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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
DIGITAL MICROWAVE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[DIGITAL MICROWAVE LETTERHEAD]
July 3, 1996
TO THE STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Digital Microwave Corporation (the "Company") on August 8,
1996, at 3:00 p.m., local time, which will be held at Techmart, 5201 Great
America Parkway, Santa Clara, California.
Details of business to be conducted at the Annual Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote FOR each such
proposal.
We hope that you will attend the Annual Meeting. In any event, after
reading the Proxy Statement, please mark, date, sign and return the enclosed
proxy card in the accompanying reply envelope. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company if you wish to vote
in person and your proxy will not be voted.
A copy of the Company's 1996 Annual Report to Stockholders has been mailed
concurrently herewith to all stockholders entitled to notice of and to vote at
the Annual Meeting.
Sincerely yours,
/s/ Charles D. Kissner
--------------------------------------
Charles D. Kissner
President and
Chief Executive Officer
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DIGITAL MICROWAVE CORPORATION
170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------------
The Annual Meeting of Stockholders of Digital Microwave Corporation (the
"Company") will be held at Techmart, 5201 Great America Parkway, Santa Clara,
California, on Thursday, August 8, 1996, at 3:00 p.m. local time, to:
1. Elect five directors to serve until the next Annual Meeting and until
their successors have been elected and qualified.
2. Approve the Digital Microwave Corporation 1996 Employee Stock Purchase
Plan.
3. Ratify and approve certain amendments to the Digital Microwave
Corporation 1994 Stock Incentive Plan, including an increase in the number of
shares of Common Stock reserved for issuance thereunder from 1,183,330 to
2,183,330 shares.
4. Ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending March 31, 1997.
5. Transact any other business which may properly come before the meeting
and any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Stockholders of record at the close of business on June 17, 1996, will be
entitled to notice of and to vote at the Annual Meeting and at any continuation
or adjournment thereof.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to ensure your representation at the Annual Meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares will be voted. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Charles D. Kissner
--------------------------------------
Charles D. Kissner
President and
Chief Executive Officer
San Jose, California
July 3, 1996
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Digital Microwave Corporation, a Delaware corporation
("DMC" or the "Company"), of proxies for the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held at 3:00 p.m., local time, on
August 8, 1996, and any adjournment or postponement thereof. This Proxy
Statement was first mailed to stockholders on or about July 3, 1996.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in a subsequent section
of this Proxy Statement.
VOTING
Only holders of record of the Common Stock of the Company ("Common Stock")
at the close of business on June 17, 1996, will be entitled to vote at the
Annual Meeting and any continuations or adjournments thereof. Each share
entitles the holder to one vote on each matter to come before the Annual
Meeting. On June 17, 1996, there were 15,905,495 shares of Common Stock
outstanding and entitled to vote at the Annual Meeting, held by 315 stockholders
of record.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed proxy is solicited by the DMC Board of Directors
(the "Board of Directors" or the "Board"), and, when returned properly
completed, will be voted as you direct on your proxy card. In the discretion of
the proxy holder, shares represented by such proxies will be voted upon any
other business as may properly come before the Annual Meeting. Abstentions and
broker non-votes are each included in the number of shares present for quorum
purposes. Abstentions, which may be specified on all proposals other than the
election of Directors, are counted as votes against the proposal in determining
whether a proposal has been approved, and broker non-votes are not counted as
votes for or against the proposal. If no specific instructions are given with
respect to matters to be acted upon at the Annual Meeting, shares of Common
Stock represented by a properly executed proxy will be voted FOR (i) the
election of management's nominees for Directors listed in Proposal 1, (ii) the
approval of the Digital Microwave Corporation 1996 Employee Stock Purchase Plan
(the "Stock Purchase Plan"), (iii) the approval of the amendment and restatement
of the Digital Microwave Corporation 1994 Stock Incentive Plan (the "1994
Incentive Plan") and (iv) the ratification of the selection of the independent
public accountants for the Company.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivery to the Secretary of the Company
of a written notice of revocation or a duly executed proxy bearing a later date
or by attending the Annual Meeting and voting in person.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, proxies may also be solicited by Directors, officers and
employees of the Company who will not receive additional compensation for such
solicitation. Brokerage firms and other custodians, nominees and fiduciaries
will be reimbursed by the Company for their reasonable expenses incurred in
sending proxy material to beneficial owners of the Common Stock. Additionally,
solicitation of proxies of brokers, banks, nominees and institutional investors
will be made pursuant to the special engagement of Corporate Investor
Communications, Inc., at a cost to the Company of approximately $5000, plus
out-of-pocket expenses.
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The Annual Report of the Company for the fiscal year ended March 31, 1996,
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all stockholders entitled to notice of and to vote at the
Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five Directors are to be elected to serve until the
next Annual Meeting and until their successors are elected and qualified, or
until the death, resignation, or removal of such Director. It is intended that
the proxies will be voted for the election of the five nominees named below as
Directors unless authority to vote for any such nominee is withheld. The five
nominees receiving the highest number of votes will be elected. In the
unanticipated event that a nominee is unable or declines to serve as a Director
at the time of the Annual Meeting, the proxies will be voted for any nominee
named by the current Board of Directors to fill the vacancy. As of the date of
this Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a Director. William E. Gibson is not standing
for re-election to the Board of Directors and will cease to be a Director
effective as of the date of the Annual Meeting.
In the event that additional persons are nominated, otherwise than by the
Board of Directors, for election as Directors, the proxy holders intend to vote
all proxies received by them for the nominees listed below and any additional
Board of Directors' nominee as described above. The following are the nominees
of the Board of Directors for election as Directors at the date hereof:
NAME TITLE AGE
----------------------------------------------- ----------------------------------- ---
Clifford H. Higgerson.......................... Chairman of the Board 56
Charles D. Kissner............................. President, Chief Executive Officer
and Director 49
Richard C. Alberding........................... Director 65
James D. Meindl................................ Director 63
Billy B. Oliver................................ Director 71
Mr. Higgerson has served as a Director of the Company since March 1984 and
as Chairman of the Board since July 1995. He also served as Co-Chairman of the
Board and Co-Chief Executive Officer from September 1994 to July 1995. Mr.
Higgerson has been a partner with Vanguard Associates, a private venture capital
investment partnership, since July 1991 and, since 1986, managing partner of
Communications Ventures, a private venture capital investment partnership.
Mr. Kissner was elected President, Chief Executive Officer and a Director
of the Company in July 1995. Prior to joining the Company, he served as Vice
President and General Manager of the Microelectronics Division of M/A-COM, Inc.,
a manufacturer of radio and microwave communication products, from July 1993 to
July 1995. From February 1990 to July 1993, Mr. Kissner served as President,
Chief Executive Officer, and a Director of Aristacom International, Inc., a
communications software company. Mr. Kissner currently is a director of American
Medical Flight Support, Inc., a non-profit medical transportation company.
Mr. Alberding has served as a Director of the Company since July 1993 and
served as Co-Chairman of the Board and Co-Chief Executive Officer from September
1994 to July 1995. Mr. Alberding retired from Hewlett-Packard Company in 1991,
where he had served since 1984 as an Executive Vice President with
responsibility for worldwide company sales, support and administration
activities for measurement and computation products, as well as all
corporate-level marketing activities. He also served on the corporate Executive
Committee. Mr. Alberding is a director of Kennametal Corporation, a machine tool
company, Walker Interactive Systems, a software company, Quickturn Design
System, a CAD tools company, SyBase, Inc., a computer database and tools
company, Digital Link Corp., a network tools company, Paging Network, Inc., a
paging services company, and numerous private companies.
Dr. Meindl has served as a Director of the Company since November 1995.
Since 1993, Dr. Meindl has held the Joseph M. Pettit Chaired Professorship in
Microelectronics at the Georgia Institute of Technology.
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Prior to his professorship at the Georgia Institute of Technology, Dr. Meindl
served as Senior Vice President for Academic Affairs and Provost at Rensselaer
Polytechnic Institute from 1986 to 1993. Dr. Meindl serves as a director of
SanDisk Corp., which designs, develops and markets flash memory data storage
products, and Zoran Corp., a semiconductor and related devices company.
Mr. Oliver has served as a Director of the Company since February 1987.
Since 1985, Mr. Oliver has been a private communications consultant. Mr. Oliver
has held various engineering and management positions with AT&T, including Vice
President, Planning and Design from 1972 until 1985. Mr. Oliver is also a
director of Communications Network Enhancements, a telecommunications service
company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
OF THE ABOVE NOMINEES FOR ELECTION AS DIRECTORS.
BOARD MEETINGS AND COMMITTEES
During the year ended March 31, 1996, the Board of Directors held five (5)
meetings. During the same period, each Director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board held during the
period for which he was a Director and (ii) the total number of meetings by all
Committees of the Board on which such Director served held during the period for
which he was a Director. There are no family relationships among any of the
executive officers or Directors of the Company.
The Company currently has an Audit Committee and a Compensation Committee
of the Board of Directors. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent accountants and
reviewing the Company's accounting practices and system of internal accounting
controls. The Audit Committee, which consists of Mr. Alberding and Mr.
Higgerson, held four (4) meetings during the year ended March 31, 1996. The
Compensation Committee is responsible for recommending and reviewing the
compensation of the Company's executive officers and for administering the
Company's incentive plans. This committee, which consists of Mr. Alberding and
Mr. Oliver, held five (5) meetings during the year ended March 31, 1996.
During the year ended March 31, 1996, the Company had a Nominating
Committee. The Nominating Committee was responsible for identifying and
proposing to the Board of Directors nominees for election to the Board. This
Committee, which consisted of Mr. Alberding and Mr. Higgerson, held one (1)
meeting during the year ended March 31, 1996 in connection with the appointment
of Mr. Kissner as President and Chief Executive Officer of the Company. The
Company does not currently have a Nominating Committee. Although there are no
formal procedures for stockholders to recommend nominations, the Board will
consider recommendations from stockholders, which should be addressed to Ms.
Carol A. Goudey, the Company's Assistant Secretary, at the Company's address set
forth above.
COMPENSATION OF DIRECTORS
During the year ended March 31, 1996 the Company paid each non-employee
Director $1,000 in fees for each in-person meeting and $500 per telephone
meeting, a retainer of $3,000 per quarter, and committee meeting fees of $500
for each in-person committee meeting and $250 per telephone committee meeting
unless, in either case, such committee meeting was held in conjunction with a
Board meeting. Directors were also reimbursed for their out-of-pocket expenses
incurred in attending meetings of the Board and Committees thereof. The Company
also pays Board consulting fees of $1,000 per day, in one half day increments,
for Board approved projects (including transportation time) plus reimbursement
of all expenses. In addition to the fees paid in connection with serving as
Directors, the Company paid consulting fees of $25,750 for the services of Mr.
Alberding during the 1996 fiscal year as special consultant to the executive
management committee and for serving as Co-Chief Executive Officer and $19,500
for the services of Mr. Higgerson during the 1996 fiscal year as special
consultant to the executive management committee and for serving as Co-Chief
Executive Officer. In addition, the Company paid consulting fees of $33,100 for
the services of Mr. Gibson during the 1996 fiscal year as a special consultant
to the President and Chief Executive Officer of the Company.
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Pursuant to the Company's 1994 Incentive Plan, each new non-employee Board
member, upon his or her initial appointment or election to the Board, receives
an automatic option grant for 15,000 shares with an exercise price equal to the
fair market value of the option shares on the grant date. Each individual
reelected as a non-employee Board member at an annual stockholders meeting, and
who has not received any prior automatic option grants during the two
immediately preceding calendar years, receives an option grant at that time for
5,000 shares, and similar 5,000-share option grants are made to each continuing
non-employee Board member at successive three-year intervals over his or her
period of Board service. Each initial or periodic option grant is immediately
exercisable for all the option shares, but the shares purchased under the option
are subject to repurchase by the Company, at the option exercise price, upon the
optionee's cessation of Board service. The option shares vest and the Company's
repurchase right lapses with respect to option shares, in three equal annual
installments over the optionee's period of Board service, measured from the
grant date. However, upon certain changes in control of the Company, the
Company's repurchase rights immediately lapse in full. Each option grant has a
maximum term of ten years, subject to earlier termination upon the optionee's
cessation of Board service. The Board of Directors has approved an amendment and
restatement of the 1994 Incentive Plan. See Proposal 3 for a discussion of the
proposed amendments to the 1994 Incentive Plan and a description of the 1994
Incentive Plan, as proposed to be amended and restated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") currently consists of two members of the Board: Richard C. Alberding
and Billy B. Oliver. Mr. Alberding acted as Co-Chairman of the Board and
Co-Chief Executive Officer of the Company from September 1994 to July 1995 while
the Company sought to hire a Chief Executive Officer. No other member of this
committee is a present or former officer or employee of the Company or any of
its subsidiaries.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent (10%) stockholders are required
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1996, all of the
Company's officers, Directors and greater than ten percent beneficial owners
complied with applicable Section 16(a) filing requirements during the 1996
fiscal year.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of June 1, 1996, by (i) each
person known by the Company to own beneficially more than five percent (5%) of
the outstanding Common Stock of the Company; (ii) each of the Company's
Directors; (iii) the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company, determined for the year
ended March 31, 1996 (including the former Co-Chief Executive Officers and one
former executive officer) (collectively, the "Named Executive Officers"); and
(iv) all Directors and executive officers as a group.
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- -------------------------------------------------------------------- ------------- ------------
Kopp Investment Advisors, Inc....................................... 3,882,236(3) 24.57%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
Charles D. Kissner.................................................. 201,300(4) 1.27%
Clifford H. Higgerson............................................... 281,256(5) 1.78%
Richard C. Alberding................................................ 15,000(6) *
William E. Gibson................................................... 363,007(7) 2.30%
James D. Meindl..................................................... -- --
Billy B. Oliver..................................................... 18,500(8) *
Harold E. Edmondson................................................. 10,000(9) *
Shaun McFall........................................................ 15,916(10) *
John O'Neil......................................................... 29,242(11) *
Carl A. Thomsen..................................................... 21,216(12) *
Mark A. Byington(13)................................................ -- --
All Directors and Executive Officers as a Group (14 persons)........ 951,352(14) 6.1%
- ---------------
* Less than 1%
(1) To the Company's knowledge, except as set forth in the footnotes to this
table, and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable or exercisable on or before July 31, 1996,
are deemed outstanding for computing the percentage of the person holding
such options but are not deemed outstanding for computing the percentage of
any other person.
(3) Pursuant to a Schedule 13F, dated May 1, 1996, filed with the Securities
and Exchange Commission, Kopp Investment Advisors, Inc. has reported sole
dispositive power over all of the shares and no voting power with respect
to any of the shares.
(4) Includes 201,100 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996. Also includes 200 shares held of record by a trust for the benefit of
Mr. Kissner's children.
(5) Includes 15,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
(6) Includes 15,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
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(7) Includes 12,000 shares of Common Stock held in trust and 30,000 shares of
Common Stock subject to options held by Mr. Gibson and Kahala Ann Trask
Gibson as community property which are currently exercisable or will become
exercisable on or before July 31, 1996.
(8) Includes 10,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
(9) Includes 10,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996. Mr. Edmondson retired on May 10, 1996, and is continuing to serve as
a consultant to the Company.
(10) Includes 15,916 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
(11) Includes 29,242 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
(12) Includes 21,216 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1996.
(13) Mr. Byington's employment with the Company was terminated on March 4, 1996.
He does not hold any stock position in the Company.
