SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
RadiSys Corporation
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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RADISYS CORPORATION
Notice of Annual Meeting of Shareholders
to be Held May 20, 1997
To the Shareholders of RadiSys Corporation:
The Annual Meeting of Shareholders of RadiSys Corporation, an Oregon corporation
(the "Company"), will be held at the Company's headquarters, 5445 N.E. Dawson
Creek Drive, Hillsboro, Oregon, on May 20, 1997 at 8:30 a.m. for the following
purposes:
1. To elect six directors, each to serve until the next Annual Meeting of
Shareholders or until a successor has been elected and qualified;
2. To vote on an amendment to the Company's Second Restated Articles of
Incorporation to increase the authorized shares of Common Stock from
15,000,000 to 50,000,000.
3. To vote on an amendment to the Company's 1995 Stock Incentive Plan to
increase the number of shares of the Company's Common Stock that may
be issued pursuant to the plan from 1,000,000 to 1,500,000.
4. To transact any other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on March 28, 1997, are
entitled to notice of and to vote at the meeting or any adjournments thereof.
Please sign and date the enclosed proxy and return it promptly in the enclosed
reply envelope. If you are able to attend the meeting, you may, if you wish,
revoke the proxy and vote personally on all matters brought before the meeting.
A list of shareholders of the Company will be available for inspection by the
shareholders commencing April 22, 1997, at the corporate headquarters of the
Company, 5445 N.E. Dawson Creek Drive, Hillsboro, Oregon.
By Order of the Board of Directors,
Brian V. Turner
Chief Financial Officer
and Vice President of
Finance and Administration
April 10, 1997
Hillsboro, Oregon
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN
PERSON, PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE SO THAT YOUR STOCK WILL BE VOTED. THE ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
RADISYS CORPORATION
-------------------
PROXY STATEMENT
-------------------
SOLICITATION AND REVOCABILITY OF PROXY
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of RadiSys Corporation, an Oregon corporation
(the "Company"), to be voted at the Annual Meeting of Shareholders to be held at
the Company's headquarters, 5445 N.E. Dawson Creek Drive, Hillsboro, Oregon, on
May 20, 1997 at 8:30 a.m. and for the purposes set forth in the accompanying
Notice of Annual Meeting. All proxies in the enclosed form that are properly
executed and received by the Company prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting or any adjournments thereof in
accordance with the instructions thereon. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted. Proxies may be revoked by (i) filing with the Secretary of the Company,
at or before the taking of the vote at the Annual Meeting, a written notice of
revocation bearing a later date than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same shares and delivering it to the
Secretary of the Company before the Annual Meeting or (iii) attending the Annual
Meeting and voting in person (although attendance at the Annual Meeting will not
in and of itself constitute a revocation of a proxy). Any written notice
revoking a proxy should be sent to RadiSys Corporation, 5445 N.E. Dawson Creek
Drive, Hillsboro, Oregon 97124, Attention: Corporate Secretary, or hand
delivered to the Secretary at or before the taking of the vote at the Annual
Meeting. For purposes of proposals other than the election of directors,
abstentions are counted as no votes and broker non-votes are not counted for any
purpose in determining whether a proposal is approved.
The mailing address of the principal executive offices of the Company is
5445 N.E. Dawson Creek Drive, Hillsboro, Oregon 97124. This Proxy Statement and
the accompanying Notice of Annual Meeting and the Proxy Card are first being
mailed to the Shareholders on or about April 20, 1997.
The cost of preparing, printing and mailing this Proxy Statement and of the
solicitation of proxies by the Company will be borne by the Company.
Solicitation will be made by mail and, in addition, may be made by directors,
officers and employees of the Company personally, or by telephone or telegram.
The Company will request brokers, custodians, nominees and other like parties to
forward copies of proxy materials to beneficial owners of stock and will
reimburse such parties for their reasonable and customary charges or expenses in
this connection.
The Company will provide to any person whose proxy is solicited by this
proxy statement, without charge, upon written request to its Corporate
Secretary, a copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
2
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors of the Company consists of six directors who are
elected at the Annual Meeting to serve until the next Annual Meeting of
Shareholders and until their successors are elected and qualified. Proxies
received from shareholders, unless directed otherwise, will be voted FOR the
election of the following nominees: Dr. Glenford J. Myers, James F. Dalton,
Richard J. Faubert, C. Scott Gibson, Dr. William W. Lattin and Jean-Claude
Peterschmitt.
If any nominee is unable to stand for election, the persons named in the
proxy will vote the same for a substitute nominee. If no instructions are given,
proxies will be voted for the election of the six nominees named below. All of
the nominees are currently directors of the Company. The Company is not aware
that any nominee is or will be unable to stand for reelection. If any nominee is
not available as a candidate for director, the number of directors constituting
the Board of Directors may be reduced prior to the Annual Meeting or the proxies
may be voted for such other candidate or candidates as are nominated by the
Board of Directors, in accordance with the authority conferred in the proxy.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Abstentions and broker non-votes are accounted for
purposes of determining whether a quorum exists at the Annual Meeting, but have
no effect on the determination of whether a plurality exists with respect to a
given nominee.
Set forth below is the name, position with the Company, principal
occupation and age of each of the nominees for director of the Company. Certain
of the information about each of the nominees is described below and in
"Security Ownership of Certain Beneficial Owners and Management." There are no
family relationships among the directors and executive officers of the Company.
Name Age Position with the Company
---- --- -------------------------
Dr. Glenford J. Myers 50 Chairman of the Board,
President and Chief Executive Officer
James F. Dalton 38 Director
Richard J. Faubert 48 Director
C. Scott Gibson 44 Director
Dr. William W. Lattin 55 Director
Jean-Claude Peterschmitt 63 Director
Dr. Glenford J. Myers co-founded the Company in March 1987 and has served
as the Company's Chairman of the Board, President and Chief Executive Officer
since that time. From 1981 to 1987, he held various management positions with
Intel Corporation ("Intel"), including Manager of Microprocessor Product Line
Architecture and Manager of the Microprocessor Strategic Business Segment. While
at Intel, Dr. Myers had primary management responsibility for the feasibility
and design of Intel's 386 and 80960 microprocessor chips, both of which became
industry standards in their respective application areas. From 1968 to 1981,
Dr. Myers held various
3
engineering and management positions with IBM. Dr. Myers holds a Ph.D. from the
Polytechnic Institute of New York, M.S. from Syracuse University and B.S.E.E.
from Clarkson College.
James F. Dalton has served as a Director and member of the Audit Committee
since December 1993. Since April 1989, Mr. Dalton has been employed by
Tektronix, Inc. ("Tektronix"), an electronics manufacturing company. He
presently serves as Tektronix' Vice President and General Counsel. Prior to
that, he served as Tektronix' Director of Corporate Development. Additionally,
Mr. Dalton serves as a director and Vice President of Tektronix Development
Company ("Tektronix Development").
Richard J. Faubert has served as a Director since June 1993 and a member of
the Compensation Committee since December 1993. From 1986 through 1992, Mr.
Faubert served as Vice President of Product Development of GenRad, Inc. Since
that time, Mr. Faubert has been employed by Tektronix, first as General Manager
of its Instruments Business Unit and most recently as Vice President and General
Manager of the Television and Communications Test Business Unit, Measurement
Business Division.
C. Scott Gibson has served as a Director since June 1993 and as a member of
the Compensation Committee since January 1995. From January 1983 through
February 1992, Mr. Gibson co-founded and served as President of Sequent Computer
Systems, Inc., a producer of high performance symmetric multiprocessing computer
systems and parallel-enabled software. Since August 1992, Mr. Gibson has served
as the Chairman of the Board for Adaptive Solutions, Inc. Mr. Gibson also serves
on the boards of several other companies, including Inference Corporation,
Triquint Semiconductor, Inc., Integrated Measurement Systems, Inc. and Health
Systems Technologies, Inc.
