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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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 Section 240.14a-11(c) or Section 240.14a-12
HMT TECHNOLOGY CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(3) Per unit price or other underlying value of transaction computed
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
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LOGO
HMT TECHNOLOGY CORPORATION
1055 PAGE AVENUE
FREMONT, CA 94538
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 20, 1998
TO THE STOCKHOLDERS OF HMT TECHNOLOGY CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of HMT
TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), will be held on
Monday, July 20, 1998 at 9:00 a.m., local time, at the Company's executive
offices at 47700 Kato Road, Fremont, California 94538 for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 2,500,000 shares.
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for its fiscal year ending March 31, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on June 1, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
LOGO
Peter S. Norris
Vice President, Finance, Chief
Financial Officer,
Treasurer and Assistant Secretary
Fremont, California
June 19, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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HMT TECHNOLOGY CORPORATION
1055 PAGE AVENUE
FREMONT, CA 94538
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JULY 20, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of HMT
Technology Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on July 20, 1998, at 9:00 a.m., local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Company's executive offices at 47700 Kato
Road, Fremont, California. The Company intends to mail this proxy statement and
accompanying proxy card on or about June 19, 1998 to all stockholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of the Company's Common Stock (the
"Common Stock") beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company or, at the Company's request, CIC Express
Service, Inc. ("CIC"). No additional compensation will be paid to directors,
officers or other regular employees for such services, but CIC will be paid its
customary fee, estimated to be about $30,000, if it renders solicitation
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on June 1,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on June 1, 1998 the Company had outstanding and entitled to
vote 43,416,320 shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 1055 Page
Avenue, Fremont, California 94538, a written notice of revocation or a duly
executed proxy
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bearing a later date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than February 19, 1999 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. Stockholders are also advised to
review the Company's By-laws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are currently seven Board positions authorized by resolution of the
Board in accordance with the Company's By-laws. Neil M. Garfinkel is not
standing for re-election as a director of the Company. By resolution of the
Board in accordance with the Company's By-laws, the Board was reduced to six
Board positions effective upon the Annual Meeting. There are six nominees for
the six Board positions. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company, three directors
having been elected by the stockholders, and three directors, Donald P. Beadle,
Richard S. Love and Harry G. Van Wickle, having been elected by the Board.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the six nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
NOMINEES FOR ELECTION FOR A ONE-YEAR TERM EXPIRING AT THE 1999 ANNUAL MEETING
The names of the nominees and certain information about them are set forth
below:
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
Ronald L. Schauer...................... 54 President, Chief Executive Officer and
Chairman of the Board
Donald P. Beadle....................... 62 Director
Bruce C. Edwards....................... 44 Director
Walter G. Kortschak.................... 39 Director
Richard S. Love........................ 60 Director
Harry G. Van Wickle.................... 51 Director
Ronald L. Schauer joined the Company as President and Chief Executive
Officer and a member of the Board of Directors in February 1994. From June 1993
to February 1994, he was the owner, President and Chief Executive Officer of
PAWS, Inc., a plastics manufacturing company. From June 1991 to June 1993, he
was President and Chief Operating Officer of Magnetic Data, Inc., a contract
manufacturer of disk drives and computers. From June 1983 to May 1991, he was
Corporate Vice President and General Manager of the Memory Products Division of
Stolle Corporation, a wholly owned subsidiary of Alcoa, a diversified aluminum
manufacturing company. From 1972 to May 1983, Mr. Schauer held various technical
and general management positions in the Data Recording Products Divisions at 3M
Company, a diversified manufacturing company. Mr. Schauer holds a B.S. in
Electrical Engineering from South Dakota State University.
Donald P. Beadle joined the Company's Board of Directors in May 1998. Mr.
Beadle spent 34 years at National Semiconductor Corp., a semiconductor
manufacturing company ("NSC"), to his retirement in
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1994. Since that time, he has been a consultant to various companies, including
as the acting Vice President, Sales, Marketing and Sales Support for Interwave
Communications. From 1991 to 1994, Mr. Beadle was the Senior Vice
President/Managing Director, Far East, of NSC, reporting to the Chief Executive
Officer of NSC. Mr. Beadle's previous positions with NSC included Senior Vice
President, Worldwide Sales and Marketing of NSC and Managing Director, Europe.
Bruce C. Edwards joined the Company's Board of Directors in January 1996.
Since February 1996, he has been President, Chief Executive Officer and a
director of Powerwave Technologies, Inc., a manufacturer of power amplifiers for
wireless telecommunications applications. Mr. Edwards was employed by AST
Research, Inc., a computer company, as Senior Vice President and Chief Financial
Officer from 1988 until July 1994 and as Executive Vice President, Chief
Financial Officer and a director from July 1994 to December 1995. Mr. Edwards is
also a director of Diamond Multimedia Systems, Inc.
Walter G. Kortschak joined the Company's Board of Directors in November
1995. Since August 1991, he has been a General Partner of Summit Partners, L.P.,
a venture capital partnership, where he has been employed since June 1989. From
June 1986 to June 1989, he was a Vice President at Crosspoint Venture Partners,
a venture capital partnership. He is also a director of Aspec Technology, Inc.,
Diamond Multimedia Systems, Inc., Simulation Sciences, Inc., SteriGenics
International, Inc. and several privately held companies.
Richard S. Love joined the Company's Board of Directors in May 1998. Mr.
Love retired from Hewlett-Packard Company, a computer engineering company
("Hewlett Packard"), in March 1997 after 35 years. Mr. Love was most recently
Vice President and General Manager of the Computer Order Fulfillment and
Manufacturing Group responsible for worldwide manufacturing and distribution of
networked computer systems and workstations.
Harry G. Van Wickle joined the Company's Board of Directors in May 1998.
Since December 1997, Mr. Van Wickle has been President and Chief Executive
Officer of Intarsia Corporation, an integrated electronic component design and
manufacturing company ("Intarsia"). Mr. Van Wickle is a twenty-six year veteran
in semiconductor and disk drive manufacturing. From 1974 to 1992, Mr. Van Wickle
held top management positions at Texas Instruments, Fairchild Semiconductor,
AT&T and Micropolis Corporation. Since returning to the United States in 1992
and prior to joining Intarsia, he has been a Vice President in Operations at
Dastek, a subsidiary of Komag, Vice President of Manufacturing at Cypress
Semiconductor and President of Alphatec Electronics Corporation.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 31, 1998, the Board of Directors held
six meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Messrs. Edwards and Kortschak. It met twice during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. In connection with the award of stock options to employees and
consultants, the Committee has delegated limited authority to the Company's
Chief Executive Officer for making such awards. The Compensation Committee is
currently composed of two non-employee directors: Messrs. Kortschak and Edwards.