(14) See Footnotes (4) through (8) and (10) through (12). Includes 343,231
shares of Common Stock subject to options which are currently exercisable
or will become exercisable on or before July 31, 1996.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company for the
fiscal year ended March 31, 1996. In addition, information is included in
connection with compensation earned by the persons who served as the Company's
Co-Chairmen of the Board and Co-Chief Executive Officers and a former executive
officer for the fiscal year ended March 31, 1996.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
----------------------------------------- SECURITIES
FISCAL SALARY BONUS OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) COMPENSATION ($) OPTIONS
- ------------------------------ ------ -------- ------- ---------------- ------------------
Charles D. Kissner............ 1996 $212,500(2) $75,000(3) $197,961(4) 255,504
President and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Harold E. Edmondson(5)........ 1996 176,125 -- 9,000(6) 53,941
Former Vice President, 1995 34,375(7) -- -- 10,000
Manufacturing 1994 --(7) -- -- --
Shaun McFall.................. 1996 125,000 -- 64,996(8) 8,157
Vice President, Corporate 1995 87,010 -- 8,250(6) 20,000
Marketing 1994 --(9) -- -- --
John P. O'Neil................ 1996 139,200 -- 9,000(6) 17,930
Vice President, Personnel 1995 126,050 -- 9,000(6) 20,000
1994 110,000 18,000 -- 10,000
Carl A. Thomsen............... 1996 175,625 -- 9,000(6) 54,867
Vice President, Chief 1995 25,702(10) -- 1,500(6) 50,000
Financial
Officer and Secretary 1994 -- -- -- --
Richard C. Alberding.......... 1996 44,250(11) -- -- --
Former Co-Chairman of 1995 64,000(11) -- -- --
the Board and Former 1994 32,500(12) -- -- 15,000
Co-Chief Executive Officer
Clifford H. Higgerson......... 1996 36,500(11) -- -- 5,000
Former Co-Chairman of 1995 38,250(11) -- -- --
the Board and Former 1994 15,000(13) -- -- --
Co-Chief Executive Officer
Mark A. Byington(14).......... 1996 148,846 -- 8,250 3,789(15)
Former Vice President 1995 153,001 -- 9,000(6) 35,000
1994 136,275 25,000 461 --
- ---------------
(1) The Company's executive officers are eligible for annual cash bonuses. Such
bonuses are generally based upon achievement of individual, as well as
corporate, performance objectives determined by the Compensation Committee.
(2) Represents Mr. Kissner's salary from his appointment as Chief Executive
Officer and President of the Company in July 1995.
(3) Represents Mr. Kissner's signing bonus.
(4) Includes a relocation expense reimbursement of $187,761.
(5) Mr. Edmondson resigned from his position as Vice President, Manufacturing
effective May 10, 1996.
(6) Represents car allowances.
(7) Mr. Edmondson did not join the Company until January 1995.
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(8) Includes a relocation expense reimbursement of $55,996.
(9) Mr. McFall did not hold an officer position with the Company prior to
February 1995.
(10) Represents Mr. Thomsen's salary from his appointment as Vice President,
Chief Financial Officer of the Company in February 1995.
(11) Represents compensation earned as a Director of the Company and includes
consulting fees earned as a special consultant to the executive management
committee and for serving as Co-Chief Executive Officer of the Company from
September 1994 to July 1995. See "Compensation of Directors."
(12) Represents compensation earned as a Director of the Company and includes
consulting fees earned as a special consultant to the executive management
committee.
(13) Represents compensation earned as a Director of the Company.
(14) Mr. Byington resigned from his position as a Vice President of the Company
effective March 4, 1996.
(15) Canceled options to purchase 31,789 shares upon termination of employment
on March 4, 1996.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made under the Company's 1994 Stock Incentive Plan to each of the Named
Executive Officers during the fiscal year ended March 31, 1996. No stock
appreciation rights were granted during such fiscal year to the Named Officers.
OPTION GRANTS IN 1996 FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES OF STOCK PRICE
UNDERLYING % OF TOTAL APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM ($)(1)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#) 1996 FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------------- ---------- ---------------- --------- ---------- ---------- ----------
Charles D. Kissner......... 255,504 28.42% $13.625 07/17/05 $2,189,334 $5,548,203
Harold E. Edmondson........ 53,941 6.00 11.875 05/15/05 402,838 1,020,871
Shaun McFall............... 8,157 0.91 11.875 05/15/05 60,917 154,377
John P. O'Neil............. 17,930 1.99 11.875 05/15/05 133,903 339,338
Carl A. Thomsen............ 4,867 0.54 11.875 05/15/05 36,347 92,111
50,000 5.56 13.625 07/17/05 428,434 1,085,737
Richard C. Alberding....... -- -- -- -- -- --
Clifford H. Higgerson...... 5,000 0.56 13.00 07/26/05 40,878 103,593
Mark A. Byington........... 3,789 0.42 11.875 05/15/05 28,297 71,709
- ---------------
(1) The 5% and 10% annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission. There is no
assurance provided to any Named Executive Officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the Named Executive Officers.
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OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning their exercise of stock options during the fiscal
year ended March 31, 1996 and the unexercised options held by them as of March
31, 1996. No stock appreciation rights were exercised during such fiscal year or
were outstanding as of March 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
OPTION VALUES AT MARCH 31, 1996
VALUE OF UNEXERCISED IN-
THE-MONEY OPTIONS AT
NUMBER OF SECURITIES MARCH 31, 1996 (MARKET
UNDERLYING UNEXERCISED PRICE OF SHARES AT
VALUE REALIZED OPTIONS AT MARCH 31, 1996 ($9.00)
(MARKET PRICE AT MARCH 31, 1996(#) LESS EXERCISE PRICE)($)(1)
SHARES ACQUIRED EXERCISE DATE LESS --------------------------- ---------------------------
NAME ON EXERCISE(#) EXERCISE PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ------------------ ----------- ------------- ----------- -------------
Charles D. Kissner....... -- -- 50,000 205,504 -- --
Harold E. Edmondson...... -- -- 10,000 53,941 -- --
Shaun McFall............. -- -- 10,877 28,557 $11,922 --
John P. O'Neil........... -- -- 10,667 37,263 -- --
Carl A. Thomsen.......... -- -- 10,000 94,867 -- --
Richard C. Alberding..... -- -- 10,000 5,000 -- --
Clifford H. Higgerson.... -- -- 15,000 5,000 41,250 --
Mark A. Byington......... 53,334 $286,087 5,000 -- -- --
- ---------------
(1) "In-the-money" options are options with an exercise price less than the
market price of the Company's Common Stock on March 31, 1996.
EMPLOYMENT AND TERMINATION ARRANGEMENTS
Mr. Kissner, Mr. McFall, Mr. O'Neil and Mr. Thomsen are the only Named
Executive Officers with written employment agreements with the Company.
In May 1996, Mr. Kissner entered into an employment agreement with the
Company pursuant to which Mr. Kissner is to serve as President and Chief
Executive Officer. The term of the agreement extends through May 1998, after
which the agreement may be renewed annually by the mutual consent of the Company
and Mr. Kissner. The agreement provides that (1) if Mr. Kissner is terminated
without cause, he shall be entitled to receive (i) severance pay for twelve
months at his normal monthly salary, (ii) the continuation of vesting of his
stock options for one year from the date of his termination and (iii) a
proration of his incentive bonus, if earned, for the then current fiscal year
based on the number of months he was employed during the year by the Company and
(2) if the Company is merged or acquired in a transaction in which there is a
change in control of the Company, Mr. Kissner shall be entitled to receive (i)
severance pay in the amount of two times his base annual salary; (ii) a bonus
payment equal to the average of the bonuses paid to him in the last two fiscal
years; and (iii) a proration of his incentive bonus, if earned, for the then
current fiscal year based on the number of months he was employed during the
year by the Company. In connection with Mr. Kissner entering into the employment
agreement with the Company, the Board of Directors authorized that 100,000
shares of Mr. Kissner's Common Stock of the Company be forward vested effective
the date of the employment agreement.
Mr. McFall, Mr. O'Neil and Mr. Thomsen entered into employment agreements
with the Company, effective as of May 1996. The term of each of the agreements
extends through May 1998, after which each of the agreements may be renewed
annually by the mutual consent of the Company and the officer. In connection
with each of these officers signing employment agreements with the Company, the
Board of Directors authorized that fifty percent of each of the stock option
grants awarded to these officers in fiscal year 1996 be forward vested effective
the date of the employment agreements. The employment agreements for
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these officers include the following provisions: (1) if the officer is
terminated without cause, the officer shall be entitled to receive (i) severance
pay for six months at his normal monthly salary, (ii) the continuation of
vesting of his stock options for six months from the date of his termination and
(iii) a proration of his incentive bonus, if earned, for the then current fiscal
year based on the number of months he was employed during the year by the
Company and (2) if the Company is merged or acquired in a transaction in which
there is a change in control of the Company, the officer shall be entitled to
receive (i) severance pay in the amount of two times his base annual salary;
(ii) a bonus payment equal to that of the average of the bonuses paid to him in
the last two fiscal years and (iii) a proration to him of his incentive bonus,
if earned, for the then current fiscal year based on the number of months he was
employed during the year by the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has the authority and responsibility for
approving the overall compensation strategy for the Company, administering the
Company's annual and long-term compensation plans, and reviewing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation. The Compensation Committee is comprised of independent,
non-employee Board members, except that Mr. Alberding acted as a Co-Chief
Executive Officer of the Company from September 1994 to July 1995.
General Compensation Policy. The Compensation Committee's overall policy
is to offer the Company's executive officers competitive compensation
opportunities. The Compensation Committee utilizes competitive data and
summaries provided by Radford Associates, Alexander & Alexander Consulting Group
and the American Electronics Association to develop compensation recommendations
competitive with other companies in the communications industry. The
Compensation Committee's objectives are to (i) create a performance oriented
environment with variable compensation based upon the achievement of annual and
longer-term business results; (ii) focus management on maximizing stockholder
value through stock-based compensation aligned to stockholders' return; and
(iii) provide compensation opportunities dependent upon the Company's
performance relative to its competitors and changes in its own performance over
time.
The Compensation Committee is authorized (i) to establish and maintain
compensation guidelines for salaries and merit pay increases throughout the
Company; and (ii) to make specific recommendations to the Board of Directors
concerning the compensation of executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also administers the
Company's stock option plans and the Company's retirement and savings plan.
Factors. The primary factors considered in establishing the components of
each executive officer's compensation package for the fiscal year ended March
31, 1996 are summarized below. The Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
- BASE SALARY. The base salary for each officer is set on the basis of
personal performance, the salary levels in effect for comparable
positions with other companies in the industry, and internal
comparability considerations. Generally, Company performance and
profitability are not taken into account in establishing base salary.
Salaries paid to the Company's executive officers for the fiscal year
ended March 31, 1996 ranged from the 50th percentile at the low end to
the 75th percentile at the high end of the compensation data surveyed for
the industry. A number of adjustments were made to the surveyed
compensation data for the industry to reflect differences in management
style, organizational structure and corporate culture, geographic
location, product development stage and market capitalization between the
Company and the surveyed entities. As a result of these adjustments,
there is not a meaningful correlation between the companies in the
industry which were taken into account for comparative compensation
purposes and the companies included in the industry group index which
appears later in this Proxy Statement for purposes of evaluating the
price performance of the Company's Common Stock. See "Stock Performance
Graph."
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- ANNUAL INCENTIVE COMPENSATION. For the fiscal year ended March 31, 1996,
specific financial and organizational objectives, including earnings per
share, revenue and gross margin targets, were established as the basis
for the incentive bonuses to be paid to the executive officers of the
Company.
Specific bonus awards, set as a target percentage of salary, were
established for each officer's position and were to be earned on the
basis of achieving the specified corporate goals and the accomplishment
of specific individual objectives. The corporate goals for the fiscal
year 1996 were not met, and no incentive bonus was paid to any officer of
the Company for such fiscal year.
- LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. Generally, the
Compensation Committee awards stock options to each of the Company's
executive officers following the initial hiring and from time to time
thereafter. The option grants are designed to align the interests of the
executive officer with those of the stockholders and to provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. In
furtherance of this policy, the Company has implemented the 1994
Incentive Plan to serve as a comprehensive equity incentive program for
the Company's executive officers and other key employees.
Generally, the size of the option grant made to each executive officer is
set at a level which the Compensation Committee deems appropriate to
create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, but the Compensation
Committee also takes into account comparable awards to individuals in
similar positions in the industry, as reflected in external surveys, the
individual's potential for future responsibility and promotion, the
individual's performance in recent periods and the number of unvested
options held by the individual at the time of the grant. The relative
weight given to each of these factors will vary from individual to
individual in the Committee's discretion. Each of the Named Executive
Officers, except Mr. Alberding, received a stock option grant in fiscal
1996.
Each grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on
the grant date) over a specified period of time (up to 10 years). The
option will generally become exercisable in installments over a five-year
period, contingent upon the executive officer's continued employment with
the Company. Accordingly, the option will provide a return to the
executive officer only if he or she remains in the Company's employ, and
then only if the market price of the Company's Common Stock appreciates
over the option term.
CEO Compensation. The Compensation Committee established Mr. Kissner's
base salary with the objective of maintaining the competitiveness of Mr.
Kissner's base salary with salaries paid to similarly situated chief executive
officers. With respect to Mr. Kissner's base salary, it was the Compensation
Committee's intent to provide him with a level of stability and certainty each
year and not have this particular component of compensation affected to any
significant degree by Company performance factors. Mr. Kissner's base salary for
the 1996 fiscal year was set at the 75th percentile of the salary data surveyed
for other chief executive officers in the industry.
Mr. Kissner received additional compensation from the Company in the form
of a signing bonus, relocation expense reimbursement and a car allowance.
Mr. Alberding and Mr. Higgerson served as Co-Chairmen of the Board and
Co-Chief Executive Officers from September 1994 to July 1995, during the search
for a Chief Executive Officer. They have been compensated pursuant to the
Company's Director consulting compensation policy described under "Compensation
of Directors" and are not eligible to receive stock option grants other than as
non-employee Directors nor are they eligible to receive bonuses.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation will be in effect for each fiscal year of the Company beginning after
December 31, 1993 and will apply to all
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compensation paid to the covered executive officers which is not considered to
be performance based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. At the 1994 Annual Meeting, the stockholders approved the
implementation of the 1994 Incentive Plan under which the number of shares of
Common Stock for which any one individual participating in the 1994 Incentive
Plan may be granted stock options, stock appreciation rights or direct stock
issuances is limited to 500,000 shares over the term of the plan. As a result of
this limitation and certain other administrative provisions of the 1994
Incentive Plan, any compensation deemed paid to a covered executive officer in
connection with the exercise of stock options or stock appreciation rights
granted under the 1994 Incentive Plan with an exercise price equal to the market
price of the shares covered by the option or stock appreciation right on the
grant date will qualify as performance-based compensation.
The Compensation Committee does not expect that the compensation to be paid
to the Company's covered executive officers for the 1997 fiscal year will exceed
the $1 million limit per officer. Accordingly, until final Treasury regulations
are issued with respect to the $1 million limitation, the Compensation Committee
will defer any decision on whether or not to restructure one or more components
of the compensation paid to the covered executive officers so as to qualify
those components as performance-based compensation that will not be subject to
the $1 million limitation.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Richard C. Alberding
Billy B. Oliver
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STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage changes in the
cumulative total stockholder return on the Company's Common Stock with the
cumulative total return on the Dow Jones Equity Market Index and the Dow Jones
Communications Technology Index during the five fiscal years ended March 31,
1996. The comparison assumes $100 was invested on March 31, 1991 in the
Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of any dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
AMONG
DIGITAL MICROWAVE CORPORATION,
DOW JONES EQUITY MARKET INDEX AND
DOW JONES COMMUNICATIONS TECHNOLOGY INDEX
DOW JONES
DIGITAL MI- DOW JONES COMMUN ICA-
MEASUREMENT PERIOD CROWAVE COR- EQUITY MAR- TIONS TECH-
(FISCAL YEAR COVERED) PORATION KET INDEX NOLOGY
3/91 100 100 100
3/92 41 112 124
3/93 59 130 185
3/94 74 132 193
3/95 68 151 207
3/96 45 202 253
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings; nor will such report
or graph be incorporated into any future filings made by the Company under those
statutes.