Dr. William W. Lattin has served as a Director since September 1987 and
Chair of the Compensation Committee since July 1993. From September 1986 through
February 1994, Dr. Lattin served as President and Chief Executive Officer of
Logic Modeling Corp. From February 1994 through October 1994, he was employed by
Synopsys, Inc., a maker of high-level design automation products, as President
of the Logic Modeling Group until his appointment in October 1994 to Executive
Vice President, in which capacity he presently serves. From 1975 to 1986, Dr.
Lattin held various engineering and management positions with Intel, the most
recent being Corporate Vice President and General Manager of Intel's Systems
Group. Dr. Lattin also serves as a director of EasyStreet Online Services, Inc.
Dr. Lattin holds a Ph.D. from Arizona State University and M.S.E.E. and B.S.E.E.
from the University of California-Berkeley.
Jean-Claude Peterschmitt has served as a Director since July 1996. From
1967 to 1987, Mr. Peterschmitt served in various capacities with Digital
Equipment Corporation, a corporate information systems supplier, most recently
as General Manager, Vice President, Europe and Chairman of the European Board of
Directors. Prior to that time, Mr. Peterschmitt was a member of Arthur D.
Little's European Operations Research Group. He currently serves on the
supervisory boards of Euroventures B.V., and association of European venture
funds, Cabinet Benoit, a French consulting firm, as well as on a number of
advisory boards such as the European Advisory Board of Sybase, Inc., a database
and client-server software producer, Health on the Net Foundation and ACE
Technology Fund. Mr. Peterschmitt received an engineering degree from
Eidgenossiche Technische
4
Hochschule (Zurich) and an M.S. degree from the MIT Sloan School of
Business.
Board Committees and Meetings
The Board of Directors met nine times during the fiscal year ended December
31, 1996. Each director attended at least 75 percent of the aggregate of the
meetings of the Board of Directors and the committees of which the director was
a member, except for Messrs. Faubert and Peterschmitt.
The Company maintains an Audit Committee comprised of C. Scott Gibson and
James Dalton. The Audit Committee oversees actions taken by the Company's
independent auditors. The Audit Committee met two times in the fiscal year ended
December 31, 1996 and each member attended at least 75 percent of the meetings.
The Company maintains a Compensation Committee comprised of William W.
Lattin, Richard J. Faubert and C. Scott Gibson. None of the members of the
Compensation Committee are current or former officers or employees of the
Company. The Compensation Committee reviews and determines the compensation of
the Company's executive officers. Additionally, the Compensation Committee makes
grants to executive officers under the Company's 1995 Stock Incentive Plan. See
"Description of 1995 Stock Incentive Plan". The Compensation Committee met five
times in the fiscal year ended December 31, 1996, and each member attended at
least 75 percent of the meetings.
Director Compensation
Directors do not receive any fees for serving on the Company's Board of
Directors or any committee thereof but are reimbursed for reasonable expenses
incurred in attending meetings. The 1995 Stock Incentive Plan provides that each
individual who becomes a non-employee director of the Company after August 7,
1995 is automatically granted, on the date the individual joins the Board of
Directors, a non-statutory option to purchase 15,000 shares of the Company's
Common Stock. In addition, each non-employee director of the Company is
automatically granted an annual, non-statutory option to purchase 5,000 shares
of the Company's Common Stock on the date of the Company's Annual Meeting of
Shareholders. No such grants are made, however, if the non-employee director's
employer prohibits the non-employee director from receiving such options. The
exercise price of options automatically granted to non-employee directors is the
fair market value of the Common Stock on the date of grant. The Company's 1995
Stock Incentive Plan authorizes the Company to grant non-statutory stock options
to non-employee directors. Pursuant to the terms of the 1995 Stock Incentive
Plan, Mr. Gibson, Dr. Lattin and Mr. Peterschmitt each received a non-statutory
stock option in 1996 to purchase 5,000, 5,000, and 15,000 shares of Common Stock
of the Company for their services as directors of the Company, respectively.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The record date for determination of shareholders entitled to receive
notice of and to vote at the Annual Meeting is March 28, 1997. At the close of
business on March 28, 1997, 7,560,377 shares of Common Stock of the Company were
outstanding and entitled to vote at the Annual Meeting. Each share of Common
Stock of the Company is entitled to one vote with respect to each matter to be
voted on at the Annual Meeting.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 28, 1997 by (i) persons
known to the Company to be the beneficial owner of more than 5 percent of the
Company's Common Stock, (ii) each of the Company's directors and nominees for
director, (iii) each executive officer of the Company named in the Summary
Compensation Table and (iv) all directors and executive officers of the Company
as a group. Unless otherwise noted in the footnotes to the table, the persons
named in the table have sole voting and investment power with respect to all
outstanding shares of Common Stock shown as beneficially owned by them.
Shares Beneficially Percentage of Common
Name Owned Stock
---- ------------------- --------------------
Dr. Glenford J. Myers (1) 230,087 3.0%
John D. Watkins (2) 62,796 *
Stephen J. Verleye (3) 29,206 *
Brian V. Turner (4) 13,815 *
Dr. William W. Lattin (5) 41,844 *
James F. Dalton (6) 200 *
Richard J. Faubert (6) 0 *
C. Scott Gibson (7) 18,637 *
Jean-Claude Peterschmitt 0 *
David L. Budde (8) 328,791 4.3%
Intel Corporation (9)
2200 Mission College Blvd.
Santa Clara, CA 95052 1,600,000 20.4%
Tektronix Development Co.
PO Box 1000
Wilsonville, OR 97070 915,651 12.1%
American Century Companies, Inc. (10)
4500 Main Street, P.O. Box 418210
Kansas City, MO 64141 592,400 7.8%
Duncan Hurst Capital Management (11)
4365 Executive Drive, Suite 1520
San Diego, CA 92121 421,260 5.6%
All directors and officers as a group
(11 persons) (11) 885,109 11.7%
* Less than 1%
(1) Excludes options to purchase 85,000 shares of Common Stock not
exercisable within 60 days after March 28, 1997. Includes 800 shares
of Common Stock held by Dr. Myers' minor child.
6
(2) Includes options to purchase 13,061 shares of Common Stock exercisable
within 60 days after March 28, 1997. Excludes options to purchase
44,060 shares of Common Stock not exercisable within 60 days after
March 28, 1997.
(3) Excludes options to purchase 40,000 shares of Common Stock not
exercisable within 60 days after that date.
(4) Includes options to purchase 10,000 shares of Common Stock exercisable
within 60 days after March 28, 1997. Excludes options to purchase
35,000 shares of Common Stock not exercisable within 60 days after
March 28, 1997.
(5) Includes options to purchase 14,092 shares of Common Stock exercisable
within 60 days after March 28, 1997.
(6) Excludes shares held by Tektronix Development, a wholly owned
subsidiary of Tektronix. Mr. Dalton is a director and Vice President
of Tektronix Development and serves as Tektronix' Vice President and
General Counsel. Mr. Faubert is Vice President and General Manager of
the Television and Communications Test Business Unit, Measurement
Business Division of Tektronix.
(7) Includes options to purchase 5,000 shares of Common Stock not
exercisable within 60 days after March 28, 1997
(8) Excludes options to purchase 10,000 shares of Common Stock that were
terminated effective with Mr. Budde's retirement on January 31, 1997.
(9) Includes warrants to purchase 300,000 shares of Common Stock
exercisable within 60 days after March 28, 1997.
(10) Based solely on information reported as of December 31, 1996 in a
Schedule 13G filed by the shareholder.
(11) Includes options to purchase 52,758 shares of Common Stock exercisable
within 60 days after March 28, 1997. Excludes options to purchase
318,455 shares of Common Stock not exercisable within 60 days after
March 28, 1997.
7
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth, for certain
executive management, information concerning compensation paid or accrued for
services to the Company in all capacities for each of the last three fiscal
years.