Mr. Edwards joined the Compensation Committee in August 1997 following the
resignation of a
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prior director who served on the committee until his resignation from the
Company's Board of Directors in August 1997. The Compensation Committee met
twice during the last fiscal year.
During the fiscal year ended March 31, 1998, each current director attended
75% or more of the aggregate of the requisite meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1996 Equity Incentive Plan (the "Plan") was adopted by the
Board of Directors (the "Board") in January 1996 and approved by the
stockholders in February 1996. As of March 31, 1998, there were 3,000,000 shares
of Common Stock reserved for issuance under the Plan.
As of May 1, 1998, options (net of cancelled or expired awards) covering an
aggregate of 1,725,000 shares of Common Stock had been granted under the Plan,
and only 899,108 shares (plus any shares that might in the future be returned to
the Plan as a result of cancellations or expiration of options) remained
available for future grant under the Plan. During the last fiscal year, under
the Plan, the Company has granted to all current executive officers as a group
options to purchase 105,000 shares at an exercise price of $11.0625 per share,
and to all employees (excluding current executive officers) as a group options
to purchase 1,620,000 shares at exercise prices of $10.00 to $18.50 per share.
For further information regarding stock option grants, see "Stock Option Grants
and Exercises."
In May 1998, the Board approved an amendment to the Plan, subject to
stockholder approval, to increase the number of shares authorized for issuance
under the Plan by 2,500,000 shares from 3,000,000 shares to 5,500,000 shares.
This amendment is intended to afford the Company greater flexibility in
providing employees with stock incentives and ensures that the Company can
continue to provide such incentives at levels determined appropriate by the
Board.
Also in May 1998, the Board amended the Plan, subject to stockholder
approval, generally to permit the Company, under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), to continue to be able to deduct
as a business expense certain compensation attributable to the exercise of stock
options and stock appreciation rights granted under the Plan. Section 162(m)
denies a deduction to any publicly held corporation for certain compensation
paid to specified employees in a taxable year to the extent that the
compensation exceeds $1,000,000 for any covered employee. See "Federal Income
Tax Information" below for a discussion of the application of Section 162(m). In
light of the Section 162(m) requirements, the Board has amended the Plan,
subject to stockholder approval, to include a limitation providing that no
employee may be granted options and stock appreciation rights under the Plan
during a calendar year to purchase in excess of 300,000 shares of Common Stock.
Previously, no such formal limitation was placed on the number of shares
available for option grants and stock appreciation rights to any individual.
Stockholders are requested in this Proposal 2 to approve the Plan, as
amended. If the stockholders fail to approve this Proposal 2, the Company may
experience difficulty in attracting and retaining employees and consultants and
in motivating them to exert their best efforts for the success of the Company.
Further, stock options granted under the Plan after the Annual Meeting may not
qualify as performance-based compensation and, in some circumstances, the
Company may be denied a business expense deduction for compensation recognized
in connection with the exercise of these stock options. The affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy and entitled to vote at the meeting will be required to approve the Plan,
as amended. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
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THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan, as amended, are outlined below:
GENERAL
The Plan provides for the grant of incentive stock options, stock
appreciation rights, nonstatutory stock options, stock bonuses and restricted
stock purchase awards (collectively "Stock Awards"). To date only incentive
stock options and nonstatutory stock options have been awarded under the Plan.
Incentive stock options granted under the Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
Nonstatutory stock options granted under the Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information" for
a discussion of the tax treatment of incentive and nonstatutory stock options.
Stock appreciation rights granted under the Plan may be tandem rights,
concurrent rights or independent rights.
PURPOSE
The Plan provides a means by which selected employees and directors of and
consultants to the Company and its affiliates could be given an opportunity to
purchase stock in the Company, to assist in retaining the services of employees
holding key positions, to secure and retain the services of persons capable of
filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company. Approximately 2,144 of the
Company's approximately 2,914 employees, directors and consultants are eligible
to participate in the Plan.
ADMINISTRATION
The Plan is administered by the Board. The Board has the power to construe
and interpret the Plan and, subject to the provisions of the Plan, to determine
the persons to whom and the dates on which Stock Awards will be granted, the
number of shares to be subject to the Stock Award, the time or times during the
term of each Stock Award within which all or a portion of such Stock Award may
be exercised, the exercise price, the type of consideration and other terms of
the Stock Award. The Board is authorized to delegate administration of the Plan
to a committee of two or more members of the Board, all of the members of which
committee shall be "non-employee directors" as defined in Rule 16b-3, or any
other applicable rules, regulations or interpretations of the Securities and
Exchange Commission, and may also be, in the discretion of the Board, outside
directors in accordance with Code Section 162(m). The Board or committee may
delegate to a committee of one or more members of the Board the authority to
grant Stock Awards to eligible persons who are not then subject to Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and/or who
are either (i) not then employees covered by Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and are not expected to be covered
by Section 162(m) of the Code at the time of recognition of income resulting
from such Stock Award, or (ii) not persons with respect to whom the Company
wishes to avoid the application of Section 162(m) of the Code. The Board may
abolish any such committee at any time and revest in the Board the
administration of the Plan. The Board has delegated administration of the Plan
to the Compensation Committee of the Board and also to a committee of one
director for the making of grants to non-officer employees of the Company. As
used herein with respect to the Plan, the "Board' also refers to these
committees as appropriate.
STOCK SUBJECT TO THE PLAN
If any Stock Award granted under the Plan expires or otherwise terminates
in whole or in part without having been exercised in full, the Common Stock not
acquired under such Stock Award will revert to and again become available for
issuance under the Plan. Shares of stock subject to exercised stock appreciation
rights shall not again become available for issuance under the Plan. The stock
subject to the Plan may be unissued shares or reacquired shares, bought on the
market or otherwise.
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ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant thereto
may be granted under the Plan only to employees (including officers and
employee-directors) of the Company and its affiliates. Employees (including
officers), directors and consultants are eligible to receive Stock Awards other
than incentive stock options and stock appreciation rights appurtenant thereto.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option at the date of grant, and the term of the option
does not exceed five years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least 100% of the fair
market value of such stock at the date of grant. To the extent an option holder
would have the right in any calendar year to exercise for the first time one or
more incentive stock options for shares having an aggregate fair market value
(under all plans of the Company and its affiliates and determined for each share
as of the date the option to purchase the shares was granted) in excess of
$100,000, any such excess options will be treated as nonstatutory stock options.