PROPOSAL 2
APPROVAL OF THE
1996 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company's stockholders are asked to act upon a proposal to ratify the
Board's action to adopt the Stock Purchase Plan.
The purpose of the adoption of the Stock Purchase Plan is to provide
employees of the Company and its designated subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated
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payroll deductions, and to thereby encourage such individuals to remain in the
Company's service. If adopted, an aggregate of 300,000 shares of the Company's
Common Stock will be reserved for issuance under the Stock Purchase Plan and
available for purchase thereunder, subject to adjustment in the event of a stock
split, stock dividend or other similar change in the Common Stock or the capital
structure of the Company.
A general description of the principal terms of the Stock Purchase Plan is
set forth below. This description is qualified in its entirety by the terms of
the Stock Purchase Plan, as proposed to be adopted, which is attached to this
Proxy Statement as Exhibit A and is incorporated herein by reference.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE PROPOSED ADOPTION OF THE STOCK PURCHASE PLAN.
GENERAL DESCRIPTION
In May 1996, the Board of Directors of the Company adopted the Stock
Purchase Plan, which is subject to the stockholders' approval at the Annual
Meeting. The purpose of the Stock Purchase Plan is to provide employees of the
Company and its designated subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Stock Purchase Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Stock Purchase Plan, accordingly,
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code. If adopted, an
aggregate of 300,000 shares of the Company's Common Stock will be reserved for
issuance under the Stock Purchase Plan and available for purchase thereunder,
subject to adjustment in the event of a stock split, stock dividend or other
similar change in the Common Stock or the capital structure of the Company.
SUMMARY OF STOCK PURCHASE PLAN
The essential terms of the Stock Purchase Plan, as proposed to be adopted,
are summarized below. This summary does not purport to be complete, and is
subject to, and qualified by reference to, all provisions of the Stock Purchase
Plan, as proposed to be adopted, a copy of which is attached hereto as Exhibit
A.
Purpose. The purpose of the Stock Purchase Plan is to provide employees of
the Company and its designated subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions, and to
thereby encourage such individuals to remain in the Company's service.
Administration. The Stock Purchase Plan shall be administered by the Board
of Directors of the Company or a committee of Members of the Board appointed by
the Board (the "Plan Administrator").
The Board or its committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Stock Purchase
Plan. Every finding, decision and determination made by the Board or its
committee shall, to the fullest extent permitted by law, be final and binding
upon all parties. Members of the Board receive no additional compensation for
their services in connection with the administration of the Stock Purchase Plan.
Eligibility. All full-time, non-highly compensated employees of the
Company and designated subsidiaries whose customary employment is for more than
five months in any calendar year and more than 20 hours per week are eligible to
participate in the Stock Purchase Plan. Non-employee directors, consultants,
employees subject to rules or laws of a foreign jurisdiction that prohibit or
make impractical the participation of such employees in the Stock Purchase Plan,
and employees who are "highly compensated employees" within the meaning of
Sections 414(q)(1)(B) or (D) of the Code are not eligible to participate.
Employees who have completed fewer than three (3) months of service with the
Company also are not eligible to participate.
Purchase of Shares. The Stock Purchase Plan designates Purchase Periods,
Accrual Periods and Exercise Dates. Purchase Periods are generally overlapping
periods of twenty-four months. A Purchase Period
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will initiate on the date established by the Plan Administrator and additional
Purchase Periods will commence each subsequent March 1 and September 1. Accrual
Periods are generally six month periods commencing each March 1 and September 1.
The Exercise Dates are the last days of each Accrual Period.
On the first day of each Purchase Period, a participating employee is
granted a purchase right which is a form of option to be automatically exercised
on the forthcoming Exercise Dates within the Purchase Period. When the purchase
right is exercised, the employee's withheld salary is used to purchase shares of
Common Stock of the Company. The price per share at which shares of Common Stock
are to be purchased under the Stock Purchase Plan during any Accrual Period is
the lesser of (a) 85% of the fair market value of the Common Stock on the first
day of the Purchase Period or (b) 85% of the fair market value of the Common
Stock on the Exercise Date (the last day of an Accrual Period). If there is a
change in the capitalization during a Purchase Period due, for example, to a
stock split, stock dividend or stock reclassification, the price per share on
the first day of the Purchase Period is proportionally increased or decreased.
The employee's purchase right is exercised in this manner on all four
Exercise Dates occurring in the Purchase Period unless, on the first day of any
Accrual Period, the fair market value of the Common Stock is lower than the fair
market value of the Common Stock on the first day of the Purchase Period. If so,
the employee's participation in the original Purchase Period is terminated, and
the employee is automatically enrolled in the new Purchase Period beginning on
that day. On subsequent Exercise Dates, the purchase price of the shares is 85%
of the market value of the shares on the Exercise Date or 85% of the value of
the shares on the first day of the new Purchase Period (which is lower than the
market value of the shares on the first day of the original period).
Payroll deductions may range from 1% to 10% (in whole percentage
increments) of an employee's regular base pay, exclusive of overtime, bonuses,
shift-premiums or commissions. Employees may not make direct cash payments to
their accounts. The maximum number of shares of Common Stock which any employee
may purchase under the Stock Purchase Plan during an Accrual Period is 5,000
shares. Certain additional limitations on the amount of Common Stock which may
be purchased during any calendar year are imposed by the Code.
Withdrawal. A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Stock Purchase Plan at any time by giving written
notice to the Company. All of the participant's payroll deductions credited to
his/her account will be paid to such participant promptly after receipt of
notice of withdrawal, the participant's option for the Purchase Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the Purchase Period. If a participant withdraws from
a Purchase Period, payroll deductions will not resume at the beginning of the
succeeding Purchase Period unless the participant delivers to the Company a new
subscription agreement.
Termination of Employment. Upon a participant's ceasing to be an employee
for any reason or upon termination of a participant's employment relationship,
the payroll deductions credited to such participant's account during the
Purchase Period but not yet used to exercise the option will be returned to such
participant or, in the case of his/her death, to the person or persons entitled
thereto, and such participant's option will be automatically terminated.
Death. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Stock Purchase Plan who is living at
the time of such participant's death, the Company shall deliver shares and/or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
Nontransferability of Options. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Stock Purchase Plan may be assigned, transferred,
pledged or otherwise disposed of in any way other than by will, the laws of
descent and
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distribution or by designation to a beneficiary as provided in the Stock
Purchase Plan by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds from a Purchase Period as
discussed above.
Adjustments; Dissolutions; Mergers and Asset Sales. In the event any
change, such as a stock split or dividend, is made in the Company's
capitalization which results in an increase or decrease in the number of
outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the number of shares under
the Stock Purchase Plan and the price per share covered by each outstanding
option.
In the event of a proposed sale of all or substantially all of the assets
of the Company, the merger of the Company with or into another corporation, in
which the Company will not be the surviving corporation (other than a
reorganization effectuated primarily to change the state in which the Company is
incorporated), or a reverse merger in which the Company is the surviving
corporation but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the person or persons holding
those securities immediately prior to the transfer, each option under the Stock
Purchase Plan shall be assumed or an equivalent option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, to shorten the Purchase Period
then in progress by setting a new Exercise Date (the "New Exercise Date"). If
the Board shortens the Purchase Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each Participant in writing, at least ten (10) days prior to the New Exercise
Date, that the Exercise Date for his/her option has been changed to the New
Exercise Date and that his/her option will be exercised automatically on the New
Exercise Date, unless prior to such date he/she has withdrawn from the Purchase
Period.
Amendment and Termination of the Stock Purchase Plan. The Board may amend
the Stock Purchase Plan at any time or from time to time or may terminate the
Stock Purchase Plan without approval of the stockholders; provided, however,
that stockholder approval is required for any amendment to the Stock Purchase
Plan for which stockholder approval would be required under applicable law, as
in effect at the time. However, no action by the Board of Directors or
stockholders may alter or impair any option previously granted under the Stock
Purchase Plan. The Board or its committee shall be entitled to change the
Purchase Periods, limit the frequency and/or number of changes in the amount
withheld during Purchase Periods, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, establish additional
terms, conditions, rules or procedures to accommodate the rules or laws of
applicable foreign jurisdictions, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's compensation, and establish such other limitations or procedures
as the Board or its committee determines in its sole discretion to be advisable
and consistent with the Stock Purchase Plan. In any event, the Stock Purchase
Plan shall terminate in August 2006.
CERTAIN FEDERAL INCOME TAX INFORMATION
A participant who disposes of any shares received pursuant to the Stock
Purchase Plan within two years after the Enrollment Date, i.e., the first day of
the Purchase Period during which the participant purchased such shares or within
one year after the Exercise Date, i.e., the date such shares were purchased (a
"disqualifying disposition"), the participant will be treated for federal income
tax purposes as having received ordinary income at the time of such
disqualifying disposition in an amount equal to the excess of the fair market
value of the shares at the time such shares were delivered to the participant
over the price which the participant paid for the shares. A participant who
disposes of any shares received pursuant to the Stock Purchase Plan at any time
after the expiration of the 2-year and 1-year holding periods described above,
will be treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of
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(1) the excess of the fair market value of the shares at the time of such
disposition over the purchase price which the participant paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of the
Purchase Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by an optionee in the event of a disqualifying
disposition with respect to shares acquired upon exercise of an option.
Otherwise, the Company will not be entitled to a tax deduction with respect to
the optionee's disposition of the purchased shares.
The foregoing summary of the federal income tax consequences of Stock
Purchase Plan transactions is based upon federal income tax laws in effect on
the date of this Proxy Statement. This summary does not purport to be complete,
and does not discuss foreign, state or local tax consequences.
NEW PLAN BENEFITS
No transactions will be made under the Stock Purchase Plan unless and until
the Stock Purchase Plan is approved by the stockholders at the Annual Meeting.
The number of purchases, if any, to be made after approval of the Stock Purchase
Plan to specific employees or groups thereof, cannot currently be determined.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the adoption of the Stock Purchase Plan. If such approval is
obtained, the Stock Purchase Plan will become effective upon the date of the
Annual Meeting. Should such stockholder approval not be obtained, then the Stock
Purchase Plan will not become effective.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE PROPOSED ADOPTION OF THE STOCK PURCHASE PLAN.
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
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PROPOSAL 3
AMENDMENT AND RESTATEMENT OF THE
1994 STOCK INCENTIVE PLAN
GENERAL
The Company's stockholders are asked to act upon a proposal to ratify the
Board's action to amend the 1994 Incentive Plan.
The Board of Directors amended and restated the 1994 Incentive Plan in May
1996, subject to stockholder approval, to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 shares, bringing the
total number of shares issuable under the 1994 Incentive Plan to 2,183,330. The
purpose of the increase is to enable the Company to retain talented employees
and to attract talented new employees by offering them participation in the
Company's 1994 Incentive Plan. Management believes that without such incentive
it will be unable to attract and retain the services of those individuals
essential to the Company's growth and financial success.
The Board of Directors also amended and restated the 1994 Incentive Plan to
eliminate certain provisions, which were previously required under Rule 16b-3 of
the Securities and Exchange Act of 1934, as amended (the "1934 Act"), but are no
longer necessary due to recent amendments to such rule. These certain amendments
to the 1994 Incentive Plan include the elimination of the nontransferability
provisions and the six-month holding period, both of which are no longer
mandated by the revised Rule 16b-3.
A general description of the principal terms of the 1994 Incentive Plan is
set forth below. This description is qualified in its entirety by the terms of
the 1994 Incentive Plan, as proposed to be amended and restated, which is
attached to this Proxy Statement as Exhibit B and is hereby incorporated herein
by reference.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT
AND
RESTATEMENT OF THE 1994 INCENTIVE PLAN.
GENERAL DESCRIPTION
In April 1994, the Board of Directors adopted the 1994 Incentive Plan,
which was approved by the stockholders in July 1994. A total of 900,000 shares
of Common Stock were initially reserved for issuance over the ten year term of
the 1994 Incentive Plan. The number of shares of Common Stock available for
issuance automatically increases on the first trading day of each calendar year
for five years from the adoption of the 1994 Incentive Plan, beginning with the
1995 calendar year, by an amount equal to one percent (1%) of the total number
of shares of Common Stock outstanding on December 31 of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
150,000 shares. Options granted under the 1994 Incentive Plan may be either
incentive stock options, as defined in Section 422 of the Code, or nonstatutory
stock options. See "Certain Federal Income Tax Information" below for
information concerning the tax treatment of both incentive stock options and
nonstatutory stock options. A total of 1,183,330 shares are currently reserved
for issuance under the 1994 Incentive Plan. As of March 31, 1996, options to
purchase approximately 1,053,479 shares were outstanding under the 1994
Incentive Plan, no options to purchase shares had been exercised under the 1994
Incentive Plan, and approximately 129,851 shares remained reserved for issuance
thereunder. Summary of 1994 Incentive Plan
The essential terms of the 1994 Incentive Plan, as proposed to be amended
and restated, are summarized below. This summary does not purport to be
complete, and is subject to, and qualified by, reference to all provisions of
the 1994 Incentive Plan, as proposed to be amended and restated, a copy of which
is attached hereto as Exhibit B.
Plan Administration. The 1994 Incentive Plan (other than the Automatic
Option Grant and the Stock Fee Programs) shall be administered by the
Compensation Committee of the Board. The Compensation Committee (the "Plan
Administrator") shall be comprised of two or more non-employee Board members
appointed by the Board and shall have complete discretion (subject to the
provisions of the 1994 Incentive
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Plan) to authorize stock option grants and direct stock issuances under the 1994
Incentive Plan. However, all grants under the Automatic Grant and the Stock Fee
Programs shall be made in strict compliance with the express provisions of those
programs, and no administrative discretion shall be exercised by the Plan
Administrator with respect to the grants made under such programs. In addition,
a subcommittee of the Compensation Committee comprised solely of two or more
"outside directors" (within the meaning of Section 162(m) of the Code, and the
regulations thereunder) shall have sole and exclusive authority to administer
the participation of "covered employees" (within the meaning of Section
162(m)(3) of the Code) in the 1994 Incentive Plan in order to qualify grants to
covered employees under the 1994 Incentive Plan as performance-based
compensation under Section 162(m) of the Code.
Eligibility. Officers and other key employees of the Company and its
subsidiaries (whether now existing or subsequently established) and independent
consultants and advisors to the Company and its subsidiaries shall be eligible
to participate in the Discretionary Grant and Stock Issuance Programs. Officers
and other key employees shall also be eligible to participate in the Salary
Reduction Grant Program. Non-employee members of the Board shall only be
eligible to participate in the Automatic Grant and the Stock Fee Programs.
In no event may any one participant in the 1994 Incentive Plan be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares in the aggregate over the term of the
1994 Incentive Plan.
Valuation. The fair market value per share of Common Stock on any relevant
date under the 1994 Incentive Plan shall be the closing selling price per share
on that date on The Nasdaq National Market. If there is no reported sale for
such date, then the closing selling price for the last previous date for which
such quotation exists shall be determinative of fair market value.
Equity Incentive Programs. The 1994 Incentive Plan contains five separate
equity incentive programs: (i) a Discretionary Grant Program under which key
employees and consultants may be granted stock options to purchase shares of
Common Stock; (ii) an Automatic Grant Program under which option grants shall be
made at specified intervals to non-employee directors; (iii) a Salary Reduction
Grant Program under which officers and other key employees may elect to have a
portion of their base salary reduced each year in return for options to purchase
shares of Common Stock at a discount from current fair market value equal to the
amount of their salary reduction; (iv) a Stock Fee Program under which
non-employee directors may elect to apply all or a portion of their annual
retainer fee to the acquisition of shares of Common Stock; and (v) a Stock
Issuance Program under which eligible individuals may be issued shares of Common
Stock directly, through the immediate purchase of the shares, as a bonus tied to
their performance of services or the Company's attainment of financial
milestones, or pursuant to their individual elections to receive such shares in
lieu of their base salary. The implementation and use of any of these equity
incentive programs (other than the Automatic Grant Program and the Stock Fee
Program) is within the sole discretion of the Plan Administrator.
