation strategy.
Our Board of Directors adopted the 2002 Stock Plan and reserved 500,000
shares of our common stock for issuance thereunder subject to stockholder
approval, plus (a) any shares of common stock which have been reserved but not
issued under our Incentive Plan as of the date of stockholder approval of the
2002 Stock Plan, (b) any shares of common stock returned to the Incentive Plan
as a result of termination of options granted under the Incentive Plan, and (c)
an annual increase to be added on the first day of our fiscal year beginning in
2003 equal to the lesser of (i) 300,000 shares of common stock, (ii) 2% of the
outstanding shares of common stock on such date, or (iii) a lesser amount
determined by the Board of Directors. As of September 6, 2002, there were
2,711,041 options outstanding and 1,150,248 shares reserved but not issued under
our Incentive Plan. The 2002 Stock Plan is intended to replace the Incentive
Plan, which the Board of Directors intends to terminate after approval of the
2002 Stock Plan. As of the date of this Proxy Statement, no options had been
granted pursuant to the 2002 Stock Plan.
General Description of the 2002 Stock Plan
The purpose of the 2002 Stock Plan is to help us attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to our employees, directors and consultants and the
employees and consultants of our parent and subsidiary companies and to promote
the success of our business. Options granted under the 2002 Stock Plan may be
either "incentive stock options" or nonstatutory stock options.
Administration
The 2002 Stock Plan may generally be administered by the Board of Directors
or a committee appointed by the Board of Directors, referred to as the
administrator. The administrator may make any determinations deemed necessary or
advisable for the 2002 Stock Plan.
Eligibility
Nonstatutory stock options may be granted to our employees, directors and
consultants and to employees and consultants of any of our parent or subsidiary
companies. Incentive stock options may be granted only to our employees and to
employees of any of our parent or subsidiary companies. The administrator, in
its discretion, selects which of our employees, directors and consultants to
whom options may be granted, the time or times at which such options shall be
addedgranted, and the exercise price and number of shares subject to each such grant.
Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") places limits on the deductibility for federal income tax purposes of
compensation paid to certain of our executive officers. In order to preserve our
ability to deduct the compensation income associated with options granted to
such persons, the 2002 Stock Plan provides that no service provider may be
granted, in any fiscal year, options to purchase more than 750,000 shares of our
common stock, except that, in connection with a service provider's initial
service to us, such service provider may be granted options to purchase up to an
additional 750,000 shares.
16
Terms and Conditions of Options
Each option is evidenced by a stock option agreement between us and the
optionee, and is subject to the following terms and conditions:
Exercise Price. The administrator determines the exercise price of options
at the time the options are granted. The exercise price of incentive stock
options may not be less than 100% of the fair market value of our common stock
on the date such option is granted, and the exercise price of a nonstatutory
stock option may not be less than 85% of the fair market value of our common
stock on the date such option is granted; provided, however, that the exercise
price of an option granted to a 10% stockholder may not be less than 110% of the
fair market value on the date such option is granted. The fair market value of
our common stock is generally determined with reference to the closing sale
price for our common stock (or the closing bid if no sales were reported) on the
date the option is granted.
Exercise of Option; Form of Consideration. The administrator determines
when options become exercisable, and may, in its discretion, accelerate the
vesting of any outstanding option; provided, however, that options granted to
service providers other than officers, directors and consultants must vest at
the rate of at least 20% per year over five years from the date the option is
granted. The means of payment for shares issued upon exercise of an option is
specified in each option agreement. The 2002 Stock Plan permits payment to be
made by cash, check, promissory note, other shares of our common stock (with
some restrictions), cashless exercises, reduction in any liability we may owe to
an optionee, any other form of consideration permitted by applicable law, or any
combination thereof.
Term of Option. The term of an option may be no more than 10 years from the
date of grant; provided, however, that in the case of an option granted to a 10%
stockholder, the term of the option may be no more than five years from the date
of grant. No option may be exercised after the expiration of its term.
Termination of Service. If an optionee's service relationship with us
terminates for any reason (excluding death or disability), then, unless the
administrator provides otherwise, the optionee may generally exercise the option
within three months of such termination to the extent that the option is vested
on the date of termination, but in no event may the administrator provide the
optionee with less than 30 days to exercise the option following such
termination nor may the optionee exercise the option later than the expiration
of the term of such option as set forth in the option agreement. If an
optionee's service relationship with us terminates due to the optionee's death
or disability, then, unless the administrator provides otherwise, the optionee
or the optionee's personal representative, estate, or the person who acquires
the right to exercise the option by bequest or inheritance, as the case may be,
generally may exercise the option, to the extent the option was vested on the
date of termination, within 12 months from the date of such termination.
Nontransferability of Options. Unless otherwise determined by the
administrator, options granted under the 2002 Stock Plan are not transferable
other than by will or the laws of descent and distribution, and may be exercised
during the optionee's lifetime only by the optionee.
Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the 2002 Stock Plan as may be
determined by the administrator.
Adjustments Upon Changes in Capitalization.
In the event that any dividend or other distribution (whether in the form
of cash, common stock, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of common stock or
other of our securities, or other change in our corporate structure affecting
our common stock occurs, the administrator, in order to prevent diminution or
enlargement of the benefits or potential benefits intended to be made available
under the 2002 Stock Plan, may (in its sole discretion) adjust the number and
class of shares that may be
17
delivered under the 2002 Stock Plan and/or the number, class, and price of
shares covered by each outstanding option.