No person may be granted options and stock appreciation rights appurtenant
thereto covering more than 300,000 shares of Common Stock per calendar year.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
Exercise Price; Payment. The exercise price for an incentive stock option
shall not be less than 100% of the fair market value of the Common Stock on the
date of the option grant; the exercise price for a nonstatutory stock option
shall not be less than 85% of the fair market value of the Common Stock on the
date of option grant. At May 31, 1998, the closing price of the Company's Common
Stock as reported on the Nasdaq National Market System was $11.625 per share.
The Board has the authority, with the consent of affected option holders,
to reprice outstanding options and to offer option holders the opportunity to
replace outstanding options with new options for the same or a different number
of shares. To the extent required by Section 162(m) of the Code, an option
repriced under the Plan is deemed to be canceled and a new option granted. Both
the option deemed to be canceled and the new option deemed to be granted will be
counted against the maximum awards of options and stock appreciation rights
permitted to be granted pursuant to the maximum share limitation approved by
stockholders.
The exercise price of options granted under the Plan must be paid either:
(a) in cash at the time the option is exercised; or (b) at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment or other arrangement, or (c) in any other form of legal
consideration acceptable to the Board.
Exercise/Vesting. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. Shares of stock
covered by currently outstanding options under the Plan typically vest monthly
at the rate of 1/48th of the total number of shares subject to the option (25%
per year) during the option holder's employment or services as a director or
consultant. Shares covered by options granted in the future under the Plan may
be subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the Plan may permit exercise prior to vesting, but any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company or to
any other restriction the Board determines to be appropriate. To the extent
provided by the terms of an option, an option holder may satisfy any federal,
state or local tax withholding obligation relating to the exercise of such
option by a cash payment upon exercise, by authorizing the Company to withhold a
portion of the stock otherwise issuable to the option holder, by delivering
already-owned and unencumbered stock of the Company or by a combination of these
means.
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Term. The maximum term of options under the Plan is 10 years. An option
holder whose relationship with the Company or any related corporation ceases for
any reason (other than by death or permanent and total disability) may exercise
options in the period specified by the Board following such cessation. Options
may be exercised for up to twelve months after an option holder's relationship
with the Company and its affiliates ceases due to disability, and up to eighteen
months following an option holder's death (unless such options expire sooner or
later by their terms).
Restrictions on Transfer. No stock option may be transferred by the option
holder other than by will or the laws of descent or distribution, provided that
the Board of Directors may grant a nonstatutory stock option that is
transferable, and provided further that an option holder may designate a
beneficiary who may exercise the option following the option holder's death. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer that the
Board deems appropriate.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Payment. The purchase price under a restricted stock purchase agreement
shall be such amount as the Board shall determine and designate in such
agreement, but in no event shall the purchase price be less than 85% of the fair
market value of the Common Stock on the date such award is made. However, stock
bonuses may be awarded to eligible participants in consideration for past
services actually rendered to the Company without a purchase payment.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement under the Plan must be paid either (a) in cash at the time of
purchase; or (b) at the discretion of the Board, according to a deferred payment
or other arrangement or (c) in any other form of legal consideration acceptable
to the Board. The Board may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
Vesting. Shares of stock sold or awarded under the Plan may, but need not
be, subject to a repurchase option in favor of the Company in accordance with a
vesting schedule as determined by the Board. The Board has the power to
accelerate the vesting of stock acquired pursuant to a restricted stock purchase
agreement under the Plan.
Restrictions on Transfer. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred except where such assignment is required
by law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Plan authorizes three
types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights must
be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
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under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
The Board of Directors has the authority, with the consent of affected
holders, to reprice outstanding stock appreciation rights and to offer holders
the opportunity to replace outstanding stock appreciation rights with new stock
appreciation rights for the same or a different number of shares. To the extent
required by Section 162(m) of the Code, a stock appreciation right repriced
under the Plan is deemed to be canceled and a new stock appreciation right
granted. Both the stock appreciation right deemed to be canceled and the new
stock appreciation right deemed to be granted will be counted against the
maximum award of options and stock appreciation rights permitted to be granted
pursuant to any maximum limit established in order to comply with Section 162(m)
of the Code.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Plan or subject to any
Stock Award granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and Stock Awards outstanding
thereunder will be appropriately adjusted as to the type of security and the
maximum number of shares subject to such plan and the type of security, number
of shares and price per share of stock subject to such outstanding Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Plan provides that, in the event of: (1) a dissolution, liquidation or
sale of substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) any other capital reorganization in which more than
50% of the shares of the Company entitled to vote are exchanged, then: (i) any
surviving or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards for those outstanding
under the Plan; or (ii) such Stock Awards shall continue in full force and
effect. If any surviving or acquiring corporation refuses to assume or
substitute similar stock awards for outstanding Stock Awards granted under the
Plan, then for outstanding Stock Awards held by any person then performing
services as an employee, director or consultant, the time during which such
Stock Awards may be exercised shall be accelerated and such Stock Awards
terminated if not exercised prior to such event. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed as
an antitakeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan without stockholder approval or
ratification at any time or from time to time. The Plan will terminate January
22, 2006 unless sooner terminated by the Board.
The Board may amend the Plan at any time or from time to time. The Board
may amend the terms of any already granted option or stock appreciation right at
any time or from time to time (subject to the consent of the holder). The Board
may make such amendments without stockholder approval, provided no amendment of
the Plan will be effective unless approved by the stockholders of the Company
within twelve months before or after its adoption by the Board if the amendment
will (i) increase the number of shares reserved for Stock Awards under the Plan,
(ii) modify the requirements as to eligibility for participation in the Plan (to
the extent such modification requires stockholder approval in order for the Plan
to satisfy the requirements of Section 422 of the Code), or (iii) modify the
Plan in any other way if such modification requires stockholder
8
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approval in order for the Plan to satisfy the requirements of Section 422 of the
Code, the requirements of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Board may submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments intended to satisfy the requirements of Section 162(m) of the Code
regarding the exclusion of performance-based compensation from the limitation on
the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the option holder
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the option
holder's alternative minimum tax liability, if any.
If an option holder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
option holder upon exercise of the option, any gain or loss on a disposition of
such stock will be a mid-term or long-term capital gain or loss. Generally, if
the option holder disposes of the stock before the expiration of either of these
holding periods (a "disqualifying disposition"), at the time of disposition, the
option holder will realize taxable ordinary income equal to the lesser of (a)
the excess of the stock's fair market value on the date of exercise over the
exercise price, or (b) the option holder's actual gain, if any, on the purchase
and sale. The option holder's additional gain, or any loss, upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term, mid-term or short-term depending on how long the option holder holds
the stock. Long-term or mid-term capital gains are generally subject to lower
tax rates than ordinary income. Slightly different rules may apply to option
holders who are subject to Section 16 of the Exchange Act or who acquire stock
subject to certain repurchase options.