Summary Compensation Table
Annual Compensation Shares
Name and ---------------------------------- Underlying
Principal Position Year Salary Bonus(1) Options
- ------------------ ---- ------ -------- ----------
Glenford J. Myers 1996 $169,375 $24,400 35,000
Chairman of the Board, 1995 $154,708 $32,250 50,000
President and Chief 1994 $146,708 $52,016
Executive Officer
John D. Watkins 1996 $134,289 $12,200 20,000
Executive Vice 1995 $139,798 $17,635 45,182
President, World 1994 $102,875 $36,366
Wide Sales
David L. Budde 1996 $131,217 $12,200 10,000
Chief Technical 1995 $126,896 $18,768
Officer, Secretary 1994 $123,479 $40,490
& Director
Stephen J. Verleye 1996 $124,967 $ 9,150 20,000
Vice President and 1995 $124,241 $16,813 20,000
General Manager SPD 1994 $114,583 $26,780
Brian V. Turner 1996 $117,917 $ 4,880 15,000
Chief Financial Officer 1995 $24,167 30,000
and Vice President of
Finance and
Administration
(1) Represents amounts paid under the Incentive Compensation Plan. See
"Compensation Committee Report on Executive Compensation - Incentive
Compensation Plan".
Stock Option Grants in Fiscal 1996. The following table sets forth information
concerning individual grants of stock options made by the Company during fiscal
1996 to each of the executive officers of the Company named in the Summary
Compensation Table.
8
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rates of
Shares Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term(4)
Options Employees in Price Per Expiration -----------------------------
Name Granted(1) Fiscal Year(2) Share Date(3) 5% 10%
- -------------------- ---------------- -------------- ------------ -------------- -----------------------------
Glenford J. Myers 35,000 6.8% $57.88 11/1/2002 $559,691 $1,236,771
John D. Watkins 20,000 3.9% $57.88 11/1/2003 319,824 706,726
David L. Budde (5) 10,000 1.9% $57.88 11/1/2002 159,912 353,363
Stephen J. Verleye 20,000 3.9% $57.88 11/1/2002 319,824 706,726
Brian V. Turner 15,000 2.9% $57.88 11/1/2002 239,868 530,045
(1) All option grants were made pursuant to the Company's 1995 Stock Incentive
Plan.
(2) In fiscal 1996, the Company granted options for a total of 515,052 shares
of Common Stock under the 1995 Stock Incentive Plan and this number was
used in calculating the percentages set forth in this column.
(3) Options expire prior to this date (i) if the optionee's employment is
terminated for any reason (other than death or disability), in which case
options vested but unexercised at the date of termination may be exercised
within 30 days after the date of termination, or (ii) if employment
terminates because of death or disability, in which case options vested but
unexercised at the date of termination may be exercised within 12 months
after the date of termination. If employment (or service as a director, as
applicable) is terminated by death of the optionee, the option generally
may be exercised by persons to whom the optionee's rights pass by will or
the laws of descent or distribution. Remaining vested but unexercised
options terminate at the end of the earliest of the above described
periods, as applicable. The options granted to Mr. Watkins are not
exercisable until November 1, 2000, and are fully exercisable thereafter.
The options granted to the other optionees are not exercisable until
November 1, 1999, and are fully exercisable thereafter.
(4) In accordance with the rules of the Securities and Exchange Commission,
these amounts are the hypothetical gains or "option spreads" that would
exist for the respective options based on assumed rates of annual compound
stock price appreciation of 5% and 10% from the date the options were
granted over the full option term.
(5) Mr. Budde retired on January 31, 1997, at which time these options were
terminated.
9
Aggregated Option Exercises. The following table sets forth information (on an
aggregated basis) concerning each exercise of stock options during fiscal 1996
by each of the executive officers of the Company named in the Summary
Compensation Table and the fiscal year-end value of unexercised options.
Aggregated Option Exercises in Fiscal Year 1996
and Fiscal Year-End Option Values
Number of Value of
Shares Number of Unexercised Options Unexercised In-the-Money Options
Acquired Value at December 31, 1996 at December 31, 1996
on Realized ------------------------------------ ------------------------------------
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- ------------- ---------------- ------------------ ---------------- ------------------
Glenford J. Myers 0 0 0 85,000 0 $1,750,000
John D. Watkins 2,000 $99,500 13,061 50,121 $140,000 $501,805
Stephen J. Verleye 0 0 27,273 40,000 $1,182,557 $700,000
Brian V. Turner 0 0 10,000 35,000 $350,000 $700,000
David L. Budde 0 0 0 10,000 0 0
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
of the underlying securities on such date exceeds the exercise price of the
option. The amounts set forth represent the difference between the fair
market value of the securities underlying the options on December 31, 1996
based on the last sale price of $46.00 per share of the Company's Common
Stock on that date (as reported on the Nasdaq National Market) and the
exercise price of the options, multiplied by the applicable number of
options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION<F1>
The Compensation Committee of the Board of Directors has furnished the following
report on executive compensation:
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three outside directors and, pursuant to authority delegated by the
Board, determines the compensation to be paid to the Chief Executive Officer and
each of the other executive officers of the Company. The Committee is also
responsible for developing and making recommendations to the Board with respect
to the Company's executive compensation policies, including the authorization of
option grants to executive officers.
The Company's objectives for executive compensation are to (i) attract and
retain key executives important to the long term success of the Company; (ii)
- --------------
<F1> This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by reference in
any filing of the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, regardless of date or any general incorporation language
in such filing.
10
reward executives for performance and enhancement of shareholder value; and
(iii) align the interests of the executive officer with the success of the
Company by basing a portion of the compensation upon corporate performance.
Total compensation levels for the Company's executive officers are set relative
to similar companies in the electronics industry. In determining salaries, the
Company also takes into account individual experience, job responsibilities, and
individual performance.
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of base salary, annual bonus, and long term
incentive compensation in the form of stock options. Compensation based upon
sales is also part of the compensation program for certain executive officers
with sales responsibility.
Stock Options. The Company's stock option program is intended as a long term
incentive plan for executives, managers and other employees within the company.
The objectives of the program are to align employee and shareholder long term
interests by creating a strong and direct link between compensation and
shareholder value. The Company's 1995 Stock Incentive Plan provides for the
award of incentive stock options to selected employees and the award of
nonqualified stock options, restricted stock, stock appreciation rights, bonus
rights and other incentive grants to selected directors, employees, independent
contractors and consultants.
In fiscal 1996, the Board of Directors made the following option grants under
the 1995 Stock Incentive Plan to executive officers: Dr. Glenford J. Myers -
35,000 options, David L. Budde - 10,000 options, Ronald A. Dilbeck - 70,000
options, John D. Watkins - 20,000 options, Stephen J. Verleye - 20,000 options,
Robert A. Patterson - 10,0000 options, John Sonneborn - 45,000 options and Brian
V. Turner - 15,000 options. With the exception of options granted to Messrs.
Dilbeck and Sonneborn upon their initial employment, which vest in equal
portions over three years from the grant date, options granted vest upon the
third anniversary of the date of grant.
Incentive Compensation Plan. In 1996, the Company maintained an Executive
Officers Incentive Compensation Plan and an Incentive Compensation Plan (the
"Compensation Plans") pursuant to which all employees of the Company in good
standing for one pay period following the plan period are eligible to receive
incentive compensation if certain six-month operational income and other Company
goals are achieved. At its discretion, the Board of Directors, which administers
the Compensation Plan, may reduce the incentive compensation to be paid pursuant
to the Compensation Plan to executive officers of the Company.
Chief Executive Officer Compensation. The Committee determined the Chief
Executive Officer compensation for 1996 based upon a number of factors and
criteria. The Chief Executive Officer's base salary was determined based upon a
review of the salaries of chief executive officers for similar companies of
comparable size and complexity and upon a review by the Committee of the Chief
Executive Officer's performance. The Chief Executive Officer received a bonus
for 1996 based on the achievement by the Company of the performance objectives
for the year established under the Company Compensation Plan and his individual
performance as evaluated by the Committee.
11
During 1996 the Chief Executive Officer was granted an option to purchase 35,000
shares of the Company's Common Stock. This option is part of an ongoing program
to provide Dr. Myers with significant ongoing incentives to remain with the
Company and to further align his long-term interests with shareholder interests.
The number of shares granted in 1996 was based on a subjective determination of
the number of shares needed in 1996 as part of this long-term program.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code of
1986 limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year.