Discretionary Grant Program. Under the Discretionary Grant Program, the
exercise price per share for options shall not be less than one hundred percent
(100%) of the fair market value per share of Common Stock on the grant date. For
incentive stock options granted to employees possessing ten percent (10%) or
more of the total combined voting power of all classes of stock of the Company
or any of its subsidiaries (a "10% Holder"), the exercise price per share may
not be less than one hundred ten percent (110%) of such fair market value. The
Plan Administrator shall have complete discretion to grant options (i) which are
immediately exercisable for vested shares, (ii) which are immediately
exercisable for unvested shares subject to the Company's repurchase rights or
(iii) which become exercisable in installments for vested shares over the
optionee's period of service. No granted option shall, however, have a maximum
term in excess of ten (10) years. No incentive stock option granted to a 10%
Holder shall have a maximum term in excess of five (5) years.
Any option held by the optionee at the time of cessation of service
normally shall not remain exercisable beyond the limited period designated by
the Plan Administrator (not to exceed 36 months) at the time of the option
grant. During that period the option generally shall be exercisable only for the
number of shares of
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Common Stock in which the optionee is vested at the time of cessation of
service. However, the Plan Administrator shall have complete discretion to
extend the period following the optionee's cessation of service during which his
or her outstanding option may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
Any unvested share of Common Stock shall be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The Plan Administrator
shall have complete discretion in establishing the vesting schedule for any such
unvested shares and shall have full authority to cancel the Company's
outstanding repurchase rights with respect to those shares in whole or in part
at any time.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Grant Program: tandem stock appreciation rights and limited stock
appreciation rights.
Tandem stock appreciation rights provide holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such share. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
Limited stock appreciation rights may be granted to officers of the Company
as part of their option grants. Any option with such a limited stock
appreciation right in effect for at least six (6) months may be surrendered to
the Company upon the successful completion of a hostile tender offer for
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities. In return for the surrendered
option, the officer shall be entitled to a cash distribution from the Company in
an amount per surrendered option share equal to the excess of (a) the highest
price per share of Common Stock paid in such hostile tender offer over (b) the
exercise price payable for such share.
Automatic Grant Program. Under the Automatic Grant Program, each
individual who first becomes a non-employee director on or after the date of the
1994 Annual Stockholders Meeting, whether through election by the stockholders
or appointment by the Board, shall automatically be granted at the time of such
initial election or appointment, an option grant for 15,000 shares of Common
Stock, provided such individual has not been in the Company's prior employ. In
addition, option grants for 5,000 shares of Common Stock shall automatically be
made to non-employee directors at successive three-year intervals over their
period of continued Board service. Accordingly, on the date of each Annual
Stockholders Meeting, beginning with the 1995 Annual Meeting, each individual
who is re-elected to serve as a non-employee director, and has not otherwise
received any prior automatic option grants under the 1994 Incentive Plan (or any
predecessor plan of the Company) during the two immediately preceding calendar
years, shall automatically be granted a stock option to purchase 5,000 shares of
Common Stock, provided such individual has served as a non-employee director for
at least twelve months. There shall be no limit on the number of such additional
5,000-share option grants any one non-employee director may receive over his or
her period of Board service, and non-employee directors shall be eligible to
receive these option grants for 5,000 shares of Common Stock, regardless of
whether they joined the Board prior to the 1994 Annual Meeting or were
previously in the Company's employ.
Under the Automatic Grant Program, the exercise price per share shall be
equal to one hundred percent (100%) of the fair market value per share of Common
Stock on the automatic grant date. Each option shall have a maximum term of ten
years from the grant date and each option shall be immediately exercisable for
all option shares, but any purchased shares shall be subject to repurchase by
the Company until vested, at the exercise price paid per share, upon the
optionee's cessation of Board service.
The option shares shall vest and the Company's repurchase rights shall
lapse with respect to option shares in three equal annual installments over the
optionee's period of Board service, with the first such installment to vest upon
the completion of one year of Board service measured from the automatic grant
date.
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Should the optionee die or become permanently disabled while serving as a
Board member, then the Company's repurchase rights subject to each automatic
option grant held by that individual optionee shall immediately lapse in full
and those vested shares may be purchased at any time within the twelve-month
period following the date of the optionee's cessation of Board service.
The Company's repurchase rights subject to each automatic option grant
shall immediately lapse upon certain changes in control or ownership of the
Company, as discussed in more detail below under "General Provisions." In
addition, upon the successful completion of a hostile tender offer for
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities, each automatic option grant which
has been outstanding for at least six months may be surrendered to the Company
for a cash distribution per surrendered option share in an amount equal to the
excess of (A) the highest price per share of Common Stock paid in such hostile
tender offer over (B) the exercise price payable for such share.
The remaining terms and conditions of the option grants under the Automatic
Grant Program shall conform in general to the terms described above for option
grants made under the Discretionary Grant Program and shall be incorporated into
the option agreement evidencing the automatic grant.
Salary Reduction Grant Program. In the event that the Company chooses to
implement a Salary Reduction Grant Program, the Plan Administrator shall have
complete discretion in selecting the individuals, if any, who are to
participate. Under the Salary Reduction Grant Program, participants may elect to
have a portion of their base salary reduced each year in return for options to
purchase shares of the Company's Common Stock at a discount from current market
value. The formula for determining how many option shares shall be granted at
the discounted exercise price insures that the total value of the spread on the
option shall not exceed the dollar amount of the optionee's salary reduction.
Each option shall be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Grant Program, except
that the exercise price per share shall be equal to one-third of the fair market
value per share of Common Stock on the grant date and the number of option
shares shall be determined by dividing the total dollar amount of the approved
reduction in the participant's base salary by two-thirds of the fair market
value per share of Common Stock on the grant date. As a result, the total spread
on the option (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) shall equal the dollar
amount of the reduction to the optionee's base salary in effect for the calendar
year for which the grant is made.
Provided the optionee continues in the Company's employ, the option shall
become exercisable for fifty percent (50%) of the option shares on the last day
of June in the calendar year for which the grant is made and shall become
exercisable for the balance of the option shares in a series of successive
monthly installments on the last day of each of the next six calendar months.
Should the optionee die or become disabled while in service, the option
shall immediately become exercisable for that number of option shares equal to
(A) one-twelfth of the total number of option shares multiplied by (B) the
number of full calendar months which have elapsed from the first day of the
calendar year for which the option is granted and the last day of the calendar
month during which the optionee ceases service.
Each option shall have a term of ten (10) years measured from the grant
date, whether or not the individual continues in service for the Company.
Stock Fee Program. Under the Stock Fee Program, each individual serving as
a non-employee director shall be eligible to elect to apply all or any portion
of the annual retainer fee otherwise payable in cash to him or her to the
acquisition of unvested shares of Common Stock. The non-employee director must
make the stock election prior to the start of the calendar year for which the
election is to be in effect. On the first trading day in January of the calendar
year for which the election is in effect, the portion of the retainer fee
subject to such election shall be applied to the acquisition of Common Stock by
dividing the elected dollar amount by the fair market value per share of Common
Stock on that trading day. The issued shares shall be held in escrow by the
Company until the individual vests in those shares. The non-employee director
shall have full
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stockholder rights, including voting and dividend rights, with respect to all
issued shares held in escrow on his or her behalf.
Upon completion of each month of Board service during the year for which
the election is in effect, the non-employee director shall vest one-twelfth of
the issued shares, and the stock certificate for those shares shall be released
from escrow. Immediate vesting in all the issued shares shall occur in the event
the individual dies or becomes disabled during his or her period of Board
service or certain changes in control or ownership of the Company are effected
during such period. Should the director cease service prior to vesting in one or
more monthly installments of the issued shares, then those installments shall be
forfeited.
Stock Issuance Program. Shares may be sold under the Stock Issuance
Program at a price per share not less than eighty-five percent (85%) of fair
market value, payable in cash or through a promissory note payable to the
Company. Shares may also be issued solely as a bonus for past services or
pursuant to an irrevocable election by the individual to receive such shares in
lieu of a portion of his or her salary.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
financial milestones. Unvested shares shall be subject to certain transfer
restrictions and to repurchase or cancellation by the Company if the vesting
requirements are not satisfied. The Plan Administrator shall, however, have the
discretionary authority to accelerate the vesting of any issued shares in whole
or in part at any time. Individuals holding shares under the Stock Issuance
Program shall have full stockholder rights with respect to those shares, whether
the shares are vested or unvested.
GENERAL PROVISIONS
Option Vesting Acceleration. Outstanding options under the 1994 Incentive
Plan shall become immediately exercisable, and unvested shares issued or
issuable under the 1994 Incentive Plan shall be subject to accelerated vesting,
in the event of certain changes in the ownership or control of the Company. Such
option vesting acceleration is triggered by (i) the acquisition of the Company
by any person or entity through merger, consolidation or asset sale (a
"Corporate Acquisition") or (ii) a hostile take over of the Company through a
successful tender offer for securities of more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities or a change
in the majority of the Board effected through one or more contested elections
for Board membership (a "Change in Control").
Each option outstanding under the Discretionary Grant Program or Salary
Reduction Program at the time of a Corporate Acquisition shall automatically
become fully and immediately exercisable. However, an outstanding option under
the Discretionary Grant Program shall not accelerate to the extent such option
is to be assumed by the successor corporation or replaced by a comparable option
to purchase shares of the capital stock of the successor corporation. The Plan
Administrator shall have the discretion to provide for the subsequent
acceleration of any option which does not accelerate at the time of a Corporate
Acquisition, in the event the optionee's service terminates within a designated
period following a Corporation Acquisition.
Upon a Corporate Acquisition, the Company's outstanding repurchase rights
under the Discretionary Grant and Stock Issuance Programs shall also terminate,
and the shares subject to those terminated rights shall become fully vested,
except to the extent one or more of those repurchase rights are expressly
assigned to the successor corporation. The Plan Administrator shall have the
discretion to provide for the subsequent termination of any repurchase rights
which remain in existence after a Corporate Acquisition, in the event the
optionee's service terminates within a designated period following a Corporate
Acquisition.
Upon a Corporate Acquisition, the Plan Administrator shall also have the
authority to provide for the acceleration of options outstanding under the
Discretionary Grant Program at the time of any Change in Control so that each
such option shall become fully and immediately exercisable. The Plan
Administrator may also provide for the automatic termination of all of the
outstanding repurchase rights held by the Company under the Discretionary Option
Grant and Stock Issuance Programs (with the concurrent vesting of the shares
subject to those terminated rights) in the event of such a Change in Control.
Alternatively, the Plan
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Administrator may condition such accelerated option vesting and termination of
the repurchase rights upon the individual's cessation of service under certain
circumstances following a Change in Control.
The shares of Common Stock subject to each option outstanding under the
Salary Reduction and the Automatic Grant Programs at the time of any Corporate
Acquisition or Change in Control shall immediately vest, and the options shall
accordingly become exercisable. In addition, all unvested shares issued under
the Stock Fee Program or issued under the Stock Issuance Program in lieu of base
salary shall immediately vest at that time.
The acceleration of options in the event of a Corporate Acquisition or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a take over attempt or other efforts
to gain control of the Company.
Changes in Capitalization. In the event any change is made to the
outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the 1994 Incentive Plan and the maximum number and/or
class of securities for which the share reserve is to increase annually during
the first five years pursuant to the automatic one percent (1%) increase
provisions of the 1994 Incentive Plan; (ii) the maximum number and/or class of
securities for which any one individual may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances over the term
of the 1994 Incentive Plan; (iii) the number and/or class of securities and
price per share in effect under each outstanding option; and (iv) the number
and/or class of securities for which option grants shall subsequently be made
under the Automatic Grant Program to each newly-elected or continuing
non-employee director.
Transferability of Options and Stock Appreciation Rights. Any option shall
be assignable or transferable to the extent determined by the Plan Administrator
and provided in the agreement evidencing such option. However, any assignee or
transferee shall be entitled to exercise any such option or any related tandem
rights or limited rights in the same manner and only to the same extent as the
optionee or right holder would have been entitled to exercise such option or
such related rights had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the optionee
or right holder, unless otherwise determined by the Plan Administrator.
Financial Assistance. The Plan Administrator may institute a loan program
in order to assist one or more optionees in financing their exercise of
outstanding options under the Discretionary Grant or Salary Reduction Grant
Program or the purchase of shares under the Stock Issuance Program. The form in
which such assistance is to be made available (including loans or installment
payments) and the terms upon which such assistance is to be provided shall be
determined by the Plan Administrator. However, the maximum amount of financing
provided any participant may not exceed the amount of cash consideration payable
for the issued shares plus all applicable Federal, state and local taxes
incurred in connection with the acquisition of the shares. Any such financing
may be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
Special Tax Election. The Plan Administrator may provide one or more
holders of nonstatutory options or unvested shares under the Discretionary
Grant, Salary Reduction Grant and Stock Issuance Programs with the right to have
the Company withhold a portion of the shares of Common Stock otherwise issuable
to such individuals in satisfaction of the Federal and state income and
employment tax liability incurred by such individuals in connection with the
exercise of those options or the vesting of the shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
Amendment and Termination. The Board may amend or modify the 1994
Incentive Plan in any or all respects whatsoever, subject to obtaining any
required stockholder approval. In addition, the Automatic Option Grant Program
and the Stock Fee Program may not be amended at intervals more frequently than
once every six (6) months, other than to the extent necessary to comply with
Federal income tax laws, the Employee Retirement Income Security Act of 1974, as
amended, or any applicable rules and regulations
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thereunder. The 1994 Incentive Plan shall in all events terminate on April 28,
2004 unless sooner terminated by the Board.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following summary of the federal income tax consequences of 1994
Incentive Plan transactions is based upon federal income tax laws in effect on
the date of this Proxy Statement. This summary does not purport to be complete,
and does not discuss foreign, state or local tax consequences.
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee shall, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee makes a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition shall result.
Upon a qualifying disposition of the shares, the optionee shall recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares then the excess of (i) the fair market value of those
shares on the option exercise date over (ii) the exercise price paid for the
shares shall be taxable as ordinary income. Any additional gain recognized upon
the disposition shall be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company shall be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance shall the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Nonstatutory Options. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option. The optionee shall in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee shall be required to
satisfy the tax withholding requirements applicable to such income.
Special provisions of the Code apply to the acquisition of unvested shares
of Common Stock under a nonstatutory option. These special provisions are
summarized below.
If the shares acquired upon exercise of the nonstatutory option are subject
to repurchase by the Company at the original exercise price in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee shall not recognize any taxable income at the time of exercise but
shall have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of the
shares on the date the repurchase right lapses with respect to those shares over
(ii) the exercise price paid for the shares.
The optionee may, however, elect under Section 83(b) of the Code to include
as ordinary income in the year of exercise of the nonstatutory option an amount
equal to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee shall not recognize any additional income
as and when the repurchase right lapses.
The Company shall be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised nonstatutory option. In general, the deduction shall be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
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Appreciation Rights. An optionee who is granted a stock appreciation right
shall recognize ordinary income in the year exercised equal to the amount of the
appreciation distribution. The Company shall be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
the ordinary income is recognized by the optionee.
Direct Stock Issuance. The tax principles applicable to direct stock
issuances under the 1994 Incentive Plan shall be substantially the same as those
summarized above for the exercise of nonstatutory option grants.
Parachute Payments. If the exercisability of an option or the vesting of
shares issued under the 1994 Incentive Plan were accelerated as a result of a
change in control or sale of a substantial portion of the Company's assets, all
or a portion of the value of the option or stock subject to such acceleration
may constitute a parachute payment for purposes of the excess parachute
provisions of the Code. If total parachute payments exceed three times an
employee's average compensation for the five (5) tax years preceding the change
of control, the employer loses its deduction for, and the recipient is subject
to a 20% excise tax on the amount of the parachute payments in excess of one
times such average compensation.