To the extent the option holder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Plan generally have the following federal income tax consequences:
There are no tax consequences to the option holder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the option holder normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. Generally, with respect to employees, the
Company is required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the option holder.
Upon disposition of the stock, the option holder will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such stock plus any amount recognized as ordinary income upon
exercise of the option. Such gain or loss will be long-term, mid-term or
short-term depending on how long the option holder held the stock. Slightly
different rules may apply to option holders who are subject to Section 16(b) of
the Exchange Act or who acquire stock subject to certain repurchase rights.
Restricted Stock Purchase Awards and Stock Bonuses. Recipients of
restricted stock purchase awards and stock bonuses granted under the Incentive
Plan generally face the following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value
over the purchase price, if any. However, to the extent the stock is
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subject to certain types of vesting restrictions, the taxable event will be
delayed until the vesting restrictions lapse unless the recipient elects to be
taxed on receipt of the stock. With respect to employees, the Company is
generally required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the recipient. Upon
disposition of the stock, the recipient will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon acquisition
(or vesting) of the stock. Such gain or loss will be long-term, mid-term or
short-term depending on how long the stock was held from the date ordinary
income was measured. Slightly different rules may apply to recipients who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code and the satisfaction of a reporting obligation,
the Company will be entitled to a business expense deduction equal to the
taxable ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to awards
granted in the future under the Plan, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation, provided that the option is granted by a
compensation committee comprised solely of "outside directors" and either: (i)
the plan contains a per-employee limitation on the number of shares for which
options or stock appreciation rights may be granted during a specified period,
the per-employee limitation is approved by the stockholders, and the exercise
price of the option is no less than the fair market value of the stock on the
date of grant; or (ii) the option or stock appreciation right is granted (or
exercisable) only upon the achievement (as certified in writing by the committee
of "outside directors") of an objective performance goal established in writing
by the committee of "outside directors" while the outcome is substantially
uncertain, and the option is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors;" and
(ii) the purchase price of the award is no less than the fair market value of
the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if: (i) the award is granted by
a compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
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PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ending March 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Coopers & Lybrand
L.L.P. has audited the Company's financial statements since December 1995.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Coopers & Lybrand L.L.P. as
the Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
L.L.P. to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit Committee
and the Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board in their discretion may
direct the appointment of different independent auditors at any time during the
year if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Coopers & Lybrand L.L.P. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of May 31, 1998 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
Summit Partners, L.P.(2).................................... 4,420,940 10.18
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Walter G. Kortschak(2)...................................... 4,420,940 10.18
Donald P. Beadle............................................ -- --
Bruce C. Edwards(3)......................................... 34,500 *
Neil M. Garfinkel........................................... -- --
Richard S. Love............................................. -- --
Ronald L. Schauer(4)........................................ 2,052,250 4.73
Harry G. Van Wickle......................................... -- --
Ronald J. Buschur(5)........................................ 654,826 1.51
George J. Hall(6)........................................... 435,125 1.00
Michael A. Russak(7)........................................ 504,754 1.16
Peter S. Norris(8).......................................... 465,769 1.07
Jon R. van Bronkhorst(9).................................... 90,887 *
All directors and executive officers as a group (12 8,659,051 19.94
persons)(10)..............................................
- ---------------
* Less than one percent (1%).
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Beneficial ownership also includes shares
of stock subject to options and warrants currently exercisable or
convertible within 60 days of the date of this table. Applicable
percentages are based on 43,416,320 shares outstanding on May 31, 1998,
adjusted as required by rules promulgated by the SEC.
(2) Includes (i) 2,035,715 shares beneficially owned by Summit Ventures III,
L.P. ("Summit III"), (ii) 2,035,715 shares beneficially owned by Summit
Ventures IV, L.P. ("Summit IV"), (iii) 76,226 shares beneficially owned by
Summit Investors II, L.P. ("Summit Investors II") and (iv) 273,284 shares
beneficially owned by Summit Subordinated Debt Fund, L.P. ("Summit Sub Debt
Fund"). Mr. Kortschak, a director of the Company, is a general partner of
Summit Partners, L.P., the general partner of Summit III, Summit IV, Summit
Investors II and Summit Sub Debt Fund. Mr. Kortschak disclaims beneficial
ownership of such shares held by Summit III, Summit IV, Summit Investors II
and Summit Sub Debt Fund, except to the extent of his pecuniary interest
therein.
(3) Represents 34,500 shares held by Bruce C. Edwards and Susan E. Edwards, as
co-trustees of the Bruce C. Edwards and Susan E. Edwards Living Trust u/a/d
06/26/91 ("Edwards Living Trust"). Includes 17,437 shares that are subject
to a right of repurchase in favor of the Company that expires ratably
beginning January 1997 through January 2000.
(4) Includes 1,791,270 shares held by The Schauer Living Trust under agreement
dated March 15, 1996 ("Schauer Living Trust"). Mr. Schauer is a co-trustee
of the Schauer Living Trust. Also represents
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127,365 shares held by the Ronald L. Schauer 1997 Grantor Retained Annuity
Trust and 127,365 shares held by the Marlys A. Schauer 1997 Grantor
Retained Annuity Trust ("Marlys Schauer Trust"). Marlys A. Schauer, the
beneficiary of the Marlys Schauer Trust, is the spouse of Mr. Schauer. Mr.
Schauer disclaims beneficial ownership of the shares held in the Marlys
Schauer Trust. Includes 632,949 shares that are subject to a right of
repurchase in favor of the Company that expires ratably through November
1999 and 6,250 shares Mr. Schauer has the right to acquire pursuant to an
option exercisable within 60 days of May 31, 1998.