In connection with our merger with or into another corporation or our
"change of control," as defined in the 2002 Stock Plan, each outstanding option,
except options granted to directors who are not also employees, shall be assumed
or an equivalent option substituted by the successor corporation. If the
successor corporation refuses to assume the options or to substitute
substantially equivalent options, the optionee shall have the right to exercise
the option as to all the optioned stock, including shares not otherwise vested
or exercisable. In the event options are not assumed or substituted for, the
administrator shall notify the optionee that the option is fully exercisable for
15 days from the date of such notice and that the option terminates upon
expiration of such period. Options granted to non-employee directors accelerate
automatically on a change of control.
Amendment and Termination of the Plan.
The Board of Directors may amend, alter, suspend or terminate the 2002
Stock Plan, or any part thereof, at any time and for any reason. However, we
will obtain stockholder approval for any amendment to the 2002 Stock Plan to the
extent necessary and desirable to comply with applicable law. No such action by
the Board of Directors or stockholders may alter or impair any option previously
granted under the 2002 Stock Plan without the written consent of the optionee.
Unless terminated earlier, the 2002 Stock Plan shall terminate 10 years from the
date the 2002 Stock Plan was adopted by the Board of Directors.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise, or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also our officer,
director, or 10% stockholder. Unless limited by Section 162(m) of the Code, we
are entitled to a deduction in the same amount as the ordinary income recognized
by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by our employee
is subject to tax withholding by us. Unless limited by Section 162(m) of the
Code, we are entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to the
extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
Net capital gains on shares held more than 12 months may be taxed at a maximum
federal rate of 20%. Capital losses are allowed in full against capital gains
and up to $3,000 against other income.
The foregoing is only a summary of the effect of federal income taxation
upon us and optionees with respect to the grant and exercise of options under
the 2002 Stock Plan. It does not purport to be complete, and does not discuss
the tax consequences of the employee's, director's or consultant's death or the
provisions of the income tax laws of any municipality, state or foreign country
in which the employee, director or consultant may reside.
18
2002 Plan Benefits
The grant of options under the 2002 Stock Plan is subject to the discretion
of the administrator. As of the date of this Proxy Statement, there has been no
determination by the administrator with respect to awards under the 2002 Stock
Plan. Accordingly, we cannot now determine the exact number of options to be
granted in the future to the executive officers named under "Executive
Compensation -- Summary Compensation Table," all current executive officers as a
group or all employees (including current officers who are not executive
officers) as a group. See "Executive Officer Compensation -- Option Grants in
Last Fiscal Year and Aggregate Option Exercises in Last Fiscal Year" for the
number of stock options granted to the executive officers named in the Summary
Compensation Table in the fiscal year ended March 31, 2002. In the fiscal year
ended March 31, 2002, options to purchase 122,500 shares of our common stock
were granted to all current executive officers as a group, and options to
purchase 527,650 shares of our common stock were granted to all employees as a
group (including current officers who are not executive officers) under the 1993
Incentive Stock Plan. No options to purchase shares of our common stock were
granted to Trip Hawkins, who holds more than 5% of the options outstanding. No
options in the 1993 Incentive Stock Plan were granted to current directors who
are not our executive officers.
Equity Compensation Plan Information
- ------------------------------------------------------------------------------------------------------
Plan Category Number of Securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------
Equity compensation 2,767,291 (1) $24.3647 1,225,652 (2)
plans approved by
security holder
- ------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders 0 0 0
- ------------------------------------------------------------------------------------------------------
Total 2,767,291 $24.3647 1,225,652
- ------------------------------------------------------------------------------------------------------
(1) Includes 2,711,041 options issued and outstanding in the 1993 Incentive
Stock Plan with an average exercise price of $24.2590 per share and 56,250
options issued and outstanding in the 1995 Director Plan with an average
exercise price of $29.4622 per share.
(2) Includes 45,204 shares available for issuance in the 1994 Employee Stock
Purchase Plan.
Required Vote
Approval of the 2002 Stock Plan requires the affirmative vote of the
holders of a majority of the shares of our common stock present in person or
represented by proxy and entitled to vote on the matter. An abstention will have
the same effect as a vote against the proposal. Broker non-votes will not be
considered shares entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
19
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE BY 375,000 SHARES
At the Annual Meeting, we will ask you to approve an increase in the number
of shares reserved for issuance under the 1994 Employee Stock Purchase Plan (the
"ESPP") as set forth below. Through September 2000, the Board of Directors had
authorized, and the stockholders had approved, the reservation of 375,000 shares
of common stock for issuance under the ESPP. At September 6, 2002, 579,796
shares had been purchased in the ESPP, and 45,204 shares remained available for
purchase. In recognition of our need to attract and retain qualified employees
in a highly competitive environment, and as the result of accounting rules more
fully described below, in June 2002 the Board of Directors increased the number
of shares of common stock reserved thereunder by an additional 375,000 shares.
The ESPP is a significant element of our overall compensation and benefits
plans.