AMENDED PLAN BENEFITS
The Company cannot now determine the number of options to be granted in the
future under the 1994 Incentive Plan, as proposed to be amended, to all current
executive officers as a group, all current directors excluding current executive
officers as a group or all employees (excluding current executive officers) as a
group. The table under the caption "Option Grants in 1996 Fiscal Year" provides
information with respect to the grant of options to the Named Executive Officers
of the Company during the 1996 fiscal year. The following table sets forth
additional information with respect to options granted under the 1994 Incentive
Plan during the 1996 fiscal year:
WEIGHTED
AVERAGE
OPTIONS % OF TOTAL EXERCISE PRICE
IDENTITY OF GROUP GRANTED OPTIONS GRANTED PER SHARE
- -------------------------------------------------- ------- --------------- --------------
Executive Officers as a group..................... 576,029 64.1% $12.63
Employees that are not Executive Officers, as a
group........................................... 283,026 31.5% $11.66
Directors that are not Executive Officers, as a
group........................................... 40,000 4.4% $12.11
PLAN AMENDMENT: INCREASE SHARES RESERVED FOR ISSUANCE
The Company has reserved 1,183,330 shares of Common Stock for issuance
under the 1994 Incentive Plan. In order to increase the number of shares
available to attract new talented employees, it is proposed that the 1994
Incentive Plan be amended and restated to increase the total number of shares of
Common Stock issuable under the 1994 Incentive Plan to 2,183,330 through the
reservation of an additional 1,000,000 shares of Common Stock for issuance
thereunder.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the amendment and restatement of the 1994 Incentive Plan which will
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,000,000 shares, bringing the total number of shares issuable under the 1994
Incentive Plan to 2,183,330.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE 1994 INCENTIVE PLAN.
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
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PROPOSAL 4
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee, pursuant to authority granted to it by the Board of
Directors, appointed Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending March 31, 1997.
Although the appointment of Arthur Andersen LLP is not required to be
submitted to a vote of the stockholders, the Board of Directors believes it
appropriate as a matter of policy to request that the stockholders ratify the
appointment of the independent public accountants for the fiscal year ending
March 31, 1997. In the event a majority of the votes cast at the meeting are not
voted in favor of ratification, the adverse vote will be considered as a
direction to the Board of Directors of the Company to select other auditors for
the fiscal year ending March 31, 1997.
The Company anticipates that a representative of Arthur Andersen LLP will
be present at the Annual Meeting. The representative will be given the
opportunity to make a statement if he desires to do so, and is expected to be
available to respond to questions submitted either orally or in writing at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING MARCH 31, 1997.
STOCKHOLDER PROPOSALS
The deadline for stockholder proposals intended to be considered for
inclusion in the Company's Proxy Statement for next year's Annual Meeting of
Stockholders is expected to be February 28, 1997. Such proposals may be included
in next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in the best interest of
the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Charles D. Kissner
--------------------------------------
Charles D. Kissner
President and
Chief Executive Officer
Dated: July 3, 1996
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EXHIBIT A
DIGITAL MICROWAVE CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan of Digital Microwave Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Accrual Period" shall mean a period, following the first Accrual
Period, of approximately six months commencing on March 1 and September 1 of
each year and terminating on the next following February 28 (or 29) or August
31, respectively; provided, however, that the first Accrual Period shall
commence and end on the dates specified by the Plan Administrator.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" shall mean the common stock of the Company.
(e) "Company" shall mean Digital Microwave Corporation, a Delaware
corporation.
(f) "Compensation" shall mean an Employee's base salary from the Company or
one or more Designated Subsidiaries, including such amounts of base salary as
are deferred by the Employee (i) under a qualified cash or deferred arrangement
described in Section 401(k) of the Code, or (ii) to a plan qualified under
Section 125 of the Code. Compensation does not include overtime, bonuses,
reimbursements or other expense allowances, fringe benefits (cash or noncash),
moving expenses, deferred compensation, and contributions (other than
contributions described in the first sentence) made on the Employee's behalf by
the Company or one or more Designated Subsidiaries under any employee benefit or
welfare plan now or hereafter established.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(h) "Effective Date" shall mean August 8, 1996. However, should any
Designated Subsidiary become a Participating Company in the Plan after such
date, then such entity shall designate a separate Effective Date with respect to
its employee-participants.
(i) "Employee" shall mean any individual who is engaged in the rendition of
personal services to the Company or a Designated Subsidiary for Compensation.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contact, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(j) "Enrollment Date" shall mean the first day of each Purchase Period.
(k) "Exercise Date" shall mean the last day of each Accrual Period.
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(l) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing
selling price for such stock on the principal securities exchange or
national market system on which the Common Stock is at the time listed for
trading. If there are no sales of Common Stock on that date, then the
closing selling price for the Common Stock on the next preceding day for
which such closing selling price is quoted shall be determinative of Fair
Market Value; or,
(2) If the Common Stock is not traded on an exchange or a national
market system, its Fair Market Value shall be determined in good faith by
the Board, and such determination shall be conclusive and binding on all
persons.
(m) "Participant" means an Employee of the Company or Designated Subsidiary
who is actively participating in the Plan.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
(o) "Plan Administrator" shall mean either the Board or a committee of the
Board that is responsible for the administration of the Plan.
(p) "Purchase Period" shall mean a purchase period established pursuant to
paragraph 4 hereof.
(q) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.
(r) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(s) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
(a) General. Any Employee who is employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan for the Purchase
Period commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to the
contrary notwithstanding, no Employee shall be granted an option under the Plan
(i) if, immediately after the grant, such Employee (taking into account stock
owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary of the Company, or (ii) which permits his or her rights to purchase
stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding paragraph (a) above, the
following Employees, as defined in paragraph 2, shall not be eligible to
participate in the Plan for any relevant Purchase Period: (i) employees whose
customary employment is 20 hours or less per week; (ii) employees whose
customary employment is for not more than five (5) months in any calendar year;
(iii) employees who have been employed for fewer than three (3) months; (iv)
employees and officers who are "highly compensated employees" within the meaning
of Sections 414(q)(1)(B) or (D) of the Code; and (v) employees who are
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subject to rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such employees in the Plan.
4. Purchase Periods.
(a) The Plan shall be implemented through overlapping or consecutive
Purchase Periods until such time as (i) the maximum number of shares of Stock
available for issuance under the Plan shall have been purchased or (ii) the Plan
shall have been sooner terminated in accordance with paragraph 19 hereof. The
maximum duration of a Purchase Period shall be twenty-seven months. Initially,
the Plan shall be implemented through overlapping Purchase Periods of
twenty-four months' duration commencing each March 1 and September 1 following
the initial Purchase Period. The initial Purchase Period shall commence and end
on the dates specified by the Plan Administrator. The Plan Administrator shall
have the authority to change the length of any Purchase Period subsequent to the
initial Purchase Period by announcement at least thirty (30) days prior to the
commencement of the Purchase Period and to determine whether subsequent Purchase
Periods shall be consecutive or overlapping.
(b) A Participant shall be granted a separate purchase right for each
Purchase Period in which he/she participates. The purchase right shall be
granted on the first day of the Purchase Period and shall be automatically
exercised in successive installments on the last day of each Accrual Period
ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a time.
Accordingly, except as provided in paragraph 4(d), an Employee who wishes to
join a new Purchase Period must withdraw from the current Purchase Period in
which he/she is participating and must also enroll in the new Purchase Period
prior to the commencement date for that period.
(d) If on the first day of any Accrual Period in a Purchase Period in which
an Employee is participating in the Plan the Fair Market Value of the Company's
Common Stock is less than the Fair Market Value of the Company's Common Stock on
the first day of the first Accrual Period within the Purchase Period (after
taking into account any adjustment during the Purchase Period pursuant to
paragraph 18(a)), the Purchase Period shall be terminated automatically and the
Employee shall be enrolled automatically in the new Purchase Period which has
its first Accrual Period commencing on that date, provided the Employee is
eligible to participate in the Plan on that date and has not elected to
terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common Stock
through participation in the Plan for any Purchase Period shall neither limit
nor require the acquisition of Common Stock by a Participant in any subsequent
Purchase Period.
5. Participation.
(a) An eligible Employee may become a Participant in the Plan by completing
a subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office at least fifteen
(15) business days prior to the Enrollment Date for the Purchase Period in which
such participation will commence, unless a later time for filing the
subscription agreement is set by the Board for all eligible Employees with
respect to a given Purchase Period.
(b) Payroll deductions for a Participant shall commence with the first
period payroll following the Enrollment Date and shall end on the last complete
payroll period during the Purchase Period, unless sooner terminated by the
Participant as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a Participant files his/her subscription agreement, he/she
shall elect to have payroll deductions made on each pay day during the Offering
Period in an amount not exceeding ten percent (10%) of the Compensation which
he/she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a Participant shall be credited to
his/her account under the Plan and will be withheld in whole percentages only. A
Participant may not make any additional payments into such account.
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(c) A Participant may discontinue his or her participation in the Plan as
provided in paragraph 10, or may decrease the rate of his/her payroll deductions
during the Purchase Period by completing or filing with the Company a new
subscription agreement authorizing a decrease in payroll deduction rate. The
decrease in rate shall be effective with the first full payroll period following
ten (10) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A Participant may increase the rate of his/her payroll deductions
for a future Purchase Period by filing with the Company a new subscription
agreement authorizing an increase in payroll deduction rate within ten (10)
business days (unless the Company elects to process a given change in
participation more quickly) before the commencement of the upcoming Purchase
Period. A Participant's subscription agreement shall remain in effect for
successive Purchase Periods unless terminated as provided in paragraph 10. The
Board shall be authorized to limit the number of participation rate changes
during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and paragraph 3(b) herein, a Participant's payroll
deductions may be decreased to 0% at such time during any Accrual Period which
is scheduled to end during the current calendar year (the "Current Accrual
Period") that the aggregate of all payroll deductions which were previously used
to purchase stock under the Plan in a prior Accrual Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Accrual Period equal $21,250. Payroll deductions shall recommence at the
rate provided in such Participant's subscription agreement at the beginning of
the first Accrual Period which is scheduled to end in the following calendar
year, unless terminated by the Participant as provided in paragraph 10.
7. Grant of Option. On the first day of each Purchase Period, each
eligible Employee participating in such Purchase Period shall be granted an
option to purchase on each Exercise Date of such Purchase Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided (i) that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof,
and (ii) the maximum number of shares of Common Stock an Employee shall be
permitted to purchase in any Accrual Period shall be 5,000 shares, subject to
adjustment as provided in Section 18 hereof. Exercise of the option shall occur
as provided in Section 8, unless the Participant has withdrawn pursuant to
Section 10, and the option, to the extent not exercised, shall expire on the
last day of the Purchase Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan as
provided in paragraph 10 below, his/her option for the purchase of shares will
be exercised automatically on each Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such Participant at the
applicable Purchase Price with the accumulated payroll deductions in his/her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Purchase Period, if the Participant
elects to participate in the next Purchase Period, or returned to the
Participant. Any amount remaining in a Participant's account following the
purchase of shares on the Exercise Date which exceeds the cost of one full share
of Common Stock on the Exercise Date shall be returned to the Participant and
shall not be carried over to the next Purchase Period. During a Participant's
lifetime, a Participant's option to purchase shares hereunder is exercisable
only by him/her.
9. Delivery. Upon receipt of a request from a Participant after each
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as appropriate, of a certificate representing
the shares purchased upon exercise of his/her option.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the payroll
deductions credited to his/her account and not yet used to exercise his/her
option under the Plan at any time by giving written notice to the Company in the
form of Exhibit B to this Plan. All of the Participant's payroll deductions
credited to his/her account will be paid to such Participant promptly after
receipt of notice of withdrawal, such Participant's
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option for the Purchase Period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the Purchase
Period. If a Participant withdraws from a Purchase Period, payroll deductions
will not resume at the beginning of the succeeding Purchase Period unless the
Participant delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason or upon
termination of a Participant's employment relationship (as described in Section
2(i)), the payroll deductions credited to such Participant's account during the
Purchase Period but not yet used to exercise the option will be returned to such
Participant or, in the case of his/her death, to the person or persons entitled
thereto under paragraph 14, and such Participant's option will be automatically
terminated.
11. Interest. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 300,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in
paragraph 18. If on a given Exercise Date the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares covered
by his/her option until such shares are actually purchased on the Participant's
behalf in accordance with the applicable provisions of the Plan. No adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board of
the Company or a committee of members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan except
to the extent limited by Subsection (b) of this Section 13.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection
(a) of this Section 13, in the event that Rule 16b-3 promulgated under The
Securities Exchange Act of 1934, as amended, or any successor provision ("Rule
16b-3") provides specific requirements for the administrators of plans of this
type, the Plan shall be only administered by such a body and in such a manner as
shall comply with the applicable requirements of Rule 16b-3. Unless permitted by
Rule 16b-3, no discretion concerning decisions regarding the Plan shall be
afforded to any committee or person that is not "disinterested" as that term is
used in Rule 16b-3.
14. Designation of Beneficiary.
(a) Each Participant will file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such Participant of
such shares and cash. In addition, a Participant may file a written designation
of a beneficiary who is to receive any cash from the Participant's account under
the Plan in the event of such Participant's death prior to exercise of the
option. If a Participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
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(b) Such designation of beneficiary may be changed by the Participant (and
his or her spouse, if any) at any time by written notice. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one or
more dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Purchase Period in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each Participant
in the Plan. Statements of account will be given to Participants at least
annually, which statements will set forth the amounts of payroll deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
18. Adjustments Upon Changes in Capitalization, Dissolution; or Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves, as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised, 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 Common
Stock, or any other increase or decrease in the number 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 conclusive. Except as expressly provided herein, no issue 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. The Board may, if it so determines in the exercise of its sole
discretion, make provision for adjusting the Reserves, as well as the price per
share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock.
(b) Change in Ownership, Dissolution or Liquidation. In the event of a
proposed sale of all or substantially all of the assets of the Company, the
merger of the Company with or into another corporation, in which the Company
will not be the surviving corporation (other than a reorganization effectuated
primarily to change the state in which the Company is incorporated), or a
reverse merger in which the Company is the surviving corporation but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the person or persons holding those securities
immediately prior to the transfer, each option under the Plan shall be assumed
or an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Purchase Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Purchase
Period then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise Date for
his/her option has been changed to the New Exercise Date and that his/her option
will be exercised automatically on the New
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Exercise Date, unless prior to such date he/she has withdrawn from the Purchase
Period as provided in paragraph 10. For purposes of this paragraph, an option
granted under the Plan shall be deemed to be assumed if, following the sale of
assets or merger, the option confers the right to purchase, for each share of
option stock subject to the option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
share of Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the sale of assets or
merger was not solely common stock of the successor corporation or its parent
(as defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation and the Participant, provide for the consideration to
be received upon exercise of 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 sale of assets or
merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in paragraph 18, no such
termination can affect options previously granted, provided that an Purchase
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its shareholders. Except as provided in paragraph 18, no
amendment may make any change in any option theretofore granted which adversely
affects the rights of any Participant. To the extent necessary to comply with
Rule 16b-3 or Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Purchase Periods, limit
the frequency and/or number of changes in the amount withheld during Purchase
Periods, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable foreign
jurisdictions, permit payroll withholding in excess of the amount designated by
a Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. Notices. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of an option, the Company 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 present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law. In addition, no purchase rights
shall be exercised or shares issued hereunder before the Plan shall have been
approved by shareholders of the Company as provided in paragraph 24.
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22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under paragraph 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, such options shall contain,
and the shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
24. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such shareholder approval is obtained at
a duly held shareholders' meeting, the Plan must be approved by a majority of
the votes cast at such shareholders' meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the Plan. If such shareholder approval is
obtained by written consent, it must be obtained by the written consent of the
holders of a majority of all outstanding voting stock of the Company. However,
approval at a meeting or by written consent may be obtained by a lesser degree
of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.