(5) Includes 448,440 shares held by The Buschur Living Trust under agreement
dated March 11, 1996 ("Buschur Living Trust"), 81,473 shares held by the
Ronald J. Buschur 1997 Grantor Retained Annuity Trust, 81,473 shares held
by The Lisa A. Buschur 1997 Grantor Retained Annuity Trust ("Lisa Buschur
Trust"), 19,220 shares held by The Ryan Buschur 1996 Irrevocable Trust
under agreement dated February 9, 1996 ("Ryan Buschur Trust") and 19,220
shares held by The Lynsey Buschur 1996 Irrevocable Trust under agreement
dated February 6, 1996 ("Lynsey Buschur Trust"). Mr. Buschur is a
co-trustee of the Buschur Living Trust. Lisa A. Buschur, the beneficiary of
the Lisa Buschur Trust, is the spouse of Mr. Buschur. Ryan Buschur, the
beneficiary of the Ryan Buschur Trust, and Lynsey Buschur, the beneficiary
of the Lynsey Buschur Trust, are the children of Mr. Buschur. Mr. Buschur
disclaims beneficial ownership of the shares held in the Lisa Buschur
Trust, the Ryan Buschur Trust and the Lynsey Buschur Trust. Includes
174,569 shares that are subject to a right of repurchase in favor of the
Company that expires ratably through November 1999 and 5,000 shares Mr.
Buschur has the right to acquire pursuant to an option exercisable within
60 days of May 31, 1998.
(6) Includes 404,625 shares held by The George J. Hall Family Trust ("Hall
Family Trust") and 25,500 shares held by The Anne T. Hall Foundation ("Hall
Foundation"). Mr. Hall is a co-trustee of the Hall Family Trust and trustee
of the Hall Foundation. Mr. Hall disclaims beneficial ownership of the
shares held in the Hall Foundation. Includes 174,569 shares that are
subject to a right of repurchase in favor of the Company that expires
ratably through November 1999 and 5,000 shares Mr. Hall has the right to
acquire pursuant to an option exercisable within 60 days of May 31, 1998.
(7) Includes 499,119 shares held by The Russak Living Trust U/A/D under
agreement dated May 31, 1996 ("Russak Living Trust"). Mr. Russak is
co-trustee of the Russak Living Trust. Includes 635 shares held by Dr.
Russak's spouse, 174,569 shares that are subject to a right of repurchase
in favor of the Company that expires ratably through November 1999 and
5,000 shares Mr. Russak has the right to acquire pursuant to an option
exercisable within 60 days of May 31, 1998.
(8) Includes 141,192 shares that are subject to a right of repurchase in favor
of the Company that expires ratably through November 1999 and 5,000 shares
Mr. Norris has the right to acquire pursuant to an option exercisable
within 60 days of May 31,1988.
(9) Includes 90,887 shares Mr. van Bronkhorst has the right to acquire pursuant
to an option exercisable within 60 days of May 31,1988.
(10) Includes 1,297,848 shares that are subject to a right of repurchase in
favor of the Company that expires ratably through November 1999, 17,437
shares that are subject to a right of repurchase in favor of the Company
that expires ratably through January 2000, and 26,250 shares issuable upon
the exercise of options within 60 days of May 31,1988.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
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 (the "SEC") initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a 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
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March 31, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with.
MANAGEMENT
Set forth below is information regarding current executive officers of the
Company:
NAME AGE POSITION
---- --- --------
Ronald L. Schauer.................... 54 President, Chief Executive Officer and
Chairman of the Board
Ronald J. Buschur.................... 34 Vice President, Quality Assurance
George J. Hall....................... 53 Vice President, Operations
Peter S. Norris...................... 47 Vice President, Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Michael A. Russak, Ph.D.............. 51 Vice President, Research and Development
Biographical information about Mr. Schauer is set forth under Proposal 1 above.
Ronald J. Buschur joined the Company as Director of Quality Systems in June
1994 and was appointed Vice President, Quality Assurance in February 1995. From
December 1993 to June 1994, he was a Customer Account Manager at StorMedia, a
thin-film disk manufacturer. From July 1993 to December 1993, he was a Supplier
Accounts Manager at Maxtor, a disk drive company. From May 1987 to July 1993, he
held various managerial positions at Digital Equipment Corporation, a computer
manufacturer. Mr. Buschur holds a B.A. in Business Administration and Management
from the University of Phoenix and an Associate Degree in Electrical Engineering
Technology from ITT Technical Institute.
George J. Hall joined the Company as Vice President, Operations in February
1995. From December 1990 to February 1995, he was General Manager of the Rigid
Media Division of Sequel, Inc., a media drive company. From 1988 to 1989, he was
Director of Operations at Seagate Magnetics, a media manufacturer. From 1985 to
1988, he was employed in development of rigid disk media for vertical recording
at Censtor Corporation, a thin film media/head company. From 1983 to 1985, he
was Vice President of Operations of Domain Technology, a thin film manufacturer,
which he co-founded. Prior to 1983, he held various positions relating to the
manufacture of rigid disk media at IBM Corporation, a computer company ("IBM").
Mr. Hall holds a B.S. in Industrial Technology from San Jose State University.
Peter S. Norris joined the Company as Vice President, Finance, Chief
Financial Officer and Treasurer in December 1995. From 1975 to December 1995, he
held various positions at General Instrument Corporation, an electronics
company, most recently as Assistant Treasurer since 1981. Mr. Norris holds a
B.A. in Economics from Upsala College.
Michael A. Russak joined the Company as Vice President, Research and
Development in August 1993. From October 1988 to August 1992, he was a manager
at the Research Division of IBM Corporation. He then transferred to IBM's
Storage Products Division in San Jose, California in 1992. Dr. Russak holds a
B.S. in Ceramic Engineering and a Ph.D. in Materials Science from Rutgers
University.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors are paid $1,500 per meeting for attendance at
meetings of the Board of Directors and $500 per meeting for attendance at
meetings of any committee thereof. In the fiscal year ended March 31, 1998, the
total cash compensation paid to non-employee directors was $24,500. Directors
are reimbursed for reasonable out-of-pocket expenses incurred in connection with
attendance at such meetings in accordance with Company policy.
Each non-employee director of the Company (other than employees or
affiliates of Summit Partners) receives stock options under the 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") as
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compensation for services of the Board of Directors. Option grants under the
Directors' Plan are automatic and non-discretionary. The Directors' Plan
provides for the grant of an option to purchase 10,000 shares of Common Stock to
each person who is first elected as a non-employee director after the plan's
adoption date. Each director who continues to serve as a non-employee director
is granted an additional option to purchase 2,500 shares of Common Stock on the
anniversary of the date of his or her initial grant or annually commencing with
the fourth anniversary of the plan's adoption date. During the last fiscal year,
no options to purchase shares of the Company's Common Stock were granted under
the Directors' Plan. As of March 31, 1998, no options had been exercised under
the Directors' Plan.