Accounting Rules
Generally accepted accounting principles require us to record a charge to
earnings if certain conditions apply to an employee stock purchase plan that
qualifies under Section 423 of the Internal Revenue Code. Generally, if (i) at
the beginning of an offering period, the shares reserved for issuance under an
employee stock purchase plan are insufficient to cover all shares issuable
throughout the offering period, (ii) stockholders subsequently approve
additional shares allocable to an offering period that commenced prior to the
stockholder approval date, and (iii) the fair market value of the stock subject
to the plan on the subsequent stockholder approval date is higher than the fair
market value on the date when the offering period commenced, then we will be
required to record a charge to earnings to reflect the theoretical compensatory
element of the difference in fair market value.
The ESPP provides for 12-month offering periods consisting of two,
six-month purchase periods, and a new offering period begins every six months
(see Appendix B regarding Purchase Plan Offering Periods and Purchase Periods).
In order to avoid a potential earnings charge, the number of shares reserved for
issuance under the 1994 Plan must never be permitted to decline below a level
required to maintain at least 12 months of projected purchases.
Two variables that may affect the amount of an earnings charge are
substantial hiring of new personnel, which affects new enrollments to the plan,
and volatility over time in the market value of our common stock. In order to
minimize the possibility or extent of such charges in the future, the Board of
Directors has approved an increase of 375,000 shares to cover the needs of the
ESPP for at least the next 12 months, thus avoiding a charge to earnings.
The ESPP is described in detail in Appendix B.
Plan Benefits
The following table sets forth certain information concerning the purchase
of common stock under the ESPP by each executive officer named under "Executive
Compensation - Summary Compensation Table"; all current executive officers, as a
group; all current directors who are not executive officers, as a group; and all
employees, including all current officers who are not executive officers, as a
group. The purchases of stock under the ESPP are made at the discretion of
participants, subject to the limitations described above. Accordingly, future
purchases under the ESPP are not determinable.
20
Amended Plan Benefits
1994 Employee Stock Purchase Plan
- ------------------------------------------------------------------------------------------------------------
Purchase Period
-----------------------------------------------------
8/16/01 Through 2/15/02 2/18/02 Through 8/15/02
-----------------------------------------------------
Purchase Number of Purchase Number of
Name of Individual or Number in Group Price (1) Shares Price (1) Shares
- ------------------------------------------------------------------------------------------------------------
Trip Hawkins (2) 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
James Alan Cook $5.168 568 0 0
- ------------------------------------------------------------------------------------------------------------
William H. Dully 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
Stephen E. Fowler 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
Richard J. Hicks III $5.168 1,470 0 0
- ------------------------------------------------------------------------------------------------------------
David J. Klein 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
All current executive officers, as a group (7) $5.168 3,508 0 0
- ------------------------------------------------------------------------------------------------------------
All current directors who are not executive officers,
as a group (3) 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
All employees, including all current officers who are
not executive officers, as a group $5.168 84,649 $1.564 82,977
- ------------------------------------------------------------------------------------------------------------
(1) Purchase price depends on the specific purchase period (as defined in the
Purchase Plan) in which an individual is enrolled.
(2) As an owner of more than 5% of our outstanding stock, Mr. Hawkins is
ineligible to participate in the ESPP.
(3) Outside Directors are ineligible to participate in the ESPP.
Required Vote
Approval of the amendment to the ESPP requires the affirmative vote of the
holders of a majority of the shares of our common stock present, in person or by
proxy, and entitled to vote on the matter. An abstention will have the same
effect as a vote against the proposal. Broker non-votes will be not be
considered shares entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
21
PROPOSAL 4
CONFIRMATION OF RE-APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP to audit our
financial statements for the year ending March 31, 2003, and recommends that the
stockholders confirm the selection.
PricewaterhouseCoopers LLP began auditing our financial statements for
fiscal year 2001. Information on the selection of PricewaterhouseCoopers LLP is
included in the Audit Committee Report.
Representatives of PricewaterhouseCoopers LLP are expected to attend the
Annual Meeting, will have the opportunity to make a statement if they so desire,
and will be available to respond to appropriate questions.
Audit Fees
Audit fees billed to us by KPMG LLP and PricewaterhouseCoopers LLP during
our 2002 fiscal year for review of our annual financial statements and those
financial statements included in our quarterly reports on Form 10-Q and current
reports on Form 8-K totaled approximately $225,000.
Financial Information Systems Design and Implementation Fees
We did not engage KPMG LLP or PricewaterhouseCoopers LLP to provide advice
to us regarding financial information systems design and implementation during
the fiscal year ended March 31, 2002.
All Other Fees
Fees billed to us by KPMG LLP and PricewaterhouseCoopers LLP during our
2002 fiscal year for all other non-audit services rendered to us, including tax
related services, totaled approximately $116,000.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent public accountants is not required by our bylaws or
other applicable legal requirement. However, the Board of Directors is
submitting the selection of PricewaterhouseCoopers LLP to the stockholders for
ratification as a matter of good corporate practice. If the stockholders fail to
ratify the selection, the Audit Committee and the Board of Directors will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board of Directors, 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 the best interests of our
stockholders.