The levels of salary and bonus generally paid by the Company do not exceed this
limit. Many of the options granted under the Company's 1995 Stock Incentive Plan
have been Incentive Stock Options. The Company receives no tax deduction from
the exercise of an Incentive Stock Option unless the optionee disposes of the
acquired shares before satisfying certain holding periods. Under IRS
regulations, the $1,000,000 cap on deductibility applies to compensation
recognized by an optionee upon such an early disposition, as well as
compensation recognized upon the exercise of a Nonstatutory Stock Option, unless
the option meets certain requirements. It is the Company's policy generally to
grant options that meet the requirements of the IRS regulations so that any such
compensation recognized by an optionee will be fully deductible. The Committee
believes that the grant of Incentive Stock Options, despite the general
nondeductibility, benefits the Company by encouraging the long-term ownership of
Company stock by officers and other employees.
William W. Lattin
Richard J. Faubert
C. Scott Gibson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of directors William W. Lattin, Richard J.
Faubert and C. Scott Gibson. Mr. Faubert is the Vice-President and General
Manager of the Television and Communications Test Business Unit, Measurement
Business Division of Tektronix. Tektronix beneficially owns approximately 12.1
percent of the Company's outstanding Common Stock. The Company and Tektronix are
parties to multiple design agreements pursuant to which the Company agrees to
design and develop certain products as specified and required by Tektronix.
Sales to Tektronix accounted for approximately 2 percent of the Company's
revenues in 1996.
12
COMPARISON OF CUMULATIVE TOTAL RETURN<F2>
The following graph sets forth the Company's total cumulative shareholder
return as compared to the Standard and Poor's 500 Composite Index and the
Hambrecht and Quist Computer Hardware Sector Index for the period October 20,
1995 (the date of the Company's initial public offering) through December 31,
1996. Total shareholder return assumes $100 invested at the beginning of the
period in the Common Stock of the Company, the stocks represented in the
Standard and Poor's 500 Composite Index and the stocks represented in the
Hambrecht and Quist Computer Hardware Sector Index, respectively. Total return
also assumes reinvestment of dividends; the Company has never paid dividends on
its Common Stock.
Historical stock price performance should not be relied upon as indicative
of future stock price performance.
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<F2> This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by reference in
any filing of the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, regardless of date or any general incorporation language
in such filing.
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's 1995 Stock Incentive Plan permitted the Company to grant
non-statutory stock options to non-employees who provided important services to
the Company. As compensation for their services rendered as directors of the
Company, the Company granted under the 1995 Stock Incentive Plan non-statutory
stock options to purchase an aggregate of 5,000, 5,000, and 15,000 shares of the
Company's Common Stock to Mr. Gibson, Dr. Lattin, and Mr. Peterschmitt,
respectively. In addition, the Company has entered into a consulting arrangement
with Mr. Gibson pursuant to which the Company pays Mr. Gibson $20,000 per year.
The Company and Tektronix are parties to multiple Design Agreements
pursuant to which the Company agrees to design and develop certain products as
specified and required by Tektronix. Tektronix beneficially owns approximately
12.1 percent of the Company's outstanding Common Stock and is affiliated with
two of the Company's directors, Messrs. Dalton and Faubert. Sales to Tektronix
accounted for approximately 2 percent of the Company's revenues in 1996.
A key supplier of components to the Company, Merix Corporation ("Merix"),
is the former circuit board division of Tektronix. As of December 31, 1996,
Tektronix holds approximately 35 percent of the outstanding common stock of
Merix. Management believes that the terms on which the Company purchases
components from Merix are no less favorable to the Company than could have been
obtained in an arm's-length transaction with an unaffiliated third party.
The Company and Intel are parties to multiple Design Agreements pursuant to
which the Company agrees to design and develop certain products as specified and
required by Intel. Sales to Intel accounted for less than one percent of the
Company's revenues in 1996. Additionally, Intel is a key supplier of components
to the Company. The Company purchased approximately $11 million of components
from Intel in 1996. Intel beneficially owns approximately 20.5 percent of the
Company's outstanding Common Stock.
PROPOSAL 2: AMENDMENT TO THE SECOND RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 15,000,000 TO
50,000,000
As of March 28, 1997, the Company had 15,000,000 shares of Common Stock
authorized and 7,560,377 shares of Common Stock issued and outstanding, and
10,000,000 shares of Preferred Stock authorized and no shares of Preferred Stock
issued and outstanding. The Board of Directors believes additional shares of
Common Stock need to be authorized to provide the Company with flexibility in
future capital financings, in potential acquisition financing structures and in
potential stock dividends. Accordingly, on March 18, 1997, the Board of
Directors approved an amendment to the Second Restated Articles of Incorporation
to increase the number of authorized shares of Common stock from 15,000,000 to
50,000,000. Pursuant to the amendment, Article IV(A) of the Second Restated
Articles of Incorporation of the Company would be amended and restated to read
in its entirety as follows:
"A. The aggregate number of shares which the Corporation shall have
authority to issue shall consist of 50,000,000 shares
14
of common stock, without par value (`Common Stock'), and 10,000,000
shares of preferred stock, par value $.01 per share (`Preferred
Stock')."
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock the Company now has authorized.
The Company currently has no plans, arrangements or understanding regarding the
issuance of any of the additional shares of Common Stock for which authorization
is sought. Holders of Common Stock do not have preemptive rights to subscribe
for additional securities (if any) which may be issued by the Company.
The Board recommends that the amendment to the Second Restated Articles of
Incorporation increasing the number of authorized shares be approved. If a
quorum is present at the Annual Meeting, the amendment to the Second Restated
Articles of Incorporation will be approved if the votes cast in favor of the
proposal exceed the votes cast against the proposal. Accordingly, abstentions
and broker non-votes will have no effect on the results of the vote. The proxies
will be voted for or against the proposal, or as an abstention, in accordance
with the instructions specified on the proxy form. If no instructions are given,
proxies will be voted for approval of the amendment to the Second Restated
Articles of Incorporation.
PROPOSAL 3: AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF
SHARES OF THE COMPANY'S COMMON STOCK THAT MAY BE ISSUED PURSUANT TO THE PLAN
FROM 1,000,000 TO 1,500,000
The 1995 Stock Incentive Plan of the Company (the "Plan") provides for the
award of incentive stock options to selected officers and employees and the
award of non-qualified stock options, stock appreciation rights, bonus rights
and other incentive grants to selected employees, officers and directors of the
Company and its subsidiaries and selected non-employee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's products
and independent contractors. The Board of Directors believes the availability of
stock incentives under the Plan is an important factor in the Company's ability
to attract and retain experienced and competent employees and directors and to
provide an incentive for them to exert their best efforts on behalf of the
Company. As of March 28, 1997, out of a total of 1,000,000 shares reserved for
issuance under the Plan, 4,158 shares had been issued and 715,662 shares were
subject to options previously granted, leaving 280,180 shares available for
issuance under the Plan. The Board of Directors believes additional shares will
be needed under the Plan to provide appropriate incentives to key employees and
others. Accordingly, on March 18, 1997, the Board of Directors approved an
amendment to the Plan, subject to shareholder approval, to reserve an additional
1,000,000 shares for the Plan, thereby increasing the total number of shares of
the Company's Common Stock reserved for issuance under the Plan from 1,000,000
to 1,500,000. In addition, shareholder approval of this Proposal 3 will
constitute a reapproval of the per-employee limits on grants of options and
stock appreciation rights under the Plan of 200,000 shares for a new hire and
otherwise 50,000 shares annually. The reapproval is required every five years
for continued compliance with regulations under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Tax Consequences."
Certain provisions of the Plan are described below.
15
Eligibility. All employees, officers and directors of the Company are
eligible to participate in the Plan. Also eligible are nonemployee consultants
and advisors to the Company.
Administration. The Plan is administered by the Board of Directors, which
designates from time to time the individuals, except executive officers, to whom
awards are made under the Plan, the amount of any such award and the price and
other terms and conditions of any such award. However, the Board has delegated
to Dr. Myers the authority to grant an incentive stock option to purchase up to
2,500 shares to each new employee upon hiring on the same terms regarding
vesting and other matters as options that are commonly granted to other
employees. The Compensation Committee makes grants to executive officers under
the Plan. Subject to the provisions of the Plan, the Board may adopt and amend
rules and regulations relating to the administration of the Plan. Only the Board
of Directors may amend, modify or terminate the Plan.