25. No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
26. Effect of Plan. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of each
employee participating in the Plan, including, without limitation, such
employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such employee.
27. Applicable Law. The law of the State of California (excluding that
body of law pertaining to conflicts of law) will govern all matters relating to
this Plan except to the extent it is superseded by the laws of the United
States.
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EXHIBIT A
DIGITAL MICROWAVE CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
/ / Original Application Enrollment Date:________________
/ / Change in Payroll Deduction Rate
/ / Change of Beneficiary(ies)
28. I, ________________________, hereby elect to participate in the Digital
Microwave Corporation 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribe to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
29. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 10%) during the
Purchase Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
30. I understand that the payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Purchase Period, any accumulated payroll deductions will be
used to automatically exercise my option.
31. I have received a copy of the complete "Digital Microwave Corporation
1996 Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that the grant of the option by the Company under this
Subscription Agreement is subject to obtaining shareholder approval of the
Employee Stock Purchase Plan.
32. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of:
------------------------------------------------------------------
------------------------------------------------------------------
33. I understand that if I dispose of any shares received by me pursuant to
this Plan within 2 years after the Enrollment Date (the first day of the
Purchase Period during which I purchased such shares) or within 1 year after the
Exercise Date (the date I purchased such shares), I will be treated for federal
income tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of the
shares at the time such shares were delivered to me over the price which I paid
for the shares. I hereby agree to notify the Company in writing within 30 days
after the date of any such disposition and I will make adequate provision for
Federal, State or other tax withholding obligations, if any which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time after
the expiration of the 2-year and 1-year holding periods described above, I
understand that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such income will
be taxed as ordinary income only to the extent of an amount equal to the lesser
of (1) the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15% of
the fair market value of the shares on the first day of the Purchase Period. The
remainder of the gain, if any, recognized on such disposition will be taxed as
capital gain. I also understand that the foregoing income tax consequences are
based on current federal income tax law and that the Company is not responsible
for advising me of any changes in the applicable tax rules.
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39
34. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
35. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan.
--------------------------------------------------------------------
NAME: (Please print) (First) (Middle) (Last)
Relationship:
--------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
Employee's Social
Security Number:
--------------------------------------------------------------------
Employee's Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME
Employee's Signature:
--------------------------------------------------------------------
Dated:
--------------------------------------------------------------------
Signature of spouse if
beneficiary is other than
spouse:
--------------------------------------------------------------------
Dated:
--------------------------------------------------------------------
A-10
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EXHIBIT B
DIGITAL MICROWAVE CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned participant in the Purchase Period of the Digital Microwave
Corporation 1996 Employee Stock Purchase Plan which began on __________, 19__,
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Purchase Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Purchase Period. The
undersigned understands and agrees that his or her option for such Purchase
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Purchase Period and the undersigned shall be eligible to participate
in succeeding Purchase Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address
of Participant
- --------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
A-11
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EXHIBIT B
DIGITAL MICROWAVE CORPORATION
1994 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED MAY 1, 1996)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1994 Stock Incentive Plan (the "Plan") is intended to promote the
interests of Digital Microwave Corporation, a Delaware corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its Parent or Subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation, (ii) the
non-employee members of the Corporation's Board of Directors (the "Board") or
the board of directors of any Parent or Subsidiary corporation and (iii) those
consultants and other independent contractors who provide valuable services to
the Corporation (or its Parent or Subsidiary corporations) with the opportunity
to acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its Parent or Subsidiary corporations).
B. The Plan shall become effective upon approval by the Corporation's
stockholders at the 1994 Annual Meeting to be held on July 27, 1994. Such date
is hereby designated as the Effective Date of the Plan.
II. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into five separate
components:
- The Discretionary Option Grant Program under which eligible individuals
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock in accordance with the provisions of
Article Two.
- The Automatic Option Grant Program under which non-employee Board members
shall automatically receive special option grants at periodic intervals
to purchase shares of Common Stock in accordance with the provisions of
Article Three.
- The Stock Fee Program under which the non-employee Board members may
elect to apply all or a portion of their annual cash retainer fee to the
acquisition of shares of Common Stock in accordance with the provisions
of Article Four.
- The Salary Reduction Grant Program under which eligible individuals may,
pursuant to the provisions of Article Five, elect to have a portion of
their base salary reduced each year in return for options to purchase
shares of Common Stock at an aggregate discount from the Fair Market
Value of the option shares on the grant date equal to the salary
reduction amount.
- The Stock Issuance Program under which eligible individuals may, pursuant
to the provisions of Article Six, be issued shares of Common Stock
directly, through the immediate purchase of such shares at a price not
less than eighty-five percent (85%) of their Fair Market Value at the
time of issuance, as a bonus tied to the performance of services or the
Corporation's attainment of financial objectives, or pursuant to the
individual's election to receive such shares in lieu of base salary.
B. General Provisions. Unless the context clearly indicates otherwise, the
provisions of Articles One and Seven shall apply to the Discretionary Option
Grant, Automatic Option Grant, Salary Reduction Grant, Stock Issuance and Stock
Fee Programs and shall accordingly govern the interests of all individuals under
the Plan.
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C. Glossary. Capitalized terms shall, except as otherwise specifically
defined within the provisions of the Plan, have the meanings assigned to such
terms in the Glossary.
III. ADMINISTRATION OF THE PLAN
A. The Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant, Salary Reduction Grant and Stock Issuance Programs.
No Board member shall be eligible to serve on the Committee if such individual
has, within the twelve (12)-month period immediately preceding the date such
individual is to be appointed to the Committee, received an option grant or
stock issuance under this Plan or any other stock option, stock appreciation,
stock bonus or other stock plan of the Corporation (or any Subsidiary), other
than pursuant to the Automatic Option Grant Program specified in Article Three
or the Stock Fee Program specified in Article Four or the predecessor automatic
option grant program in effect under the Corporation's 1984 Stock Option Plan.
Members of the Committee shall serve for such period as the Board may determine
and shall be subject to removal by the Board at any time.
B. The Committee as Plan Administrator shall have full power and discretion
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the
Discretionary Option Grant, Salary Reduction Grant and Stock Issuance Programs
and to make such determinations under, and issue such interpretations of, the
provisions of each such program and any outstanding option grants or stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in those programs or any outstanding option or stock issuance
thereunder.
C. Service on the Committee shall constitute service as a Board member, and
members of the Committee shall accordingly be entitled to full indemnification
and reimbursement as Board members for their service on the Committee. No member
of the Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants or share issuances under the Plan.
D. Administration of the Automatic Option Grant and Stock Fee Programs
shall be self-executing in accordance with the express terms and conditions of
those programs, and the Plan Administrator shall not exercise any discretionary
functions with respect to the option grants or stock issuances made pursuant to
such programs.
E. Notwithstanding the foregoing provisions of this Part III, the
Subcommittee shall have sole and exclusive authority to administer the
participation of Covered Employees in the Discretionary Option Grant, Salary
Deduction Grant and Stock Issuance Programs to the extent necessary to qualify
the grants under such programs as "performance-based compensation" under Section
162(m) of the Code. In the case of such grants to Covered Employees, references
to the "Plan Administrator" shall be deemed to be references to the
Subcommittee.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant,
Salary Reduction Grant and Stock Issuance Programs are as follows:
- officers and other key employees of the Corporation (or any Parent or
Subsidiary) who render services which contribute to the management,
growth and financial success of the Corporation; and
- those consultants or other independent contractors who provide valuable
services to the Corporation (or any Parent or Subsidiary).
B. Non-employee Board members shall not be eligible to participate in the
Discretionary Option Grant, Salary Reduction Grant or Stock Issuance Program or
in any other stock option, stock purchase, stock bonus or other stock plan of
the Corporation (or its Subsidiaries). Such non-employee Board members shall,
however, be eligible to participate in the Automatic Option Grant and Stock Fee
Programs.
C. The Plan Administrator shall have full authority to determine, (i) with
respect to grants made under the Discretionary Option Grant and Salary Reduction
Grant Programs, which eligible individuals are to
B-2
43
receive such grants, the number of shares to be covered by each such grant, the
status of any granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each granted option is to become exercisable
and the maximum term for which the option may remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
individuals are to be selected for participation, the number of shares to be
issued to each selected individual, the vesting schedule (if any) to be
applicable to the issued shares and the consideration to be paid for such
shares.
V. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The number of shares of
Common Stock reserved for issuance over the term of the Plan shall be fixed at
2,183,330 shares, subject to adjustment as provided below.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each calendar year
during each of the first five years of the term of the Plan, beginning with the
1995 calendar year, by an amount equal to one percent (1%) of the shares of
Common Stock outstanding on December 31 of the immediately preceding calendar
year; but in no event shall any such annual increase exceed 150,000 shares. None
of the additional shares resulting from such annual increases may be made the
subject of Incentive Options granted under the Plan.
C. No one individual participating in the Plan may be granted stock
options, separately exercisable stock appreciation rights and receive direct
stock issuances for more than 500,000 shares in the aggregate over the term of
the Plan.
D. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
issuance under the Plan. Shares subject to any stock appreciation rights
exercised under the Plan and all share issuances under the Plan (other than
issuances in payment of exercised stock appreciation rights), whether or not the
issued shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an outstanding option under the
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an
outstanding option under the Plan or the vesting of a share issuance under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the share issuance, and not by the net number of
shares of Common Stock actually issued to the holder of such option or share
issuance.
E. Should any change be made to the Common Stock issuable under the Plan by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which the share reserve is to increase automatically each year
over the first five years of the term of the Plan, (iii) the maximum number
and/or class of securities for which any one individual participating in the
Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the term of the Plan,
(iv) the number and/or class of securities for which automatic option grants are
to be subsequently made to each newly elected or continuing non-employee Board
member under the Automatic Option Grant Program and (v) the number and/or class
of securities and price per share in effect under each option outstanding under
the Plan. Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under those options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
B-3
44
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees may only be granted Non-Statutory
Options. Each granted option shall be evidenced by one or more instruments in
the form approved by the Plan Administrator; provided, however, that each such
instrument shall comply with the terms and conditions specified below. Each
instrument evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such grants.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator in
accordance with the following provisions:
The exercise price per share of Common Stock subject to an Incentive
Option shall in no event be less than one hundred percent (100%) of the
Fair Market Value of such Common Stock on the grant date.
The exercise price per share of Common Stock subject to a
Non-Statutory Option shall in no event be less than one hundred percent
(100%) of the Fair Market Value of such Common Stock on the grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the Corporation's
order,
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the date
the option is exercised,
(iii) full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value
on the date the option is exercised and cash or check made payable to the
Corporation's order, or
(iv) to the extent the option is exercised for vested shares, full
payment through a broker-dealer sale and remittance procedure pursuant to
which the Optionee shall provide concurrent irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation in connection with such purchase
and (II) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
B. Term and Exercise of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the instrument evidencing
such option. No option shall, however, have a maximum term in excess of ten (10)
years. During the lifetime of the Optionee, the option, together with any stock
appreciation rights pertaining to such option, shall be exercisable only by the
Optionee and shall not be assignable or transferable except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death; provided, however, that effective as of August 15, 1996,
any Non-Statutory Option shall be assignable or transferable to the extent
determined by the Plan Administrator and provided in the agreement evidencing
such option. However, any assignee or transferee shall be entitled to exercise
any such Non-
B-4
45
Statutory Option or any related Tandem Rights or Limited Rights in the same
manner and only to the same extent as the Optionee or right holder would have
been entitled to exercise such option or such related rights had it not been
transferred and shall be subject to the same restrictions, repurchase rights,
and other limitations that bound the Optionee or right holder, unless otherwise
determined by the Plan Administrator.
C. Termination of Service.
1. Except to the extent otherwise expressly authorized by the Plan
Administrator, no Optionee shall have more than a thirty-six (36)-month period
measured from the date of such individual's cessation of Service in which to
exercise his or her outstanding options under the Plan.
2. Any option exercisable in whole or in part by the Optionee at the time
of death may be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. However, no such option shall remain exercisable for more than
thirty-six (36) months after the date of the Optionee's death.
3. Under no circumstances shall any such option be exercisable after the
specified expiration date of the option term.
4. During the applicable post-Service exercise period, the option may not
be exercised in the aggregate for more than the number of shares (if any) in
which the Optionee is vested at the time of his or her cessation of Service.
Upon the expiration of the limited post-Service exercise period or (if earlier)
upon the specified expiration date of the option term, each such option shall
terminate and cease to remain outstanding with respect to any vested shares for
which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to remain outstanding, at the time
of the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise vested.
5. Should the Optionee's Service be terminated for Misconduct, all
outstanding options held by that individual shall terminate immediately and
cease to remain outstanding.
6. The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding:
- to permit one or more options to be exercised not only with respect to
the number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more subsequent installments of vested shares for
which the option would otherwise have become exercisable had such
cessation of Service not occurred;
- to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in
no event beyond the specified expiration date of the option term.
D. Stockholder Rights. An Optionee shall have none of the rights of a
stockholder with respect to any option shares until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
E. Repurchase Rights. The shares of Common Stock acquired under this
Discretionary Grant Program may be subject to repurchase by the Corporation in
accordance with the following provisions:
1. The Plan Administrator shall have the discretion to grant options which
are exercisable for unvested shares of Common Stock. Should the Optionee cease
Service while holding any unvested shares purchased under such options, then the
Corporation shall have the right to repurchase any or all of those unvested
shares at the exercise price paid per share. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
B-5
46
2. All of the Corporation's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of a Corporate Transaction, except
to the extent: (i) any such repurchase right is expressly assigned to the
successor corporation (or parent thereof) in connection with the Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under the Plan and thereby
accelerate the vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Incentive Options may only be granted
to individuals who are Employees. Options which are specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to such
terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its Subsidiaries) may for the first time become exercisable as
incentive stock options under the Federal tax laws during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as incentive stock options under the Federal tax
laws shall be applied on the basis of the order in which such options are
granted. Should the number of shares of Common Stock for which any Incentive
Option first becomes exercisable in any calendar year exceed the applicable One
Hundred Thousand Dollar ($100,000) limitation, then the option may nevertheless
be exercised in that calendar year for the excess number of shares as a
Non-Statutory Option under the Federal tax laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its Subsidiaries, then the
exercise price per share shall not be less than one hundred ten percent (110%)
of the Fair Market Value per share of Common Stock on the grant date and the
option term shall not exceed five (5) years measured from the grant date.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for such Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. However, an outstanding option shall not so accelerate if and to the
extent: (i) such option is, in connection with the Corporate Transaction, either
to be assumed by the successor corporation or parent thereof or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (ii) such option is to be replaced with
a cash incentive program of the successor corporation which preserves the option
spread existing at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced in the Corporate Transaction.
Alternatively, the Plan Administrator
B-6
47
shall have the authority to provide for the subsequent acceleration of any
outstanding options which do not otherwise accelerate at the time of the
Corporate Transaction, or the subsequent termination of any of the Corporation's
outstanding repurchase rights which do not otherwise terminate at the time of
the Corporate Transaction, should the Optionee's Service terminate through an
Involuntary Termination effected within a designated period following the
effective date of such Corporate Transaction.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate, except to the extent assumed by the
successor corporation or its parent company.
D. Each outstanding option under this Discretionary Grant Program that is
assumed in connection with the Corporate Transaction or is otherwise to continue
in effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share, provided the aggregate exercise price payable
for such securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
individual basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options (and the termination of one or more of the
Corporation's outstanding repurchase rights) upon the occurrence of a Change in
Control. The Plan Administrator shall also have full power and authority to
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent termination of the Optionee's Service
through an Involuntary Termination effected within a specified period following
the Change in Control.
F. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
G. The grant of options shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
incentive stock option under the Federal tax laws only to the extent the
applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option shall
be exercisable as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority, exercisable
in its sole discretion, to grant to selected Optionees: (i) Tandem Stock
Appreciation Rights ("Tandem Rights") and/or Limited Stock Appreciation Rights
("Limited Rights").