The 1996 Equity Incentive Plan provides for grants of incentive stock
options to employees (including officers and employee directors) and
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees (including officers and employee
directors). The Plan is administered by the Compensation Committee, which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
Restricted stock purchase awards granted under the Plan may be granted pursuant
to a repurchase option in favor of the Company in accordance with a service
vesting schedule determined by the Board. During the last completed fiscal year,
860 employees and consultants received options to purchase 1,699,000 shares of
the Company's Common Stock. As of March 31, 1998, 8,158 options had been
exercised under the Plan.
COMPENSATION OF EXECUTIVE OFFICERS
BONUS PLAN. The Company has a discretionary bonus program for certain
designated key employees of the Company, including all executive officers,
pursuant to which such employees are paid cash bonuses based upon the attainment
of certain specified corporate goals for the year established by the Board of
Directors. The amount of the cash bonus to which each such employee is entitled
is determined by the Board.
PROFIT SHARING PLAN. In May 1996, the Board of Directors approved an
incentive-based profit sharing plan for employees of the Company, including all
executive officers. Under this plan, employees are paid cash bonuses on a
quarterly basis based upon the attainment of certain specified corporate goals
determined by the Board of Directors.
In addition to cash compensation, the Company's executive officers are
eligible to receive stock options under the Employee Stock Purchase Plan (the
"Purchase Plan") and the Plan. For a description of the Plan, see Proposal 2,
above. The Purchase Plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Code. An aggregate of 1,500,000
shares of Common Stock has been reserved for issuance under the Purchase Plan.
Under the Purchase Plan, eligible employees, including officers, may participate
in periodic offerings by the Company for a maximum 27-month offering period.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan to purchase shares of Common Stock on
specified dates determined by the Board. The price of Common Stock purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the Common Stock on the commencement date of each offering period or
the specified purchase date. The Purchase Plan provides that, in the event of
dissolution, merger, consolidation or similar transaction in which the Company
is not the surviving corporation, the Board has discretion to provide that each
right to purchase Common Stock will be assumed or an equivalent right
substituted by the surviving entity, or the Board may shorten the offering
period and provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to such merger or other transaction.
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The following table shows for the fiscal years ended March 31, 1998, 1997
and 1996, certain compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its other four most highly compensated executive
officers (the "Named Executive Officers") at March 31, 1998:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
-------------------------------------------- COMPENSATION
OTHER ANNUAL AWARDS/SECURITIES
FISCAL COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- ------ --------- -------- ------------ ----------------- ------------------
Mr. Ronald L. Schauer..... 1998 291,060 132,714 -- 3,701
President and Chief 1997 271,635 105,165 1,535 -- 2,344
Executive Officer 1996 249,995 113,557 -- 3,596,000 3,593
Mr. George J. Hall........ 1998 191,285 86,710 -- -- 2,440
Vice President, Operations 1997 179,286 69,411 -- -- 2,313
1996 165,675 63,811 -- 992,000 3,012
Dr. Michael A. Russak..... 1998 205,037 91,809 1,685 -- 2,732
Vice President 1997 190,861 59,164 12,704 -- 2,951
Research and Development 1996 176,673 18,360 73,331 992,000 3,043
Mr. Peter S. Norris....... 1998 161,835 73,589 2,631 -- 2,331
Vice President and 1997 152,125 39,989 93,467 -- 2,835
Chief Financial Officer 1996 42,001 22,692 -- 558,000 --
Mr. Jon van
Bronkhorst(3)........... 1998 177,902 80,769 6,000 -- 6,102
Vice President, Business 1997 37,171 -- -- -- --
Development
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(1) Consists of relocation payments.
(2) Includes with respect to 1998 (i) $102 paid by the Company in life
insurance premiums for each of Messrs. Schauer, Hall, Norris and van
Bronkhorst and Dr. Russak; (ii) $2,279, $2,338, $2,630 and $2,229 in 401(k)
employer matching contributions for Mr. Schauer, Mr. Hall, Dr. Russak and
Mr. Norris, respectively; and (iii) $1,320 and $6,000 for car allowance for
Mr. Schauer and Mr. von Bronkhorst, respectively. Includes with respect to
1997 (i) $252 paid by the Company in life insurance premiums for each of
Messrs. Schauer, Hall and Norris and Dr. Russak; and (ii) $2,092, $2,061,
$2,699 and $2,583 in 401(k) employer matching contributions for Mr.
Schauer, Mr. Hall, Dr. Russak and Mr. Norris, respectively. Includes with
respect to 1996 (i) $306 paid by the Company in life insurance premiums for
each of Messrs. Schauer and Hall and Dr. Russak; and (ii) $3,286, $2,706
and $2,737 in 401(k) employer matching contributions for Mr. Schauer, Mr.
Hall and Dr. Russak, respectively.
(3) Mr. van Bronkhorst resigned his position with the Company effective June
1998.
EMPLOYMENT AND SEVERANCE AGREEMENTS
SEVERANCE PLAN. In January 1996, the Company adopted an Executive Severance
Plan (the "Severance Plan") providing for certain benefits to executive officers
of the Company in the event an executive's employment is involuntary terminated
without cause (generally meaning without any misconduct on the executive's part)
or that the executive voluntarily terminates employment with good reason
(generally meaning that the executive's responsibilities, title or compensation
was materially reduced). Upon the occurrence of such an event, the Severance
Plan provides for salary continuation for a period no greater than one year. In
addition, the Severance Plan provides for continued health benefits coverage to
the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of
1985 and the Company's group health policies.
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION((1))
The Compensation Committee is currently composed of two non-employee
directors: Messrs. Kortschak and Edwards. Mr. Edwards joined the Compensation
Committee in August 1997 following the resignation of a prior director who
served on the committee until his resignation from the Company's Board of
Directors in August 1997. The Committee is responsible for establishing the
Company's compensation programs for all employees, including executives. For
executive officers, the Committee evaluates performance and determines
compensation policies and levels.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract and
retain the highest quality executive officers and other key employees, reward
them for the Company's progress and motivate them to enhance long-term
stockholder value. Key elements of this philosophy are as follows:
- The Company pays competitively with comparable technology companies,
both inside and outside its industry, with which the Company
competes for talent. To ensure that compensation is competitive, the
Company compares its practices with data storage companies and sets
its parameters based on this comparison.
- The Company maintains short- to long-term incentive opportunities
sufficient to provide motivation to achieve specific operating goals
and to generate rewards that bring total compensation to competitive
levels.
- The Company provides significant equity-based incentives for
executives and other key employees to ensure that they are motivated
over the long-term to respond to the Company's business challenges
and opportunities as owners and not just as employees.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices. Base salaries for executive officers
were increased by 2% to 11% for fiscal 1998 compared to fiscal 1997. The
increases were due to fiscal 1997 financial performance and the need to remain
within the range of competitive salaries for comparable companies.