Shares Available. A total of 1,000,000 shares of Common Stock were reserved
for issuance under the 1995 Plan. As of December 31, 1996, options to purchase a
total of 719,820 shares had been granted under the Plan, leaving 280,180 shares
available for future grants. If an option, stock appreciation right or
performance unit granted under the Plan expires, terminates or is canceled, or
if shares sold or awarded as a bonus are forfeited to the Company or are
repurchased by the Company, the shares again become available for issuance under
the Plan.
Term of the Plan. The Plan will continue until all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board of Directors may suspend or terminate the Plan at any
time.
Stock Options. The Compensation Committee determines the executive
officers, and, except for the authority delegated to Dr. Myers as described
above, the Board of Directors determines other persons to whom options are
granted, the option price, the number of shares subject to each option, the
period of each option and the times at which options may be exercised and
whether the option is an Incentive Stock Option ("ISO"), as defined in Section
422 of the Code or an option other than an ISO (a "Non-Statutory Stock Option"
or "NSO"). If the option is an ISO, the option price cannot be less than the
fair market value of the Common Stock on the date of grant. If an optionee of an
ISO at the time of grant owns stock possessing more than 10% of the combined
voting power of the Company, the option price may not be less than 110% of the
fair market value of the Common Stock on the date of grant. If the option is an
NSO, the option price may be any price determined by the Board. No ISO may be
granted on or after the tenth anniversary of the date the Plan was adopted by
the Board of Directors. The aggregate fair market value, on the date of the
grant, of the stock for which ISOs are exercisable for the first time by an
employee during any calendar year may not exceed $100,000. No monetary
consideration is paid to the Company upon the granting of options. On December
31, 1996, the last sale price of the Common Stock on the Nasdaq National Market
System was $46.00 per share.
Options granted under the Plan generally continue in effect for the period
fixed by the Board, except that ISOs are not exercisable after the expiration of
10 years from the date of grant or five years in the case of
16
10% shareholders. Options are exercisable in accordance with the terms of an
options agreement entered into at the time of grant and, except as otherwise
determined by the Board with respect to a NSO granted to a person who is neither
an officer or a director of the Company, are nontransferable except on death of
a holder. Options may be exercised only while an optionee is employed by or in
the service of the Company or a subsidiary or within 12 months following
termination of employment by reason of death or disability or 30 days following
termination for any other reason. The Plan provides that the Board may extend
the exercise period for any period up to the expiration date of the option and
may increase the number of shares for which the option may be exercised up to
the total number underlying the option. The purchase price for each share
purchased pursuant to exercise of options must be paid in cash, including cash
which may be the proceeds of a loan from the Company or, with the consent of the
Board, in whole or in part, in shares of Common Stock valued at fair market
value, in restricted stock, in performance units or other contingent awards
denominated in either stock or cash, in deferred compensation credits, in
promissory notes, or in other forms of consideration. Upon the exercise of an
option, the number of shares subject to the option and the number of shares
available under the Plan for future option grants are reduced by the number of
shares with respect to which the option is exercised.
Stock Appreciation Rights. Stock appreciation rights ("SARs") may be
granted under the Plan. SARs may, but need not, be granted in connection with an
option grant or an outstanding option previously granted under the Plan. A SAR
gives the holder the right to payment from the Company of an amount equal in
value to the excess of fair market value on the date of exercise of a share of
Common Stock of the Company over its fair market value on the date of the grant,
or if granted in connection with an option, the option price per share under the
option to which the SAR relates.
A SAR is exercisable only at the time or times established by the Board. If
a SAR is granted in connection with an option, it is exercisable only to the
extent and on the same conditions that the related option is exercisable. Unless
otherwise determined by the Committee, no SAR granted to an officer or director
can be exercised during the first six months after the date of grant. Payment by
the Company upon exercise of a SAR may be made in Common Stock of the Company
valued at its fair market value, in cash, or partly in stock and partly in cash,
as determined by the Board. The Board may withdraw any SAR granted under the
Plan at any time and may impose any condition upon the exercise of a SAR or
adopt rules and regulations from time to time affecting the rights of holders of
SARs. No SARs have been granted under the Plan.
The existence of SARs, as well as certain bonus rights described below,
would require charges to income over the life of the right based upon the amount
of appreciation, if any, in the market value of the Common Stock of the Company
over the exercise price of shares subject to exercisable SARs or bonus rights.
Stock Bonus Awards. The Board may award Common Stock of the Company as a
stock bonus under the Plan. The Board may determine the recipients of the
awards, the number of shares to be awarded and the time of the award. Stock
received as a stock bonus is subject to the terms, conditions and restrictions
determined by the Board at the time the stock is awarded.
17
Restricted Stock. The Plan provides that the Company may issue restricted
stock in amounts, for consideration, subject to restrictions and on terms the
Board determines.
Cash Bonus Rights. The Board may grant cash bonus rights under the Plan in
connection with (i) options granted or previously granted, (ii) SARs granted or
previously granted, (iii) stock bonuses awarded or previously awarded and (iv)
shares sold or previously sold under the Plan. Bonus rights granted in
connection with options entitle the optionee to a cash bonus if and when the
related option is exercised. The amount of the bonus is determined by
multiplying the excess of the total fair market value of the shares acquired
upon the exercise over the total option price for the shares by the applicable
bonus percentage. The bonus percentage applicable to any bonus right is
determined by the Board but may in no event exceed 75%. Bonus rights granted in
connection with stock bonuses or restricted stock purchases entitle the
recipient to a cash bonus, in an amount determined by the Board, when the stock
is awarded or purchased or any restrictions to which the stock is subject lapse.
No bonus rights have been granted under the Plan.
Performance Units. The Board may grant performance units consisting of
monetary units which may be earned in whole or in part if the Company achieves
goals established by the Board over a designated period of time, but in any
event not more than 10 years. Payment of an award earned may be in cash or stock
or both, and may be made when earned, or vested and deferred, as the Board
determines. No performance units have been granted under the Plan.
Changes in Capital Structure. The Plan provides that if the outstanding
Common Stock of the Company is increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any recapitalization, stock split
or certain other transactions, appropriate adjustment will be made by the Board
in the number and kind of shares available for awards under the Plan. In
addition, the Board will make appropriate adjustments in outstanding options and
SARs. In the event of dissolution of the Company or a merger, consolidation or
plan of exchange affecting the Company, in lieu of the foregoing treatment for
options and SARs, the Board may, in its sole discretion, provide a 30-day period
prior to such event during which optionees shall have the right to exercise
options and SARs in whole or in part without any limitation on exercisability
and upon the expiration of which 30-day period all unexercised options and SARs
shall immediately terminate.
Stock Option Grants to Non-Employee Directors. Pursuant to the terms of the
Plan, each individual who becomes a non-employee director of the Company after
August 7, 1995, is automatically granted, on the date the individual joins the
Board of Directors, a non-statutory option to purchase 15,000 shares of Common
Stock. In addition, each non-employee director of the Company automatically is
granted an annual, non-statutory option to purchase 5,000 shares of Common
Stock. No such grants are made, however, if the non-employee director's employer
prohibits the non-employee director from receiving such options.