B. The following terms and conditions shall govern the grant and exercise
of Tandem Rights:
1. One or more Optionees may be granted the Tandem Right, exercisable
upon such terms and conditions as the Plan Administrator may establish, to
elect between the exercise of the underlying stock option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of (i)
the Fair Market Value (on the option surrender date) of the number of
shares in which the Optionee is at the time vested under the surrendered
option (or surrendered portion thereof) over (ii) the aggregate exercise
price payable for such vested shares.
2. No such option surrender shall be effective unless it is approved
by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in
B-7
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cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
3. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (i) five (5) business days after the receipt of the rejection
notice or (ii) the last day on which the option is otherwise exercisable in
accordance with the terms of the instrument evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
date of the option grant.
C. The following terms and conditions shall govern the grant and exercise
of Limited Rights:
1. One or more officers of the Corporation subject to the short-swing
profit restrictions of the federal securities laws may, in the Plan
Administrator's sole discretion, be granted Limited Rights with respect to
their outstanding options.
2. Upon the occurrence of a Hostile Take-Over, each such officer
holding one or more options with such a Limited Right shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the Corporation,
to the extent the option is at the time exercisable for fully vested shares
of Common Stock. The officer shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the vested shares of Common Stock at the time
subject to each surrendered option (or surrendered portion of such option)
over (ii) the aggregate exercise price payable for such vested shares. Such
cash distribution shall be made within five (5) days following the option
surrender date.
3. Neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option surrender and
cash distribution. Any unsurrendered portion of the option shall continue
to remain outstanding and become exercisable in accordance with the terms
of the instrument evidencing such grant.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive automatic
option grants pursuant to the provisions of this Automatic Grant Program shall
be limited to (i) those individuals who are first elected as nonemployee Board
members at the 1994 Annual Meeting of Stockholders, (ii) those individuals who
are first elected or appointed as non-employee Board members after the date of
such Annual Meeting, whether through appointment by the Board or election by the
Corporation's stockholders, and (iii) those individuals who are reelected to
serve as non-employee Board members at one or more Annual Stockholder Meetings
beginning with the 1995 Annual Meeting. Only individuals who have not been in
the prior Service of the Corporation (or any Parent or Subsidiary) may receive
an automatic option grant under clause (i) or (ii) above. Any non-employee Board
member eligible to participate in the Automatic Grant Program pursuant to the
foregoing criteria is hereby designated an Eligible Director for purposes of
such program.
B. Limitation. Except for the option grants to be made pursuant to the
provisions of this Automatic Option Grant Program and any share issuance to be
made pursuant to the provisions of the Stock Fee Program, non-employee Board
members shall not be eligible to receive any option grants or stock issuances
under this Plan or any other stock plan of the Corporation (or any Parent or
Subsidiary).
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II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual first elected as an Eligible Director at the 1994 Annual
Stockholders Meeting shall automatically be granted on the date of such Meeting
a Non-Statutory Option to purchase 15,000 shares of Common Stock.
2. Each individual who first becomes an Eligible Director after the date of
the 1994 Annual Stockholders Meeting, whether through election by the
Corporation's stockholders or appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a Non-Statutory
Option to purchase 15,000 shares of Common Stock.
3. On the date of each Annual Stockholders Meeting, beginning with the 1995
Annual Meeting, each individual who is at that time re-elected as a non-employee
Board member and who has not otherwise received any prior automatic option
grants during the two immediately preceding calendar years shall automatically
be granted a Non-Statutory Option to purchase an additional 5,000 shares of
Common Stock, provided such individual has served as a Board member for at least
twelve (12) months.
B. No Limitation. There shall be no limit on the number of such
5,000-share annual option grants any one Eligible Director may receive at
successive three-year intervals over his or her period of Board service.
C. Exercise Price. The exercise price per share of Common Stock of each
automatic option grant shall be equal to one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the automatic grant date.
D. Payment. The exercise price shall be payable in any of the alternative
forms authorized under the Discretionary Option Grant Program. To the extent the
option is exercised for any unvested shares, the Optionee must execute and
deliver to the Corporation a stock purchase agreement for those unvested shares
which provides the Corporation with the right to repurchase, at the exercise
price paid per share, any unvested shares held by the Optionee at the time of
cessation of Board service and which precludes the sale, transfer or other
disposition of the purchased shares at any time while those shares remain
subject to such repurchase right.
E. Option Term. Each automatic grant shall have a maximum term of ten (10)
years measured from the grant date.
F. Exercisability/Vesting. Each automatic grant shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each automatic grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of three (3) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with the first such installment to vest upon Optionee's
completion of one (1) year of Board service measured from the automatic grant
date.
G. Transferability. Prior to August 15, 1996, during the lifetime of the
Optionee, the automatic option grant, together with the limited stock
appreciation right pertaining to such option, shall be exercisable only by the
Optionee and shall not be assignable or transferable except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death. Effective as of August 15, 1996, the automatic option
grant, together with the limited stock appreciation right pertaining to such
option, shall be fully assignable and transferable notwithstanding any contrary
provision of the agreement evidencing such option and related stock appreciation
right; provided, however, that any assignee or transferee shall be entitled to
exercise such option and any related stock appreciation right in the same manner
and only to the same extent as the Optionee would have been entitled to exercise
such option and the related stock appreciation right had it not been transferred
and shall be subject to the same restrictions, repurchase rights, and other
limitations that bound the Optionee, unless otherwise determined by the Plan
Administrator.
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H. Termination of Board Service.
1. Should the Optionee cease to serve as a Board member for any reason
(other than death or Permanent Disability) while holding one or more automatic
option grants, then such individual shall have a six (6)-month period following
the date of such cessation of Board service in which to exercise each such
option for any or all of the option shares in which the Optionee is vested at
the time of such cessation of Board service. However, each such option shall
immediately terminate and cease to remain outstanding, at the time of such
cessation of Board service, with respect to any option shares in which the
Optionee is not otherwise at that time vested under such option.
2. Should the Optionee die within six (6) months after cessation of Board
service, then any automatic option grant held by the Optionee at the time of
death may subsequently be exercised, for any or all of the option shares in
which the Optionee is vested at the time of his or her cessation of Board
service (less any option shares subsequently purchased by the Optionee prior to
death), by the personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the Optionee's will or
in accordance with the laws of descent and distribution. The right to exercise
each such option shall lapse upon the expiration of the twelve (12)-month period
measured from the date of the Optionee's death.
3. Upon the Optionee's death or Permanent Disability while serving as a
Board member, the shares of Common Stock at the time subject to each automatic
option grant held by the Optionee shall immediately vest in full (and the
Corporation's repurchase right with respect to such shares shall terminate), and
the Optionee (or the representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death) shall have
a twelve (12)-month period following the date of such cessation of Board service
in which to exercise such option for any or all of those vested shares of Common
Stock.
4. In no event shall any automatic grant remain exercisable after the
expiration date of the ten (10)-year option term. Upon the expiration of the
applicable post-service exercise period provided above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any option shares in which the Optionee was
vested at the time of his or her cessation of Board service but for which such
option was not otherwise exercised.
I. Stockholder Rights. The holder of an automatic option grant under this
Automatic Grant Program shall have none of the rights of a stockholder with
respect to any shares subject to that option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
J. Remaining Terms. The remaining terms and conditions of each automatic
option grant shall be as set forth in the form Automatic Stock Option Agreement
attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. The shares of Common Stock subject to each automatic option grant
outstanding at the time of any Corporate Transaction but not otherwise vested
shall automatically vest in full and the Corporation's repurchase right with
respect to those shares shall terminate, so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, all automatic option grants shall
terminate and cease to remain outstanding, except to the extent assumed by the
successor entity or its parent corporation.
B. The shares of Common Stock subject to each automatic option grant
outstanding at the time of any Change in Control but not otherwise vested shall
automatically vest in full and the Corporation's repurchase right with respect
to those shares shall terminate, so that each such option shall, immediately
prior to the specified effective date for the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. Each option shall remain so exercisable for all
the option shares following the Change in Control until the expiration or sooner
termination of the option term.
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C. Upon the occurrence of a Hostile Take-Over, the Optionee shall also have
a thirty (30) day period in which to surrender to the Corporation each automatic
option grant held by him or her. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution. The shares of Common Stock subject
to each option surrendered in connection with the Hostile Take-Over shall not be
available for subsequent issuance under the Plan.
D. The automatic option grants outstanding under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with the
outstanding automatic option grants, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws, the Employee Retirement Income
Security Act of 1974, as amended, or any applicable rules and regulations
thereunder; provided, however, that effective as of August 15, 1996, this
limitation on amendments of the Automatic Option Grant Program shall no longer
apply.
ARTICLE FOUR
STOCK FEE PROGRAM
I. ELIGIBILITY
Each individual serving as a non-employee Board member shall be eligible to
elect to apply all or any portion of the annual retainer fee otherwise payable
to such individual in cash to the acquisition of unvested shares of Common Stock
upon the terms and conditions of this Stock Fee Program.
II. ELECTION PROCEDURE
A. Filing. The non-employee Board member must make the
stock-in-lieu-of-fee election prior to the start of the calendar year for which
the election is to be effective. The first calendar year for which any such
election may be filed shall be the 1995 calendar year. The election, once filed,
shall be irrevocable. The election for any upcoming calendar year may be filed
at any time prior to the start of that year, but in no event later than December
31 of the immediately preceding calendar year. The non-employee Board member may
file a standing election to be in effect for two (2) or more consecutive
calendar years or to remain in effect indefinitely until revoked by written
instrument filed with the Plan Administrator at least six (6) months prior to
the start of the first calendar year for which such standing election is no
longer to remain in effect.
B. Election Form. The election must be filed with the Plan Administrator
on the appropriate form provided for this purpose. On the election form, the
non-employee Board member must indicate the percentage or dollar amount of his
or her annual retainer fee to be applied to the acquisition of unvested shares.
III. SHARE ISSUANCE
A. Issue Date. On the first trading day in January of the calendar year
for which the election is effective, the portion of the retainer fee subject to
such election shall automatically be applied to the acquisition of shares of
Common Stock by dividing the elected dollar amount by the Fair Market Value per
share of Common Stock on that trading day. The number of issuable shares shall
be rounded down to the next whole share, and the issued shares shall be held in
escrow by the Secretary of the Corporation as partly-paid
B-11
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shares until the non-employee Board member vests in those shares. The
non-employee Board member shall have full shareholder rights, including voting,
dividend and liquidation rights, with respect to all issued shares held in
escrow on his or her behalf, but such shares shall not be assignable or
transferable while they remain unvested.
B. Vesting. Upon completion of each calendar month of Board service during
the year for which the election is in effect, the non-employee Board member
shall vest in one-twelfth ( 1/12) of the issued shares, and the stock
certificate for those shares shall be released from escrow. Immediate vesting in
all the issued shares shall occur in the event (i) the non-employee Board member
should die or become Permanently Disabled during his or her period of Board
service or (ii) there should occur a Corporate Transaction or Change in Control
while such individual remains in Board service. Should such individual cease
Board service prior to vesting in one or more monthly installments of the issued
shares, then those unvested shares shall be canceled by the Corporation, and the
non-employee Board member shall not be entitled to any cash payment or other
consideration from the Corporation with respect to the canceled shares and shall
have no further shareholder rights with respect to such shares.
IV. AMENDMENT OF THE STOCK FEE PROGRAM PROVISIONS
The provisions of this Stock Fee Program, together with any outstanding
unvested share issuances, may not be amended at intervals more frequently than
once every six (6) months, other than to the extent necessary to comply with
applicable Federal income tax laws, the Employee Retirement Income Security Act
of 1974, as amended, or any applicable rules and regulations thereunder;
provided, however, that effective as of August 15, 1996, this limitation on
amendments of the Stock Fee Program shall no longer apply.
ARTICLE FIVE
SALARY REDUCTION GRANT PROGRAM
I. ELIGIBILITY
The Plan Administrator shall have plenary authority to select, prior to the
start of each calendar year, the particular key employees who shall be eligible
for participation in the Salary Reduction Grant Program for that calendar year.
In order to participate for a particular calendar year, each selected individual
must, prior to the start of that calendar year, file with the Plan Administrator
(or its designate) an irrevocable authorization directing the Corporation to
reduce his or her base salary for that calendar year by a designated multiple of
one percent (1%), but in no event less than five percent (5%).
The Plan Administrator shall review the filed authorizations and determine
whether to approve, in whole or in part, one or more of those authorizations. To
the extent the Plan Administrator approves one or more authorizations, the
individuals who filed those authorizations shall be granted options under this
Salary Reduction Grant Program.
Options granted under the Salary Reduction Grant Program, such options
shall be Non-Statutory Options evidenced by instruments in such form as the Plan
Administrator shall from time to time approve; provided, however, that each such
instrument shall comply with and incorporate the terms and conditions specified
below.
II. TERMS AND CONDITIONS OF OPTION
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third percent
(33 1/3%) of the Fair Market Value per share of Common Stock on the grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in any of the alternative forms authorized under the
Discretionary Grant Program.
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B. Number of Option Shares. The number of shares of Common Stock for which
each grant is to be made to a selected Optionee shall be determined pursuant to
the following formula (rounded down to the nearest whole number):
X = A / (B X 66 2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's base
salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the date of the
grant.
C. Term and Exercise of Options.
1. Each option shall have a maximum term of ten (10) years measured from
the grant date. Provided the Optionee continues in Service, the option shall
become exercisable for (i) fifty percent (50%) of the option shares on the last
day of June in the calendar year for which the option is granted and for (ii)
the balance of the option shares in a series of six (6) successive equal monthly
installments on the last day of each of the next six (6) calendar months.
2. Prior to August 15, 1996, the option shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death. However, effective as of August 15, 1996, the option shall
be assignable or transferable to the extent determined by the Plan Administrator
and provided in the agreement evidencing such option. However, any assignee or
transferee shall be entitled to exercise the option in the same manner and only
to the same extent as the Optionee would have been entitled to exercise the
option had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the Optionee
or right holder, unless otherwise determined by the Plan Administrator.
D. Effect of Termination of Service.
1. Should an Optionee cease Service for any reason after his or her
outstanding option has become exercisable in whole or in part, then that option
shall remain exercisable, for any or all of the shares for which the option is
exercisable on the date of such cessation of Service, until the expiration of
the ten (10) year option term or any sooner termination in connection with a
Corporate Transaction. Following the Optionee's death, such option may be
exercised, for any or all of the shares for which the option is exercisable at
the time of the Optionee's death, by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the expiration of the ten (10)-year option term or any sooner
termination in connection with a Corporate Transaction.
2. Should the Optionee die before his or her outstanding option becomes
exercisable for any of the option shares, then the personal representative of
the Optionee's estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution shall nevertheless have the right to exercise such option for up to
that number of option shares equal to (i) one-twelfth ( 1/12) of the total
number of option shares multiplied by (ii) the number of full calendar months
which have elapsed between the first day of the calendar year for which the
option is granted and the last day of the calendar month during which the
Optionee ceases Service. Such right of exercise shall lapse, and the option
shall terminate, upon the earliest to occur of (i) the specified expiration date
of the option term, (ii) the termination of the option in connection with a
Corporate Transaction or (iii) the third anniversary of the date of the
Optionee's death. However, the option shall, with respect to any and all option
shares for which it is not exercisable at the time of the Optionee's cessation
of Service, terminate immediately upon such cessation of Service and shall cease
to remain outstanding with respect to those option shares.
3. Should the Optionee become Permanently Disabled and cease by reason
thereof to remain in Service before his or her outstanding option becomes
exercisable for any of the option shares, then the Optionee shall nevertheless
have the right to exercise such option for up to that number of option shares
equal to (i) one-
B-13
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twelfth ( 1/12) of the total number of option shares multiplied by (ii) the
number of full calendar months which elapse between the first day of the
calendar year for which the option is granted and the last day of the calendar
month during which the Optionee ceases Service. Such right of exercise shall
lapse, and the option shall terminate, upon the expiration of the ten (10)-year
option term or any sooner termination in connection with a Corporate
Transaction. However, the option shall, with respect to any and all option
shares for which it is not exercisable at the time of the Optionee's cessation
of Service, terminate immediately upon such cessation of Service and shall cease
to remain outstanding with respect to those option shares.