Required Vote
The affirmative vote of the holders of a majority of the shares represented
by proxy and entitled to vote at the Annual Meeting will be required to ratify
the appointment of PricewaterhouseCoopers LLP as our independent public
accountants for the fiscal year ending March 31, 2003. An abstention will have
the same effect as a vote against the proposal. Broker non-votes will not be
considered shares entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
22
AUDIT COMMITTEE REPORT
The role of the Audit Committee of the Board of Directors is to assist the
Board of Directors in its oversight of our accounting, auditing, and financial
reporting practices. Among its other functions, the Audit Committee recommends
to the Board of Directors the selection of our independent accountants. The
Audit Committee operates under a written charter adopted by the Board of
Directors, attached to this Proxy Statement as Appendix C. The Audit Committee
consists of three non-employee directors, William A. Hall, H. William Jesse,
Jr., and Richard S. F. Lehrberg, each of whom has been determined to be
independent as defined by the Nasdaq Marketplace Rules.
Management is responsible for the preparation, presentation, and integrity
of our financial statements, our accounting and financial reporting principles,
and our internal controls designed to assure compliance with accounting
standards and applicable laws and regulations. The independent auditors are
responsible for auditing our financial statements and expressing an opinion as
to their conformity with accounting principles generally accepted in the United
States and their judgments as to the quality of our accounting principles. In
performance of its oversight function, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees. Finally the Audit Committee has received
the written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, has discussed with the independent auditors the auditor's
independence from us and our management, and has considered whether the
provision of non-audit services to us by the independent auditors is compatible
with maintaining the auditors' independence.
KPMG LLP served as our independent auditors through March 12, 2001. After
an evaluation of services provided by a number of independent accounting firms,
as well as their knowledge of the industry, the Audit Committee and our Board of
Directors decided to engage PricewaterhouseCoopers LLP as our independent
auditors as of March 13, 2001. During the two most recent fiscal years and
through the date of this report, we has had no disagreements with KPMG LLP or
PricewaterhouseCoopers LLP on any matter of accounting principals or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of KPMG LLP or
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on our financial statements for such years. During our two most
recent fiscal years and through the date of this report, we have had no
reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). During
the two most recent fiscal years, we had not consulted with
PricewaterhouseCoopers LLP on items which concerned the subject matter of a
disagreement or reportable event with the former auditor (as described in Item
304(a)(2) Regulation S-K).
Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee's review of the representations of
management and the report of the independent auditors to the Board of Directors,
the Audit Committee recommended to the Board of Directors that our audited
consolidated financial statements be included in our Annual Report on Form 10-K
for the year ended March 31, 2002, for filing with the Securities and Exchange
Commission. The Audit Committee and the Board of Directors have also
recommended, subject to stockholder approval, the selection of our independent
auditors.
Respectfully Submitted,
William A. Hall H. William Jesse, Jr. Richard S. F. Lehrberg
23
OTHER MATTERS
We know of no other matters to be submitted to the Annual Meeting. If any
other matters properly come before the Annual Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
In order for stockholder nominations for director or other stockholder
business to be properly brought before an annual meeting, our bylaws require
that the stockholder give notice in writing to our Secretary during the Bylaw
Notice Period for such meeting. The Bylaw Notice Period generally runs from the
close of business on the 90th day prior to the anniversary of the prior year's
annual meeting date until the close of business on the 60th day prior to such
anniversary. However, if the next year's meeting date is moved to a date that is
either more than 30 days before the anniversary of the prior year's meeting or
more than 60 days after such anniversary, then different notice periods apply.
In any event, with respect to nominations for director, the notice must include
all information about the nominee that would be required to be included in a
proxy statement soliciting proxies for the election of directors, as well as a
written consent from the nominee to being named in the proxy statement and to
serving if elected. With respect to other stockholder business, the notice must
contain a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made. In all cases, the notice must also
provide the name and address of the stockholder (and any beneficial owner) and
the class and number of our shares that are owned beneficially and held of
record by the stockholder and the beneficial owner. The chairman of the meeting
may disregard any nomination or stockholder business that is not made in
compliance with the bylaws.
24
APPENDIX A
THE 3DO COMPANY
2002 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2002 Stock Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or
(ii) The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets;
(iii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" means directors who
either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iv) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.
25
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means The 3DO Company, a Delaware corporation.
(i) "Consultant" means any natural person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(j) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
"As(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of [__________]The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
26
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 2002 Stock Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(z) "Section 16(b) " means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or
Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the
Plan, the maximum aggregate number of Shares that may be subject to an Option
and sold under the Plan is 500,000 Shares plus (a) any Shares which have been
reserved but not issued under the Company's 1993 Incentive Stock Plan (the "1993
Plan") as of the date of stockholder approval of this Plan, (b) any Shares
returned to the 1993 Plan as a result of termination of options or repurchase of
Shares issued under the 1993 Plan and (c) an annual increase to be added on the
first day of the Company's fiscal year beginning in 2003, equal to the lesser of
(i) 300,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised in
full, or is surrendered pursuant to an Option Exchange Program, the unpurchased
Shares that were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated); provided, however, that Shares
that have actually been issued under the Plan, upon exercise of an Option or
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares acquired
pursuant to the exercise of an Option are repurchased by the Company at [_______]their
original price, such Shares shall become available for future grant under the
Plan.