Tax Consequences. Certain options authorized to be granted under the Plan
are intended to qualify as ISOs for federal income tax purposes. Under federal
income tax law currently in effect, an optionee will recognize no
18
income upon grant or exercise of an ISO. However, the amount by which the fair
market value exceeds the exercise price is included in the optionee's
alternative minimum taxable income and may, under certain conditions, be taxed
under the alternative minimum, tax. If an optionee holds shares acquired upon
exercise of an ISO until the later of two years following the date of grant or
one year following the date of exercise (the "holding period"), and if the
optionee has been employed by the Company (or any parent or subsidiary of the
Company) at all times from the date of grant to the date three months before
exercise, then any gain realized upon subsequent disposition of the shares will
be long-term capital gain and any loss will be long-term capital loss. If an
optionee disposes of shares acquired upon exercise of an ISO before the
expiration of the holding period, any amount realized will be taxable as
ordinary compensation income in the year of such disqualifying disposition to
the extent of the lesser of (1) the excess of the fair market value of the
shares on the exercise date over the exercise price, or (2) the excess of the
fair market value of the shares on the date of disposition over the optionee's
adjusted basis in the shares on the date of disposition. The Company will not be
allowed any deduction for federal income tax purposes at either the time of the
grant or the time of exercise of an ISO. Upon any disqualifying disposition by
an optionee, the Company will generally be entitled to a deduction to the extent
the optionee realizes ordinary income.
Certain options authorized to be granted under the Plan will be treated as
NSOs for federal income tax purposes. Under federal income tax law presently in
effect, no income is realized by the grantee of an NSO until the option is
exercised. When the NSO is exercised, the optionee will realize ordinary
compensation income, and the Company will generally be entitled to a deduction,
in the amount by which the fair market value of the shares subject to the option
at the time of exercise exceeds the exercise price. The Company is required to
withhold on the income amount. Upon the sale of shares acquired upon exercise of
an NSO, the excess of the amount realized from the sale over the adjusted basis
of the shares, which generally is equal to the fair market value of the shares
on the date of exercise will be taxable.
Under federal income tax law currently in effect, no income is realized by
the grantee of an SAR until the SAR is exercised. At the time the SAR is
exercised, the grantee will realize ordinary compensation income, and the
Company generally will be entitled to a deduction, in the amount equal to the
fair market value of the shares or cash received. The Company is required to
withhold on the income amount.
An employee who receives stock in connection with the performance of
services generally will realize taxable income at the time of receipt of the
stock if either the shares are "substantially vested" for purposes of Section 83
of the Code or the employee elects under Section 83(b) of the Code within 30
days after the original transfer to include in gross income the excess of the
fair market value of the shares at the time of transfer over the amount paid for
the shares. If the shares are not substantially vested at the time of receipt
and no Section 83(b) election is made, the employee will realize taxable income
in each year in which a portion of the shares substantially vest. The Company
generally will be entitled to a deduction in the amount includible as income by
the employee at the same time or times as the employee recognizes income with
respect to the shares. A participant who receives a cash bonus right under the
Plan generally will recognize income
19
equal to the amount of any cash bonus paid at the time of receipt of the bonus,
and the Company generally will be entitled to a deduction equal to the income
recognized by the participant. The Company is required to withhold on the income
amount.
Section 162(m) of the Code limits to $1 million per person the amount that
the Company may deduct for compensation paid to any of its most highly
compensated officers in any taxable year. Under IRS regulations, compensation
received through the exercise of an option or SAR will not be subject to the $1
million limit if the option or SAR and the plan meet certain requirements. One
such requirement is shareholder approval at least once every five years of
per-employee limits on the number of shares as to which options or SARs may be
granted. Approval of this Proposal 3 will constitute reapproval of the
per-employee limits under the Plan previously approved by the shareholders.
Other requirements are that the option or SAR be granted by a committee composed
solely of two or more outside directors and that the exercise price of the
option or SAR be not less than the fair market value of the stock subject to the
option or SAR on the date of grant. Accordingly, the Company believes that if
this proposal is approved by shareholders, compensation received on exercise of
options or SARs granted under the Plan in compliance with the above requirements
will continue to be exempt from the $1 million deduction limit.
Recommendation by the Board of Directors. The Board of Directors recommends
that the proposed amendment to the Plan be approved. The affirmative vote of the
holders of a majority at the Annual Meeting of the shares of Common Stock
present and entitled to vote on the matter is required to approve this Proposal
3. Abstentions have the same effect as "no" votes in determining whether the
amendment is approved. Broker non-votes are counted for purposes of determining
whether a quorum exists at the Annual Meeting but are not counted and have no
effect on the results of the vote on Proposal 3. The proxies will be voted for
or against the proposal or as an abstention, in accordance with the instructions
specified on the proxy form. If no instructions are given, proxies will be voted
for approval of the amendment to the Plan.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company to file with the Securities and Exchange
Commission reports of changes in ownership of the Common Stock of the Company
held by such persons. Executive officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. Based solely on a review of the copies of the
reports received by the Company and on written representations of certain
reporting persons, the Company believes that during fiscal 1996 all persons
required to report under Section 16(a) of the Securities Exchange Act of 1934
filed timely reports.
20
INDEPENDENT ACCOUNTANTS
The representatives of Price Waterhouse LLP will be present at the Annual
Meeting and will be available to respond to appropriate questions. They do not
plan to make any statement but will have the opportunity to make a statement if
they wish.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal by a shareholder of the Company to be considered for inclusion
in proxy materials for the Company's 1998 Annual Meeting of Shareholders must be
received in proper form by the Company at its principal office no later than
December 11, 1997.
DISCRETIONARY AUTHORITY
The Board of Directors of the Company is not aware of any matters other
than the aforementioned matters that will be presented for consideration at the
Annual Meeting. If other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy to vote thereon in
accordance with their best judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO EXECUTE AND
RETURN THE ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED.
By Order of the Board of Directors,
Brian V. Turner
Chief Financial Officer
and Vice President of
Finance and Administration
April 10, 1997
21
APPENDIX A
RADISYS CORPORATION
1995 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is to
enable RadiSys Corporation (the "Company") to attract and retain the services of
(1) selected employees, officers and directors of the Company or of any
subsidiary of the Company and (2) selected nonemployee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's products
and independent contractors of the Company or any subsidiary.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in paragraph 13, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 1,500,000 shares. The shares issued under
the Plan may be authorized and unissued shares or reacquired shares. If an
option, stock appreciation right or performance unit granted under the Plan
expires, terminates or is cancelled, the unissued shares subject to such option,
stock appreciation right or performance unit shall again be available under the
Plan. If shares sold or awarded as a bonus under the Plan are forfeited to the
Company or repurchased by the Company, the number of shares forfeited or
repurchased shall again be available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective as of August 7,
1995. No option, stock appreciation right or performance unit granted under the
Plan to an officer who is subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (an "Officer") or a director, and no incentive stock
option, shall become exercisable, however, until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at a shareholders meeting at which a quorum is present and any such
awards under the Plan prior to such approval shall be conditioned on and subject
to such approval. Subject to this limitation, options, stock appreciation rights
and performance units may be granted and shares may be awarded as bonuses or
sold under the Plan at any time after the effective date and before termination
of the Plan.
(b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have
A-1
lapsed. The Board of Directors may suspend or terminate the Plan at any time
except with respect to options, performance units and shares subject to
restrictions then outstanding under the Plan. Termination shall not affect any
outstanding options, any right of the Company to repurchase shares or the
forfeitability of shares issued under the Plan.
4. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to time
the individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the Plan,
the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect, and it shall be the sole and final judge of such
expediency.
(b) COMMITTEE. The Board of Directors may delegate to a committee of
the Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If authority
is delegated to a Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee except (i) as otherwise provided by
the Board of Directors, (ii) that only the Board of Directors may amend or
terminate the Plan as provided in paragraphs 3 and 15 and (iii) that a Committee
including officers of the Company shall not be permitted to grant options to
persons who are officers of the Company. If awards are to be made under the Plan
to Officers or directors, authority for selection of Officers and directors for
participation and decisions concerning the timing, pricing and amount of a grant
or award, if not determined under a formula meeting the requirements of Rule
16b-3 under the Securities Exchange Act of 1934, as amended, shall be delegated
to a committee consisting of two or more disinterested directors.
5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to
time, take the following action, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a)
and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory
Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock
bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided
A-2
in paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant performance units as provided in paragraph 11 and (viii) grant foreign
qualified awards as provided in paragraph 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in paragraph 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any subsidiary of
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan. The Board of
Directors shall select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom an award is
made. At the discretion of the Board of Directors, an individual may be given an
election to surrender an award in exchange for the grant of a new award. No
employee may be granted options or stock appreciation rights under the Plan for
more than an aggregate of 200,000 shares of Common Stock in connection with the
hiring of the employee or 50,000 shares of Common Stock in any calendar year
otherwise.