NEAR-TERM INCENTIVES. In May 1996, the Company adopted the HMT Employee
Quarterly Profit Sharing Plan (the "Profit Sharing Plan"), an incentive award
plan for certain designated key employees of the Company, including all
executive officers. The actual incentive award earned depends on the achievement
of specified financial goals of the Company and individual performance
objectives. The Committee and the full Board of Directors review and approve the
annual performance objectives for the Company. The Company objectives consist of
operating, strategic and financial goals that are considered to be critical to
the Company's fundamental long-term goal of building stockholder value.
The Company has also adopted a Key Employee Quarterly Bonus Plan (the
"Quarterly Bonus Plan") for employees of the Company, including all executive
officers. Cash bonuses are paid on a quarterly basis based upon achievement of
certain specified corporate goals. The Board of Directors determines the
percentage of salary to be paid on an individual basis.
Amounts reflected as "bonuses" in the "Summary Compensation Table" above,
were paid based on the criteria set forth in the Profit Sharing Plan and the
Quarterly Bonus Plan.
LONG-TERM INCENTIVES. The Company's long-term incentive program consists of
the 1995 Management Stock Option Plan ("Management Plan"), the 1995 Stock Option
Plan ("Stock Plan"), the Plan and the
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(1)This Section is not "soliciting material," is not deemed "filed" with the SEC
and is not to be incorporated by reference in any filing of the Company under
the 1933 Act or the 1934 Act whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
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20
Employee Stock Purchase Plan ("ESPP"). As of March 31, 1998, 8,399,000 shares
have been awarded to certain key officers of the Company under the Management
Plan, and 3,945,150 shares have been granted under the Stock Plan. The
Management Plan utilizes a combination of vesting plans designed to enhance the
long-term goals of the Company. A portion of the options have a
performance-based vesting provision which allows the acceleration of vesting
based upon the attainment of a number of performance milestones. The remainder
of the options have a time-based vesting provision which encourages employees to
remain with the Company. The Stock Plan options vest on a monthly basis which
the Company believes provides a strong incentive for employees to remain with
the Company. Through option grants, executives and employees receive significant
equity incentives to build long-term stockholder value. Grants are made at 100%
of fair market value on the date of grant. Executives receive value from these
grants only if the Company's Common Stock appreciates over the long-term.
Because the amount of the existing equity participation by the executives was
deemed adequate for fiscal 1998, no additional option grants were made to the
Named Executive Officers in fiscal 1998. The size of prior option grants was
initially determined at the discretion of the Board of Directors, which adopted
the Management Plan and Stock Plan in connection with the Leveraged
Recapitalization of the Company on November 30, 1995. The Board awarded grants
in order to provide significant links between executive compensation and
stockholder interests. Such grants were intended to provide incentive to
successfully complete the Company's initial public offering, to successfully
achieve certain specified revenue and profitability targets and to maximize
stockholder value over the next several years.
The Board has elected not to grant any further options under either the
Management Plan or Stock Plan. Future grants will be made under the Plan.
Employees will also be allowed to participate in the ESPP.
CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Schauer's base salary during fiscal 1998 as President and Chief
Executive Officer was $291,060. His bonus for the fiscal year was $132,714. Mr.
Schauer's fiscal 1998 base salary was based largely on fiscal 1997 performance.
In fiscal 1997, the Company achieved several key objectives. These achievements
included achieving record financial performance for the Company, expansion of
the Company's manufacturing capacity, the successful transition to new
technology and an increase in market share. Accordingly, Mr. Schauer received an
increase in base salary of $19,425 for fiscal 1998 over the prior year. Mr.
Schauer's fiscal 1998 cash bonus of $132,714 was paid pursuant to the Profit
Sharing Plan and the Quarterly Bonus Plan. In fiscal 1998, Mr. Schauer received
an additional stock option grant for 25,000 shares of Common Stock.
LIMITATION ON DEDUCTION OF COMPENSATION PAID TO CERTAIN EXECUTIVE OFFICERS
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The statute containing this law and the applicable proposed Treasury
regulations offer a number of transitional exceptions to this deduction limit
for pre-existing compensation plans, arrangements and binding contracts. As a
result, the Compensation Committee believes that at the present time it is quite
unlikely that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation."
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CONCLUSION
Through the plans described above, a significant portion of the Company's
executive compensation program, including Mr. Schauer's compensation, is
contingent on Company performance, and realization of benefits is closely linked
to increases in long-term stockholder value. The Company remains committed to
this philosophy of pay for performance, recognizing that the competitive market
for talented executives and the volatility of the Company's business may result
in highly variable compensation for a particular time period.
From the members of the Compensation Committee of HMT Technology
Corporation.
Walter G. Kortschak
Bruce C. Edwards
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of two non-employee
directors. No member of the Compensation Committee is an officer or employee of
the Company.
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on March 13, 1996 for (i) the Company's Common Stock, (ii) the
Nasdaq Composite and (iii) the Nasdaq Computer Manufacturers Index. All values
assume reinvestment of the full amount of all dividends and are calculated as of
March 31 of each year:
COMPARISON OF 25 MONTH CUMULATIVE TOTAL RETURN ON INVESTMENT(2)
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) 3.00/13/96 3.00/96 3.00/97 3.00/98
HMT TECHNOLOGY CORPORATION 100.00 104.38 122.50 129.38
NASDAQ STOCK MARKET (U.S.) 100.00 101.28 112.57 170.97
NASDAQ PHARMACEUTICAL 100.00 97.75 107.01 189.75
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(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
(2) $100 invested on 03/13/96 in stock or index, including reinvestment of
dividends. Fiscal years ended March 31.