27
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). (__________ time) (the "Effective
Date")To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of Shares to be covered by each
Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the Shares relating
thereto, based in each eight (8)case on such factors as the Administrator, in its sole
discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;
(x) to modify or amend each Option (subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
28
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
minimum amount required to be withheld. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by Optionees to have Shares withheld
for this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 750,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 750,000 Shares,
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to stockholder approval in accordance with
Section 18 of the Plan, the Plan shall become effective upon its adoption by the
Board. Unless sooner terminated under Section 14, it shall
29
continue in effect for a term of ten (10) years from the later of (i) the
effective date of the Plan, or (ii) the earlier of the most recent board or
stockholder approval of an increase in the number of Shares reserved for
issuance.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. Moreover, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be no more than five
(5) years from the date of grant thereof.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued upon exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time
of grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Service Provider, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant, except that, in the case of a Nonstatutory Stock
Option intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
30
(iii) promissory note;
(iv) other Shares which, in the case of Shares acquired
directly or indirectly from the Company, (A) have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. An Option may not be exercised for a fraction of a
Share. Except in the case of Options granted to Officers, Directors and
Consultants, Options shall become exercisable at a rate of no less than 20% per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
suspended during any unpaid leave of absence.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within thirty (30) days
of termination, or such longer period of time as is specified in the Option
Agreement, to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option
31
within the time specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within six (6) months of termination, or such longer period of
time as is specified in the Option Agreement, to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within six (6) months following Optionee's death, or
such longer period of time as is specified in the Option Agreement, to the
extent that the Option is vested on the date of death (but in no event may the
option be exercised later than the expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's designated beneficiary,
provided such beneficiary has been designated prior to Optionee's death in a
form acceptable to the Administrator. If no such beneficiary has been designated
by the Optionee, then such Option may be exercised by the personal
representative of the Optionee's estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
Optionee's death. If, at the time of death, Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Merger or Change in Control.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the number of Shares that may be added annually to the Plan
pursuant to Section 3, and the number of shares of Common Stock as well as the
price per share of Common Stock covered by each such outstanding Option, shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the corporationCommon Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and outstandingconclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee at
least fifteen (15) day prior to the effective date of such proposed transaction.
To the extent it has not been previously exercised, an Option will terminate
immediately prior to the Effectiveconsummation of such proposed action.
32
(c) Merger or Change in Control. In the event of a merger of the Company
with or into another corporation, or a Change in Control, each outstanding
Option shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right
to exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable. If an Option becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option shall be fully vested and exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period.
With respect to Options that are granted to a Director who is not also
an employee, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable.
For the purposes of this subsection (c), the Option shall be
considered assumed if, following the merger or Change in Control, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or Change in Control, the
consideration (whether stock, cash, or other securities or property) received in
the merger or Change in Control by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or Change in Control is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or Change in Control.
13. Date (the
"Old Common Stock")of Grant. The date of grant of an Option shall automatically be, reclassifiedfor all purposes,
the date on which the Administrator makes the determination granting such
Option, or such other later date as is determined by the Administrator. Notice
of the determination shall be provided to each Optionee within a reasonable time
after the date of such grant.
14. Amendment and continued,Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with Applicable Laws and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
33
(b) Investment Representations. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any actionpresent intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
19. Information to Optionees. The Company shall provide to each Optionee and to
each individual who acquires Shares pursuant to the Plan, not less frequently
than annually during the period such Optionee has one or more Options
outstanding, and, in the case of an individual who acquires Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
34
APPENDIX B
1994 EMPLOYEE STOCK PURCHASE PLAN
Summary of the ESPP
The essential features of the ESPP, as in effect prior to the increase in
shares proposed in Proposal 3 of the proxy statement, are summarized below. This
summary does not purport to be complete and is subject to, and qualified by,
reference to all provisions of the ESPP.
General. The purpose of the ESPP, as in effect prior to the increase in
shares proposed in Proposal 3 of the proxy statement, is to provide 3DO
employees with an opportunity to purchase 3DO Common Stock at a discount through
accumulated payroll deductions. As of September 6, 2002, a total of 579,796
shares had been sold under the ESPP and 45,204 shares remained available for
future purchase.
Administration. The ESPP may be administered by the Board of Directors or a
committee appointed by the Board. All questions of interpretation or application
of the ESPP are determined by the Board or its committee, whose decisions are
final and binding upon all participants. Members of the Board who are eligible
employees are permitted to participate in the ESPP but may not vote on any
matter affecting the administration thereof or the grant of any option pursuant
thereto. No director who is eligible to participate in the ESPP may be a member
of the committee appointed to administer it. Members of the Board receive no
additional compensation for their services in connection with the administration
of the ESPP.
Eligibility and Participation. Any person who is employed by 3DO or a
designated subsidiary of 3DO for at least 20 hours per week and more than five
months in a calendar year is eligible to participate in the ESPP, provided that
the employee is employed on the partfirst day of an Offering Period. As of September
6, 2002, approximately 300 employees were eligible to participate in the ESPP.
Eligible employees become participants in the ESPP by delivering to 3DO a
subscription agreement authorizing payroll deductions 14 days prior to the
applicable enrollment date. An employee who becomes eligible to participate in
the ESPP after the commencement of an Offering Period may not participate in the
ESPP until the commencement of the holder thereof,next Offering Period.
Participation in an Offering. Each offering of Common Stock under the ESPP
("Offering") extends for a period of one year ("Offering Period") and consists
of two six-month periods ("Purchase Periods") within each such Offering Period.