6. OPTION GRANTS.
(a) GENERAL RULES RELATING TO OPTIONS.
(i) Terms of Grant. The Board of Directors may grant options
under the Plan. With respect to each option grant, the Board of Directors
shall determine the number of shares subject to the option, the option
price, the period of the option, the time or times at which the option may
be exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option. At the time of the grant of an option or at any
time thereafter, the Board of Directors may provide that an optionee who
exercised an option with Common Stock of the Company shall automatically
receive a new option to purchase additional shares equal to the number of
shares surrendered and may specify the terms and conditions of such new
options.
(ii) Exercise of Options. Except as provided in paragraph
6(a)(iv) or as determined by the Board of Directors, no option granted
under the Plan may be exercised unless at the time of such exercise the
optionee is employed by or in the service of the Company or any subsidiary
of the Company and shall have been so employed or provided such service
continuously since the date such option was granted. Absence on leave or on
account of illness or disability under rules established by the Board of
Directors shall not, however, be deemed an interruption of employment or
service for this purpose. Unless otherwise determined by the Board of
Directors, vesting of options shall not continue during an absence on leave
(including an extended illness) or on account of disability. Except as
provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may
be exercised from time to time over the period stated in each option in
such amounts and at such times as shall be prescribed by the Board of
Directors, provided that options shall not be exercised for fractional
shares. Unless otherwise determined by the Board of Directors, if the
optionee does not exercise an option in any one year with respect to the
full number of shares to which the optionee is entitled in that year, the
optionee's rights shall be cumulative and the optionee may purchase those
shares in any subsequent year during the term of the option. Unless
otherwise
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determined by the Board of Directors, if an Officer exercises an option
within six months of the grant of the option, the shares acquired upon
exercise of the option may not be sold until six months after the date of
grant of the option.
(iii) Nontransferability. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors with respect to an option
granted to a person who is neither an Officer nor a director of the
Company, each other option granted under the Plan by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death.
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the Board
of Directors, in the event the employment or service of the optionee
with the Company or a subsidiary terminates for any reason other than
because of physical disability or death as provided in subparagraphs
6(a)(iv)(B) and (C), the option may be exercised at any time prior to
the expiration date of the option or the expiration of 30 days after
the date of such termination, whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the
option at the date of such termination.
(B) Termination Because of Total Disability. Unless
otherwise determined by the Board of Directors, in the event of the
termination of employment or service because of total disability, the
option may be exercised at any time prior to the expiration date of
the option or the expiration of 12 months after the date of such
termination, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
such termination. The term "total disability" means a medically
determinable mental or physical impairment which is expected to result
in death or which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the optionee to be
unable, in the opinion of the Company and two independent physicians,
to perform his or her duties as an employee, director, officer or
consultant of the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the
first day after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
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(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the death of an
optionee while employed by or providing service to the Company or a
subsidiary, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months after the
date of death, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
death and only by the person or persons to whom such optionee's rights
under the option shall pass by the optionee's will or by the laws of
descent and distribution of the state or country of domicile at the
time of death.
(D) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or, with respect to an
option that is not an Incentive Stock Option, at any time thereafter,
may extend the 30-day and 12-month exercise periods any length of time
not longer than the original expiration date of the option, and may
increase the portion of an option that is exercisable, subject to such
terms and conditions as the Board of Directors may determine.
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or
service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to such option shall cease
and terminate.
(v) Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the
Plan only upon receipt by the Company of notice in writing from the
optionee of the optionee's intention to exercise, specifying the number of
shares as to which the optionee desires to exercise the option and the date
on which the optionee desires to complete the transaction, and if required
in order to comply with the Securities Act of 1933, as amended, containing
a representation that it is the optionee's present intention to acquire the
shares for investment and not with a view to distribution. Unless the Board
of Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option, the optionee
must have paid the Company the full purchase price of such shares in cash
(including, with the consent of the Board of Directors, cash that may be
the proceeds of a loan from the Company (provided that, with respect to an
Incentive Stock Option, such loan is approved at the time of option grant))
or, with the consent of the Board of Directors, in whole or in part, in
Common Stock of the Company valued at fair market value, restricted stock,
performance units or other contingent awards denominated in either stock or
cash, promissory notes and other forms of consideration. The fair market
value of Common Stock provided in payment of the purchase price shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is exercised, the Board of
Directors may consider any valuation methods it deems
A-5
appropriate and may, but is not required to, obtain one or more independent
appraisals of the Company. If the Common Stock of the Company is publicly
traded on the date the option is exercised, the fair market value of Common
Stock provided in payment of the purchase price shall be the closing price
of the Common Stock as reported in The Wall Street Journal on the last
trading day preceding the date the option is exercised, or such other
reported value of the Common Stock as shall be specified by the Board of
Directors. No shares shall be issued until full payment for the shares has
been made. With the consent of the Board of Directors (which, in the case
of an Incentive Stock Option, shall be given only at the time of option
grant), an optionee may request the Company to apply automatically the
shares to be received upon the exercise of a portion of a stock option
(even though stock certificates have not yet been issued) to satisfy the
purchase price for additional portions of the option. Each optionee who has
exercised an option shall immediately upon notification of the amount due,
if any, pay to the Company in cash amounts necessary to satisfy any
applicable federal, state and local tax withholding requirements. If
additional withholding is or becomes required beyond any amount deposited
before delivery of the certificates, the optionee shall pay such amount to
the Company on demand. If the optionee fails to pay the amount demanded,
the Company may withhold that amount from other amounts payable by the
Company to the optionee, including salary, subject to applicable law. With
the consent of the Board of Directors an optionee may satisfy this
obligation, in whole or in part, by having the Company withhold from the
shares to be issued upon the exercise that number of shares that would
satisfy the withholding amount due or by delivering to the Company Common
Stock to satisfy the withholding amount. Upon the exercise of an option,
the number of shares reserved for issuance under the Plan shall be reduced
by the number of shares issued upon exercise of the option.
(b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair market value,
on the date of grant, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by that employee during
any calendar year under the Plan and under all incentive stock option plans
(within the meaning of Section 422 of the Code) of the Company or any
parent or subsidiary of the Company exceeds $100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary of the
Company only if the option price is at least 110 percent of the fair market
value, as described in paragraph 6(b)(iv), of the Common Stock subject to
the option on the date it is granted and the option by
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its terms is not exercisable after the expiration of five years from the
date it is granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall continue in
effect for the period fixed by the Board of Directors, except that no
Incentive Stock Option shall be exercisable after the expiration of 10
years from the date it is granted.
(iv) Option Price. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as provided in
paragraph 6(b)(ii), the option price shall not be less than 100 percent of
the fair market value of the Common Stock covered by the Incentive Stock
Option at the date the option is granted. The fair market value shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is granted, the Board of
Directors may consider any valuation methods it deems appropriate and may,
but is not required to, obtain one or more independent appraisals of the
Company. If the Common Stock of the Company is publicly traded on the date
the option is exercised, the fair market value shall be deemed to be the
closing price of the Common Stock as reported in The Wall Street Journal on
the day preceding the date the option is granted, or, if there has been no
sale on that date, on the last preceding date on which a sale occurred or
such other value of the Common Stock as shall be specified by the Board of
Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option shall
be granted on or after the tenth anniversary of the effective date of the
Plan.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee convert an
Incentive Stock Option to a Non-Statutory Stock Option.
(c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:
(i) Option Price. The option price for Non-Statutory Stock
Options shall be determined by the Board of Directors at the time of grant
and may be any amount determined by the Board of Directors.
(ii) Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board
of Directors.