4. Except to the limited extent specifically provided above, should the
Optionee cease for any reason to remain in Service before his or her outstanding
option first becomes exercisable for one or more option shares, then that option
shall immediately terminate upon such cessation of Service and shall cease to
remain outstanding.
E. Stockholder Rights. The Optionee shall have none of the rights of a
stockholder with respect to any option shares until such individual shall have
exercised the option and paid the exercise price for those shares.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Should any Corporate Transaction occur while the Optionee remains in
Service, then each outstanding option held by such Optionee under this Salary
Reduction Program shall become exercisable, immediately prior to the
specified effective date of such Corporate Transaction, for all of the shares at
the time subject to such option and may be exercised for any or all of such
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each such option shall terminate
unless assumed by the successor entity or its parent corporation.
B. Upon the Involuntary Termination of the Optionee's Service following a
Change in Control, each outstanding option held by such Optionee under this
Salary Reduction Program shall immediately become exercisable for all of the
shares at the time subject to such option and may be exercised for any or all of
such shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the expiration of the ten (10)-year option term.
C. Option grants under this Salary Reduction Program shall not affect the
Corporation's right to adjust, reclassify, reorganize or change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer any or all of its assets.
ARTICLE SIX
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions below.
A. Consideration
1. Newly Issued Shares shall be issued under the Stock Issuance Program for
one or more of the following items of consideration that the Plan Administrator
may deem appropriate in each individual instance:
(i) full payment in cash or check made payable to the Corporation's
order,
(ii) a promissory note payable to the Corporation's order in one or
more installments, which may be subject to cancellation in whole or in part
upon terms and conditions established by the Plan Administrator, or
(iii) past services rendered to the Corporation or any Parent or
Subsidiary.
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2. Newly Issued Shares must be issued for consideration with a value not
less than eighty-five percent (85%) of the Fair Market Value of such shares at
the time of issuance.
3. Treasury Shares may be issued under the Stock Issuance Program for such
consideration (including one or more of the items of consideration specified
above) as the Plan Administrator may deem appropriate, whether such
consideration is in an amount less than, equal to or greater than the Fair
Market Value of the Treasury Shares at the time of issuance. Treasury Shares
may, in lieu of any cash consideration, be issued subject to such vesting
requirements tied to the Participant's period of future Service or the
Corporation's attainment of specified performance objectives as the Plan
Administrator may establish at the time of issuance.
4. Shares of Common Stock may also, in the Plan Administrator's absolute
discretion, be issued pursuant to an irrevocable election by the Participant to
receive a portion of his or her base salary in shares of Common Stock in lieu of
such base salary. Any such issuance shall be effected in accordance with the
following guidelines:
- On the first trading day in January of the calendar year for which the
election is effective, the portion of base salary subject to such
election shall automatically be applied to the acquisition of Common
Stock by dividing the elected dollar amount by the Fair Market Value per
share of the Common Stock on that trading day. The number of issuable
shares shall be rounded down to the next whole share, and the issued
shares shall be held in escrow by the Secretary of the Corporation as
partly-paid shares until the Participant vests in those shares. The
Participant shall have full stockholder rights, including voting,
dividend and liquidation rights, with respect to all issued shares held
in escrow on his or her behalf, but such shares shall not be assignable
or transferable while they remain unvested.
- Upon completion of each calendar month of Service during the year for
which the election is in effect, the Participant shall vest in
one-twelfth ( 1/12) of the issued shares, and the stock certificate for
those shares shall be released from escrow. All the issued shares shall
immediately vest upon (i) the consummation of a Corporate Transaction or
(ii) the Involuntary Termination of the Participant's Service following a
Change in Control. Should the Participant otherwise cease Service prior
to vesting in one or more monthly installments of the issued shares, then
those unvested shares shall immediately be surrendered to the Corporation
for cancellation, and the Participant shall not be entitled to any cash
payment or other consideration from the Corporation with respect to the
canceled shares and shall have no further stockholder rights with respect
to such shares.
B. Vesting Provisions
1. The shares of Common Stock issued under the Stock Issuance Program
(other than shares issued in lieu of salary) may, in the absolute discretion of
the Plan Administrator, be fully and immediately vested upon issuance or may
vest in installments over the Participant's period of Service. The elements of
the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Stock Issuance Program,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends
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paid on such shares. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued, subject to (i) the same vesting requirements
applicable to the Participant's unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock under the Stock Issuance Program, then
those shares shall be immediately canceled by the Corporation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the canceled shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money promissory note), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such canceled shares. The canceled shares may,
at the Plan Administrator's discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested shares of
Common Stock at the time outstanding under this Stock Issuance Program shall
immediately vest in full and the Corporation's repurchase rights shall
terminate, except to the extent: (i) any such repurchase right is expressly
assigned to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such termination is precluded by other limitations
imposed in the Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable at any time while unvested shares remain outstanding under this
Stock Issuance Program, to provide for the immediate and automatic vesting of
those shares in whole or in part upon the occurrence of a Change in Control. The
Plan Administrator shall also have full power and authority to condition any
such accelerated vesting upon the subsequent termination of the Participant's
Service through an Involuntary Termination effected within a specified period
following the Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing such unvested shares. To the extent an escrow
arrangement is utilized, the unvested shares and any securities or other assets
issued with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant's
interest in such shares (or other securities or assets) vests. Alternatively, if
the unvested shares are issued directly to the Participant, the restrictive
legend on the certificates for such shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR
REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR
IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH
TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A
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STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED , A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Stock Issuance Program. For purposes
of this restriction, the term "transfer" shall include (without limitation) any
sale, pledge, assignment, encumbrance, gift, or other disposition of such
shares, whether voluntary or involuntary. Upon any such attempted transfer, the
unvested shares shall immediately be canceled, and neither the Participant nor
the proposed transferee shall have any rights with respect to such canceled
shares. However, the Participant shall have the right to make a gift of unvested
shares acquired under the Stock Issuance Program to the Participant's spouse or
issue, including adopted children, or to a trust established for such spouse or
issue, provided the transferee of such shares delivers to the Corporation a
written agreement to be bound by all the provisions of the Stock Issuance
Program and the Issuance Agreement applicable to the transferred shares.
ARTICLE SEVEN
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant (including an Optionee or Participant who is an officer of the
Corporation), in the exercise of one or more options granted to such Optionee
under the Discretionary Grant Program or the Salary Reduction Grant Program or
the purchase of one or more shares issued to such Participant under the Stock
Issuance Program, including the satisfaction of any Federal, state and local
income and employment tax obligations arising therefrom, by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or (ii)
permitting the Optionee or Participant to pay the exercise price or purchase
price for the acquired shares in installments over a period of years. The terms
of any loan or installment method of payment (including the interest rate and
terms of repayment) shall be upon such terms as the Plan Administrator specifies
in the applicable option or issuance agreement or otherwise deems appropriate
under the circumstances. Loans or installment payments may be authorized with or
without security or collateral. However, the maximum credit available to the
Optionee or Participant may not exceed the exercise or purchase price of the
acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to stock options, stock appreciation rights or unvested
stock issuances at the time outstanding under the Plan, unless the Optionee or
Participant consents to such amendment. In addition, the Board may not, without
the approval of the Corporation's stockholders, amend the Plan to (i) materially
increase the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted to newly elected or continuing
non-employee Board members under the Automatic Grant Program or the maximum
number of shares for which any one individual participating in the Plan may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances in the aggregate over the term of the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Optionees or
Participants. Effective as of August 15, 1996, the Plan Administrator shall have
the discretion to amend any outstanding agreement
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evidencing a Non-Statutory Option or stock appreciation right granted under the
Discretionary Option Grant or Salary Deduction Grant Programs to provide for
such assignability and transferability of such option or stock appreciation
right as the Plan Administrator in its discretion deems advisable.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Grant Program and the Salary Reduction Grant Program and shares of
Common Stock may be issued under the Stock Issuance Program, which are in excess
of the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
stockholder approval is obtained for a sufficient increase in the number of
shares available for issuance under the Plan. If such stockholder approval is
not obtained within twelve (12) months after the date the first such excess
option grants or excess share issuances are made, then (i) any unexercised
excess options shall terminate and cease to be exercisable and (ii) the
Corporation shall promptly refund the purchase price paid for any excess shares
actually issued under the Plan and held in escrow, together with interest (at
the applicable short term federal rate) for the period the shares were held in
escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of stock options or stock appreciation rights or the direct issuance or
vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income tax and employment tax
withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options (other than the automatic option grants made
pursuant to the Automatic Grant Program) or unvested shares under the Stock
Issuance Program with the right to use shares of Common Stock in satisfaction of
all or part of the Federal, state and local income and employment tax
liabilities (the "Taxes") incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
- Stock Withholding: The holder of the Non-Statutory Option or unvested
shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (up to one hundred percent (100%)) specified by
such holder.
- Stock Delivery: The holder of the Non-Statutory Option or the unvested
shares may be provided with the election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest, one
or more shares of Common Stock previously acquired by such individual
(other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (up to one hundred percent (100%)) specified by
such holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan shall become effective immediately upon approval by the
Corporation's stockholders at the 1994 Annual Meeting.
B. The Plan shall terminate upon the earlier of (i) April 28, 2004 or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued or canceled pursuant to the exercise of options or stock
appreciation rights or the issuance of shares (whether vested or unvested) under
the Plan. If the date of termination is determined under clause (i) above, then
all option grants and unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the instruments evidencing such grants or issuances.
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59
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or stock issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan, the issuance of any shares under the Stock
Issuance Program, and the issuance of Common Stock upon the exercise of the
stock options and stock appreciation rights granted hereunder shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options and
stock appreciation rights granted under it and the Common Stock issued pursuant
to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
Service of the Corporation (or Subsidiary) for any period of specific duration,
and the Corporation (or any Subsidiary retaining the services of such
individual) may terminate such individual's Service at any time and for any
reason, with or without cause.
B-19
60
GLOSSARY
The following definitions shall be in effect under the Plan:
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through any of the following transactions:
- the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with,
the Corporation) of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
- a change in the composition of the Board over a period of thirty-six (36)
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(a) have been Board members continuously since the beginning of such
period or (b) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (a) who were still in office at the time such
election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: a committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
- a merger or consolidation in which the Corporation is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Corporation is incorporated,
- a sale, transfer or other disposition of all or substantially all of the
Corporation's assets in complete liquidation or dissolution of the
Corporation, or
- any reverse merger in which the Corporation is the surviving entity but
in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such merger.
COVERED EMPLOYEE: an individual defined as a "Covered Employee" under
Section 162(m) of the Code and the regulations thereunder.
EMPLOYEE: an individual who performs services while in the employ of the
Corporation or one or more Subsidiaries, subject to the control and direction of
the employer entity not only as to the work to be performed but also as to the
manner and method of performance.
FAIR MARKET VALUE: the closing selling price per share on the date in
question on the NASDAQ National Market. If there is no reported closing selling
price for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
- the direct or indirect acquisition by any person or related group of
persons of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
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61
- more than fifty percent (50%) of the acquired securities are accepted
from holders other than the officers and directors of the Corporation
subject to the short-swing profit restrictions of Section 16 of the 1934
Act.
INCENTIVE OPTION: a stock option which satisfies the requirements of Code
Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any Optionee or
Participant which occurs by reason of:
- such individual's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
- such individual's voluntary resignation following (A) a change in his or
her position with the Corporation which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any
non-discretionary and objective-standard incentive payment or bonus
award) by more than five percent (5%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or dishonesty
by the Optionee or Participant, any unauthorized use or disclosure by such
individual of confidential information or trade secrets of the Corporation or
any Parent or Subsidiary, or any other intentional misconduct by such individual
adversely affecting the business or affairs of the Corporation in a material
manner. The foregoing definition shall not be deemed to be inclusive of all the
acts or omissions which the Corporation or any Parent or Subsidiary may consider
as grounds for the dismissal or discharge of any Optionee, Participant or other
individual in the Service of the Corporation.
NEWLY ISSUED SHARES: shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock.
1934 ACT: the Securities and Exchange Act of 1934, as amended.
NON-STATUTORY OPTION: a stock option not intended to meet the requirements
of Code Section 422.
OPTIONEE: any person to whom an option is granted under the Discretionary
Grant, Automatic Grant or Salary Reduction Grant Program in effect under the
Plan.
PARENT: each corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation, provided each such corporation
(other than the Corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in such
chain.
PARTICIPANT: any person who receives a direct issuance of Common Stock
under the Stock Issuance Program in effect under the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
PLAN ADMINISTRATOR: the committee of two (2) or more non-employee Board
members appointed by the Board to administer the Discretionary Option Grant, the
Salary Reduction and the Stock Issuance Programs.
SERVICE: the provision of services on a periodic basis to the Corporation
or any Parent or Subsidiary in the capacity of an Employee, a non-employee
member of the board of directors or an independent consultant or advisor, except
to the extent otherwise specifically provided in the applicable stock option or
stock issuance agreement.
SUBCOMMITTEE: a subcommittee of the Committee comprised solely of two or
more "outside directors" within the meaning of Section 162(m) of the Code and
the regulations thereunder.
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SUBSIDIARY: each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in any other corporation in
such chain.
TAKE-OVER PRICE: the greater of (i) the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (ii) the highest reported price per share
of Common Stock paid by the tender offer or in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.
TREASURY SHARES: shares of Common Stock reacquired by the Corporation and
held as treasury shares.
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THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DIGITAL MICROWAVE CORPORATION
FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 8, 1996
The undersigned stockholder of DIGITAL MICROWAVE CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated July 3, 1996, and the 1996 Annual
Report to Stockholders, and hereby appoints Charles D. Kissner, Carl A. Thomsen
and Carol A. Goudey or any one of them, proxies, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 1996 Annual Meeting of Stockholders of DIGITAL MICROWAVE
CORPORATION to be held on August 8, 1996 at 3:00 p.m., local time, at Techmart,
5201 Great America Parkway, Santa Clara, California, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE ADOPTION OF THE
DIGITAL MICROWAVE CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
AMENDMENT AND RESTATEMENT OF THE DIGITAL MICROWAVE CORPORATION 1994 STOCK
INCENTIVE PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS OF DIGITAL MICROWAVE CORPORATION, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
64
FOR WITHHOLD
all nominees AUTHORITY
listed below (except to vote for all
as indicated) nominees listed below
1. ELECTION OF OFFICERS
IF YOU WISH TO WITHHOLD
AUTHORITY TO VOTE FOR ANY [ ] [ ]
INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S
NAME IN THE LIST BELOW.
NOMINEES: CLIFFORD H. HIGGERSON RICHARD C. ALBERDING BILLY B. OLIVER
CHARLES D. KISSNER JAMES D. MEINDL
2. PROPOSAL TO RATIFY AND APPROVE
THE ADOPTION OF THE DIGITAL
MICROWAVE CORPORATION 1996 FOR AGAINST ABSTAIN
EMPLOYEE STOCK PURCHASE PLAN: [ ] [ ] [ ]
3. PROPOSAL TO APPROVE THE AMENDMENT
AND RESTATEMENT OF THE DIGITAL
MICROWAVE CORPORATION 1994 STOCK
INCENTIVE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR FOR AGAINST ABSTAIN
ISSUANCE THEREUNDER: [ ] [ ] [ ]
4. PROPOSAL TO RATIFY THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF
DIGITAL MICROWAVE CORPORATION FOR FOR AGAINST ABSTAIN
FISCAL 1997: [ ] [ ] [ ]
Signature(s)_________________________________________ Dated: _____________, 1996
This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
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FOLD AND DETACH HERE