The administrator may change the length of Offering and Purchase Periods. To
participate in the Purchase Plan, each eligible employee must authorize payroll
deductions pursuant to the ESPP. Such payroll deductions must be at least 1%,
and may not exceed 20%, of a participant's base salary, wages, bonuses,
overtime, shift premiums and commissions received during a Purchase Period. Once
an employee becomes a participant in the ESPP, the employee will automatically
participate in each successive Offering Period until such time as the employee
withdraws from the ESPP or the employee's employment terminates. Eligible
employees may participate in only one Offering at a time.
Purchase Price. The purchase price per share at which shares will be
sold under the ESPP is the lower of 85% of the fair market value of the Common
Stock on the first day of each Offering Period or 85% of the fair market value
of the Common Stock on the exercise date at the end of a Purchase Period.
The purchase price of the shares is accumulated by payroll deductions
during the Purchase Period. A participant may at any time discontinue his or her
participation in the ESPP or may decrease the rate of the payroll deductions.
Payroll deductions shall commence on the first payday in the Offering Period and
shall continue at the same rate until the end of the Offering Period and for
consecutive Offering Periods unless sooner terminated as provided in the ESPP.
All payroll deductions are credited to the participant's account under the
35
ESPP and are deposited with 3DO's general funds. All payroll deductions received
or held by 3DO may be used by 3DO for any corporate purpose.
Purchase of Stock. At the beginning of each Offering Period, by executing a
subscription agreement to participate in the ESPP, each participant is in effect
granted an option to purchase shares of Common Stock on each exercise date. The
maximum number of shares placed under option to a participant in an Offering
Period is that number determined by dividing the amount of the participant's
total payroll deductions to be accumulated during the Offering Period by the
applicable purchase price, and subject to the further limitation that the
maximum number of shares a participant may purchase during each Purchase Period
shall be determined at the beginning of the Offering Period by dividing $12,500
by the fair market value of a share of Common Stock (the "Reverse Split").on the first day of the
Offering Period. Unless a participant withdraws from the ESPP, such
participant's option for the purchase of shares will be exercised automatically
at the end of each Purchase Period for the maximum number of shares at the
applicable price.
Notwithstanding the foregoing, no employee will be permitted to subscribe
for shares under the ESPP if, immediately after the grant of the option, the
employee would own 5% or more of the voting power or value of all classes of 3DO
stock or of a parent or of any of its subsidiaries (including stock that may be
purchased under the ESPP or pursuant to any other options), nor shall any
employee be granted an option that would permit the employee to buy more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time the option is granted) pursuant to all 3DO stock purchase plans in any
calendar year.
Withdrawal. A participant's interest in a given offering may be terminated
in whole, but not in part, by signing and delivering to 3DO a notice of
withdrawal from the ESPP. Any withdrawal by the participant of accumulated
payroll deductions for a given Offering Period automatically terminates the
participant's interest in that Offering Period. The Corporationfailure to maintain
continuous status as an employee of 3DO for at least 20 hours per week during an
Offering Period will be deemed to be a withdrawal from that Offering Period. The
ESPP also provides that participants will be deemed to have withdrawn from an
Offering Period during certain leaves of absence. Generally, a participant's
withdrawal from an Offering Period does not have any effect upon such
participant's eligibility to participate in subsequent Offering Periods.
Termination of Employment. Termination of a participant's employment for
any reason, including retirement or death, cancels his or her participation in
the ESPP immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant or, in the case of
death, to the person or persons entitled thereto as specified by the employee in
the subscription agreement.
Capital Changes. In the event any change is made in 3DO's capitalization,
such as a stock split or stock dividend, which results in an increase or
decrease in the number of outstanding shares of Common Stock without receipt of
consideration by 3DO, appropriate adjustments will be made in the shares subject
to purchase under the ESPP and in the purchase price per share, subject to any
required action by 3DO stockholders.
Nonassignability. No rights or accumulated payroll deductions of a
participant under the ESPP may be pledged, assigned or transferred for any
reason except by will, the laws of descent and distribution, or to a designated
beneficiary as provided under the ESPP, and any such attempt may be treated by
3DO as an election to withdraw from the ESPP.
Amendment and Termination of the ESPP. The Board may at any time amend or
terminate the ESPP, except that such termination shall not issue fractionalaffect options
previously granted, provided that an Offering Period may be terminated if the
Board determines that such termination is in the best interest of 3DO and its
stockholders. No amendment may be made to the ESPP without prior approval of the
3DO stockholders if such amendment would constitute an amendment for which
stockholder approval is required under the federal securities laws or the Code.
In any event, the ESPP will terminate in the year 2004.
36
Certain Federal Income Tax Information
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provision of Section 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
sale or other disposition of the shares purchased under the ESPP. Upon such sale
or disposition, the participant will generally be subject to tax in an amount
that depends upon how long the participant holds the shares. If the shares are
sold or disposed of more than two years from the first day of the Offering
Period and one year from the exercise date, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price or (b) an amount equal to 15% of the fair market value of the shares as of
the first day of the Offering Period. Any additional gain will be treated as a
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on account of the Reverse Split.