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CERTAIN TRANSACTIONS
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided
therein, for expenses, damages, judgments, fines and settlements he or she may
be required to pay in actions or proceedings which he or she is or may be made a
party by reason of his position as a director, officer or other agent of the
Company, and otherwise to the full extent permitted under Delaware law and the
Company's Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
LOGO
Peter S. Norris
Vice President, Finance, Chief
Financial Officer,
Treasurer and Assistant Secretary
June 19, 1998
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HMT TECHNOLOGY CORPORATION
1996 EQUITY INCENTIVE PLAN
ADOPTED JANUARY 23, 1996
APPROVED BY STOCKHOLDERS ON FEBRUARY 9, 1996
AMENDED MAY 8, 1998
APPROVED BY STOCKHOLDERS AS AMENDED ON JULY __, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
25
(e) "COMPANY" means HMT Technology Corporation, a Delaware corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means as of any date, the value of the common
stock of the Company determined as follows :
(i) 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, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on the Nasdaq System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
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26
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONEE" means a person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PLAN" means this 1996 Equity Incentive Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
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27
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
14.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Non-Employee Directors and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board
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28
(and references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to avoid the application of
Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate five million five hundred thousand (5,500,000)
shares of the Company's common stock less any shares issued or subject to
issuance under the Company's 1996 Non-Employee Directors' Stock Option Plan. If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. Shares subject to Stock Appreciation Rights exercised in accordance
with Section 8 of the Plan shall not be available for subsequent issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 13
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than Three Hundred Thousand (300,000) shares
during any calendar year. This subsection 5(c) shall not apply until (i) the
earliest of: (1) the first material modification of the Plan
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29
(including any increase in the number of shares reserved for issuance under the
Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors of the Company
are to be elected that occurs after the close of the third calendar year
following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the common
stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. Unless otherwise
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provided in the Option Agreement, a Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a domestic relations order satisfying the requirements of Rule 16b-3
and any administrative interpretations or pronouncements thereunder (a "DRO"),
and shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a DRO. Notwithstanding
the foregoing, the person to whom the Option is granted may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionee, shall thereafter
be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
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(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is granted to a 10% stockholder (as
described in subsection 5(b)), shall have an exercise
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price which is equal to one hundred ten percent (110%) of the Fair Market Value
of the stock subject to the Re-Load Option on the date of exercise of the
original Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a DRO satisfying the requirements of Rule 16b-3
and any administrative interpretations or pronouncements thereunder, so long as
stock awarded under such agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment, except that payment of the common stock's "par value" (as
defined in the Delaware General Corporation Law) shall not be made by deferred
payment, or other arrangement with the person to whom the stock is sold; or
(iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
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(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify for
the safe-harbor exemption from short-swing profit liability provided by Rule
16b-3 promulgated under the Exchange Act (or any successor rule or regulation).
No limitation shall exist on the aggregate amount of cash payments the Company
may make under the Plan in connection with the exercise of a Stock Appreciation
Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right
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pertains. The appreciation distribution payable on an exercised Concurrent Right
shall be in cash (or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Concurrent Right)
in an amount equal to such portion as shall be determined by the Board or the
Committee at the time of the grant of the excess of (A) the aggregate Fair
Market Value (on the date of the exercise of the Concurrent Right) of the vested
shares of stock purchased under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than
eighty-five percent (85%) percent of the Fair Market Value (one hundred percent
(100%) of the Fair Market Value in the case of an Incentive Stock Option) or, in
the case an Incentive Stock Option granted to a of a 10% stockholder (as
described in subsection 5(b)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a transaction
to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c). The repricing of an Option and/or Stock Appreciation Right
under this Section 9, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and/or Stock Appreciation
Right and the grant of a substitute Option and/or Stock Appreciation Right; in
the event of such repricing, both the original and the substituted Options and
Stock Appreciation Rights shall be counted against the maximum awards of Options
and Stock Appreciation Rights
11
35
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to
whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause, to remove any Director as provided in the
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36
Company's By-Laws and the provisions of the General Corporation Law of the State
of Delaware, or to terminate the relationship of any Consultant in accordance
with the terms of that Consultant's agreement with the Company or Affiliate to
which such Consultant is providing services. (e)To the extent that the aggregate
Fair Market Value (determined at the time of grant) of stock with respect to
which Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year under all plans of the Company and its Affiliates
exceeds one hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.
(f) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the holder of the Stock
Award to provide such other representations, written assurances or information
which the Company shall determine is necessary, desirable or appropriate to
comply with applicable securities and other laws as a condition of granting a
Stock Award to such person or permitting the holder of the Stock Award to
exercise the Stock Award. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(g) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the Stock
Award; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
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37
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and any maximum
number of shares subject to award to any person specified under the Plan, if
any, and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent not prohibited by
applicable law: (i) any surviving or acquiring corporation or an Affiliate of
such surviving corporation shall assume any Stock Awards outstanding under the
Plan or shall substitute similar Stock Awards (including an award to acquire the
same consideration paid to the stockholders in the transaction described in
subsection 10(b)) for those outstanding under the Plan, or (ii) such Stock
Awards shall continue in full force and effect. In the event any surviving or
acquiring corporation and its Affiliates refuse to assume such Stock Awards, or
to substitute similar options for those outstanding under the Plan, then, with
respect to Stock Awards held by persons then performing services as Employees,
Directors or Consultants, the time during which such Stock Awards may be
exercised shall be accelerated prior to such event and the Stock Awards
terminated if not exercised prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
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(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 22, 2006, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Stock Award was
granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board and
the Company's initial S-1 Registration Statement
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39
by which the Company will sell shares of the Company's common stock to the
general public has become effective.
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HMT TECHNOLOGY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 20, 1998
The undersigned hereby appoints Mr. Peter S. Norris and Mr. James C. Kitch,
and each of them, as proxies and attorneys-in-fact of the undersigned, with full
power of substitution, to vote all of the shares of stock of HMT Technology
Corporation which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of HMT Technology Corporation to be held at the Company's
executive offices at 47700 Kato Road, Fremont, California 94538 on Monday, July
20, 1998 at 9:00 a.m., local time, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
Unless a contrary direction is indicated, this Proxy will be voted For all
nominees listed in Proposal 1 and for Proposals 2 and 3, as more specifically
described in the Proxy Statement. If specific instructions are indicated, this
Proxy will be voted in accordance therewith.
Management recommends a vote for the nominees for director listed below.
Proposal 1: To elect directors to serve for the ensuing year and until
their successors are elected.
/ / For all the nominees listed below / / WITHHOLD AUTHORITY to vote
(except as marked to the contrary below). for all the nominees listed below.
Authority to vote for any nominee may be withheld by ling through such nominee's
name below:
Ronald L. Schauer, Donald P. Beadle, Bruce C. Edwards, Walter G. Kortschak,
Richard S. Love, and Harry G. Van Wickle
41
Management recommends a vote for Proposals 2 and 3.
Proposal 2: To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 2,500,000 shares.
/ / For / / Against / / Abstain
Proposal 3: To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for its fiscal year ending March 31, 1999.
/ / For / / Against / / Abstain
Dated ______________ _____________________________________
_____________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name, and have
a duly authorized officer sign, stating
title. If signer is a partnership, please
sign in partnership name by authorized
person.
Please vote, date and promptly return this proxy in the enclosed return
envelope which is postage prepaid if mailed in the United States.