Holders of Old Common Stock who would otherwisedate the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. 3DO is not entitled to a
fraction ofdeduction for amounts taxed as ordinary income or capital gain to a share on account of the Reverse Split shall receive,
upon surrender of the stock certificates formally representing
shares of the Old Common Stock, in lieu of such fractional share, an
amount in cash (the "Cash-in-Lieu Amount") equalparticipant
except to the productextent of (i) the decimal remainder resulting from dividing the total numberordinary income recognized upon a sale or disposition of
shares of Old Common Stock held by eight (8), which remainder is
then multiplied by eight (8), and (ii) the average of the closing
price per share of the Old Common Stock on the sixty (60) trading
days immediately preceding the date that is five (5) days prior to the Effective Date or, if no such sale takes place on such days, the
averageexpiration of the last bidholding periods described above.
The foregoing summary of the federal income tax consequences of ESPP
transactions is based upon income tax laws in effect on the date of this Proxy
statement. This summary does not purport to be complete and asked prices thereofdoes not describe
foreign, state or local tax consequences.
37
APPENDIX C
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF THE 3DO COMPANY
Audit Committee Purpose
The Audit Committee of The 3DO Company (the "Company") will make such
examinations as are necessary to monitor the Company's systems of internal
control, corporate financial reporting and its internal and external audits, to
provide to the Board of Directors the results of its examinations and
recommendations derived therefrom, to outline to the Board of Directors
improvements made, or to be made, in internal accounting controls, to nominate
independent auditors, and to provide to the Board of Directors such additional
information and materials as it may deem necessary to make the Board of
Directors aware of significant financial matters that require the Board of
Directors' attention.
Membership
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three members
of the Board of Directors:
1. Each of whom will be able to read and understand fundamental financial
statements, in accordance with the audit committee requirements of the
Nasdaq Stock Market Marketplace Rules; and
2. At least one of whom will have past employment experience in finance
or accounting, requisite professional certification in accounting, or
other comparable experience or background, including a current or past
position as a chief executive or financial officer or other senior
officer with financial oversight responsibilities; and
3. Each of whom will (i) be an independent director (as defined in the
Nasdaq Stock Market Marketplace Rules); or (ii) if the Board of
Directors determines it to be in the best interests of the Company and
its shareholder to have one (1) non-independent director, and the
Board of Directors discloses the reasons for the determination and the
nature of the Company's relationship with such days,non-independent
director in the Company's next annual proxy statement, the Company may
appoint one (1) non-independent director to the Audit Committee if
such director is not a current employee or officer or an immediate
family member of a current employee or officer.
Responsibilities
The responsibilities of the Audit Committee shall include:
1. Reviewing on a continuing basis the adequacy of the Company's system
of internal controls and the activities, organizational structure and
qualifications of the Company's finance department.
2. Reviewing the independent auditors' proposed audit scope and approach.
3. Ensuring receipt from the independent auditors of a formal written
statement delineating all relationships between the auditor and the
Company, consistent with Independence Standards Board Standard 1.
4. Actively engaging in a dialogue with the independent auditors with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the auditor.
38
5. Reviewing the performance of the independent auditors, who shall be
accountable to the Board and the Audit Committee, as representatives
of the shareholders.
6. Reviewing fee arrangements with the independent auditors.
7. Recommending the selection and, where appropriate, replacement of the
independent auditors to the Board of Directors, who shall have
ultimate authority and responsibility to select and replace the
independent auditors (or to nominate the independent auditors to be
proposed for shareholder approval in any proxy statement).
8. Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements
provided to management by the independent auditors.
9. Discussing with the Company's independent auditors the financial
statements and audit finding, including discussing with the Company's
independent auditors any significant adjustments, management judgments
and accounting estimates, significant new accounting policies and
disagreements with management and any other matters described in SAS
No. 61, as may be modified or supplemented;
10. Reviewing, before release, the audited financial statements and
Management's Discussion and Analysis in the Company's annual report on
Form 10-K;
11. Reviewing, before release, the unaudited quarterly operating results
in the Company's quarterly earnings release;
12. Ensuring that the Company's independent auditors review the Company's
interim financial statements included in quarterly reports on Form
10-Q, using professional standards and procedures for conducting such
reviews;
13. Overseeing compliance with the requirements of the Securities and
Exchange Commission and the Nasdaq Stock Market for disclosure of
independent auditor's services and audit committee members and
activities;
14. Reviewing management's monitoring of compliance with the Company's
Standards of Business Conduct and with the Foreign Corrupt Practices
Act;
15. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements;
16. Providing oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments;
17. If necessary, instituting special investigations and, if appropriate,
hiring special counsel to experts to assist;
18. On at least an annual basis, review with the Company's counsel any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies;
19. Reviewing related party transactions for potential conflicts of
interest;
20. Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of Regulations S-K and S-B and Item
7(e)(3) of Schedule 14A; and
39
21. Performing other oversight functions as requested by the full Board of
Directors.
In addition to the above responsibilities, the Audit Committee will undertake
such other duties as the Board of Directors delegates to it, and will report, at
least annually, to the Board regarding the Committee's examinations and
recommendations.
Meetings
The Audit Committee will meet at least two times each year. The Audit Committee
may establish its own schedule, which it will provide to the Board of Directors
in advance.
The Audit Committee will meet separately with the Chief Executive Officer and
Separately with the Chief Financial Officer of the Company at least annually to
review the financial affairs of the Company. The Audit Committee will meet with
the independent auditors of the Company, at such times as it deems appropriate,
to review the independent auditor's examination and management report.
Audit Committee Meeting Agenda for Year
As noted previously, it is important to review the completeness of the Audit
Committee Charter as well as the agenda established for each meeting. The
following topics will be covered in each caseAudit Committee meeting.
I. Audit Committee Purpose
o Conduct special investigations
II. Audit Committee Composition and Meetings
o Assess independence and financial literacy of Audit Committee
o Establish number of meetings
o Audit Committee Chair to establish meeting agenda
o Enhance financial literacy - update on current financial events
o Executive session with auditors, internal audit, management
committee
III. Audit Committee Responsibilities and Duties
o Review Charter, publish in proxy
o Review annual financial statements - discuss with management,
auditors
o Consider internal controls and financial risks
o Review quarterly results and findings
o Recommend appointment of auditors
o Approve audit fees
o Discuss auditor independence
o Review auditor plan
o Discuss year-end results, SAS 61 report
o Discuss quality of accounting principles
o eview internal audit plan
o Review appointment, performance of internal audit executive
o Review significant internal audit reports
o Review legal matters with counsel
o Prepare report to shareholders
o Perform other activities as reported in the WALL STREET JOURNAL. No interest shall
be payable on the Cash-in-Lieu Amount."
11appropriate
o Maintain minutes and report to Board
o Review Code of Conduct
o Perform self-assessment of Audit Committee performance
o Review financial personnel succession planning
o Review director and officers' expenses and related-party
transactions
40
PROXY
THE 3DO COMPANY
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of The 3DO Company, a Delaware corporation (the
"Company"), hereby appoints Trip Hawkins and James Alan Cook, and each of them,
proxies with full power of substitution, to represent the undersigned and to
vote all of the shares of the common stock of the Company that the undersigned
is entitled to vote, at the SpecialAnnual Meeting of Stockholders of the Company to be
held on August 20,October 16, 2002, at 3:00 p.m., local time, at the Company's
headquarters, 200 Cardinal Way, Redwood City, California (the "Meeting"), and at
any adjournment thereof, and to vote all shares the undersigned would be
entitled to vote if personally present at the Meeting on the matter listed on
the reverse side.
Whether or not you plan to attend the Meeting in person, you are urged to
sign and promptly mail this proxy in the enclosed return envelope so that your
shares may be represented at the Meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR THE PROPOSAL. In their
discretion, the proxy holders are authorized to vote upon such other business as
may properly come before the meeting, or any adjournment thereof, to the extent
authorized by Rule 14a-4(c) promulgated by the Securities and Exchange
Commission.
THE 3DO COMPANY
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
Vote Byby Telephone Vote By Internet
It's fast, convenient, and immediate!
It's fast, convenient and your vote is
immediately Call Toll-Free on a confirmed and posted.
Touch-Tone Phone
1-877-PRX-VOTE (1-888-779-8683)
Follow these four easy steps:(1-877-779-8683).
Follow these four easy steps:
1. Read the accompanying Proxy
1. Read the accompanying Proxy
StatementStatement/Prospectus and Proxy Card Statement and Proxy CardCard.
2. Call the toll-free number
2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). HTTP://WWW.EPROXYVOTE.COM/AER
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control
Number located on your Proxy Card Number located on
your Proxy Card above your name.
4. Follow the recorded instruction.
Your vote is important
Call 1-877-PRX-VOTE anytime!
Vote by Internet
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy
Statement/Prospectus and Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/thdo
3. Enter your Voter Control Number located on
your Proxy Card above your name.
4. Follow the recorded Instructions. 4. Follow the Instructions provided
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime!instructions provided.
Your vote is important!
Go to HTTP:http://WWW.EPROXYVOTE.COM/AERwww.eproxyvote.com/thdo anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNETDo not return your Proxy Card if you are voting by Telephone or Internet
/ X / PLEASE MARK VOTES AS IN THIS EXAMPLE.Please mark votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.NOMINEES AND FOR PROPOSALS
2 THROUGH 4.
1. To elect two Class A directors for a three-year term.
Nominees: (01) William A. Hall
(02) Richard S. F. Lehrberg
/ / FOR BOTH NOMINEES / / WITHHELD FROM BOTH NOMINEES
/ /
--------------------------------------------
For both nominees except as noted above
2. To approve the 2002 Stock Plan. FOR AGAINST ABSTAIN
To approve an amendment to the
Restated Certificate of Incorporation
/ / / / / /
to effect a one-for-eight reverse split3. To approve an increase in the number of the outstandingFOR AGAINST ABSTAIN
shares of 3DO's
common stock.stock reserved for issuance / / / / / /
under the 1994 Employee Stock Purchase Plan
by 375,000.
4. To confirm the re-appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as our independent / / / / / /
auditors for the fiscal year ending
March 31, 2003.
5. To transact any other business that may FOR AGAINST ABSTAIN
properly come before the meeting. / / / / / /
The undersigned hereby acknowledges receipt of (a) the Notice of SpecialAnnual Meeting
of Stockholders of the Company and (b) the accompanying Proxy Statement.
Please sign exactly as your name appears on your stock certificate. If shares
are held in the names of two or more persons (including husband and wife, as
joint tenants or otherwise), all persons must sign. If shares are held by a
corporation, the proxy should be signed by the President or Vice President and
the Secretary or Assistant Secretary. Fiduciaries who execute the proxy should
give their full title.
Signature: Date:
Signature:
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