7. STOCK BONUSES. The Board of Directors may award shares under the Plan as
stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions,
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and restrictions determined by the Board of Directors. The restrictions may
include restrictions concerning transferability and forfeiture of the shares
awarded, together with such other restrictions as may be determined by the Board
of Directors. If shares are subject to forfeiture, all dividends or other
distributions paid by the Company with respect to the shares shall be retained
by the Company until the shares are no longer subject to forfeiture, at which
time all accumulated amounts shall be paid to the recipient. The Board of
Directors may require the recipient to sign an agreement as a condition of the
award, but may not require the recipient to pay any monetary consideration other
than amounts necessary to satisfy tax withholding requirements. The agreement
may contain any terms, conditions, restrictions, representations and warranties
required by the Board of Directors. The certificates representing the shares
awarded shall bear any legends required by the Board of Directors. Unless
otherwise determined by the Board of Directors, shares awarded as a stock bonus
to an Officer may not be sold until six months after the date of the award. The
Company may require any recipient of a stock bonus to pay to the Company in cash
upon demand amounts necessary to satisfy any applicable federal, state or local
tax withholding requirements. If the recipient fails to pay the amount demanded,
the Company may withhold that amount from other amounts payable by the Company
to the recipient, including salary or fees for services, subject to applicable
law. With the consent of the Board of Directors, a recipient may deliver Common
Stock to the Company to satisfy this withholding obligation. Upon the issuance
of a stock bonus, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued.
8. RESTRICTED STOCK. The Board of Directors may issue shares under the Plan
for such consideration (including promissory notes and services) as determined
by the Board of Directors. Shares issued under the Plan shall be subject to the
terms, conditions and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with such other
restrictions as may be determined by the Board of Directors. If shares are
subject to forfeiture or repurchase by the Company, all dividends or other
distributions paid by the Company with respect to the shares shall be retained
by the Company until the shares are no longer subject to forfeiture or
repurchase, at which time all accumulated amounts shall be paid to the
recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject
to a purchase agreement, which shall be executed by the Company and the
prospective recipient of the shares prior to the delivery of certificates
representing such shares to the recipient. The purchase agreement may contain
any terms, conditions, restrictions, representations and warranties required by
the Board of Directors. The certificates representing the shares shall bear any
legends required by the Board of Directors. Unless otherwise determined by the
Board of Directors, shares issued under this paragraph 8 to an Officer may not
be sold until six months after the shares are issued. The Company may require
any purchaser of restricted stock to pay to the Company in cash upon demand
amounts necessary to satisfy any applicable federal, state or local tax
withholding requirements. If the purchaser fails to pay the amount demanded, the
Company may withhold that amount from other amounts payable by the Company to
the purchaser, including salary, subject to applicable law.
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With the consent of the Board of Directors, a purchaser may deliver Common Stock
to the Company to satisfy this withholding obligation. Upon the issuance of
restricted stock, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued.
9. STOCK APPRECIATION RIGHTS.
(a) GRANT. Stock appreciation rights may be granted under the Plan by
the Board of Directors, subject to such rules, terms, and conditions as the
Board of Directors prescribes.
(b) EXERCISE.
(i) Each stock appreciation right shall entitle the holder, upon
exercise, to receive from the Company in exchange therefor an amount equal
in value to the excess of the fair market value on the date of exercise of
one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a stock appreciation right granted in
connection with an option, the excess of the fair market value of one share
of Common Stock of the Company over the option price per share under the
option to which the stock appreciation right relates), multiplied by the
number of shares covered by the stock appreciation right or the option, or
portion thereof, that is surrendered. No stock appreciation right shall be
exercisable at a time that the amount determined under this subparagraph is
negative. Payment by the Company upon exercise of a stock appreciation
right may be made in Common Stock valued at fair market value, in cash, or
partly in Common Stock and partly in cash, all as determined by the Board
of Directors.
(ii) A stock appreciation right shall be exercisable only at the
time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, the following
rules shall apply: (1) the stock appreciation right shall be exercisable
only to the extent and on the same conditions that the related option could
be exercised; (2) the stock appreciation rights shall be exercisable only
when the fair market value of the stock exceeds the option price of the
related option; (3) the stock appreciation right shall be for no more than
100 percent of the excess of the fair market value of the stock at the time
of exercise over the option price; (4) upon exercise of the stock
appreciation right, the option or portion thereof to which the stock
appreciation right relates terminates; and (5) upon exercise of the option,
the related stock appreciation right or portion thereof terminates. Unless
otherwise determined by the Board of Directors, no stock appreciation right
granted to an Officer or director may be exercised during the first six
months following the date it is granted.
(iii) The Board of Directors may withdraw any stock appreciation
right granted under the Plan at any time and may impose any conditions upon
the
A-9
exercise of a stock appreciation right or adopt rules and regulations from
time to time affecting the rights of holders of stock appreciation rights.
Such rules and regulations may govern the right to exercise stock
appreciation rights granted prior to adoption or amendment of such rules
and regulations as well as stock appreciation rights granted thereafter.
(iv) For purposes of this paragraph 9, the fair market value of
the Common Stock shall be determined as of the date the stock appreciation
right is exercised, under the methods set forth in paragraph 6(b)(iv).
(v) No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to
the value of the fraction or, if the Board of Directors shall determine,
the number of shares may be rounded downward to the next whole share.
(vi) Each stock appreciation right granted in connection with an
Incentive Stock Option, and unless otherwise determined by the Board of
Directors with respect to a stock appreciation right granted to a person
who is neither an Officer nor a director of the Company, each other stock
appreciation right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the holder's domicile at the time of death, and
each stock appreciation right by its terms shall be exercisable during the
holder's lifetime only by the holder.
(vii) Each participant who has exercised a stock appreciation
right shall, upon notification of the amount due, pay to the Company in
cash amounts necessary to satisfy any applicable federal, state and local
tax withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant including salary, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy
this obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that would
satisfy the withholding amount due or by delivering Common Stock to the
Company to satisfy the withholding amount.
(viii) Upon the exercise of a stock appreciation right for
shares, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued. Cash payments of stock appreciation
rights shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan.
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10. CASH BONUS RIGHTS.
(a) GRANT. The Board of Directors may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii)
stock appreciation rights granted or previously granted, (iii) stock bonuses
awarded or previously awarded and (iv) shares sold or previously sold under the
Plan. Cash bonus rights will be subject to rules, terms and conditions as the
Board of Directors may prescribe. Unless otherwise determined by the Board of
Directors with respect to a cash bonus right granted to a person who is neither
an Officer nor a director of the Company, each cash bonus right granted under
the Plan by its terms shall be nonassignable and nontransferable by the holder,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder's domicile at the
time of death. The payment of a cash bonus shall not reduce the number of shares
of Common Stock reserved for issuance under the Plan.
(b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash bonus right
granted in connection with an option will entitle an optionee to a cash bonus
when the related option is exercised (or terminates in connection with the
exercise of a stock appreciation right related to the option) in whole or in
part if, in the sole discretion of the Board of Directors, the bonus right will
result in a tax deduction that the Company has sufficient taxable income to use.
If an optionee purchases shares upon exercise of an option and does not exercise
a related stock appreciation right, the amount of the bonus, if any, shall be
determined by multiplying the excess of the total fair market value of the
shares to be acquired upon the exercise over the total option price for the
shares by the applicable bonus percentage. If the optionee exercises a related
stock appreciation right in connection with the termination of an option, the
amount of the bonus, if any, shall be determined by multiplying the total fair
market value of the shares and cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right, including a previously granted bonus
right, may be changed from time to time at the sole discretion of the Board of
Directors but shall in no event exceed 75 percent.
(c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A cash bonus
right granted in connection with a stock bonus will entitle the recipient to a
cash bonus payable when the stock bonus is awarded or restrictions, if any, to
which the stock is subject lapse. If bonus stock awarded is subject to
restrictions and is repurchased by the Company or forfeited by the holder, the
cash bonus right granted in connection with the stock bonus shall terminate and
may not be exercised. The amount and timing of payment of a cash bonus shall be
determined by the Board of Directors.
(d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A cash bonus
right granted in connection with the purchase of stock pursuant to paragraph 8
will entitle the recipient to a cash bonus when the shares are purchased or
restrictions, if any, to which the stock is subject lapse. Any cash bonus right
granted in connection with shares purchased pursuant to paragraph 8 shall
terminate and may not be exercised in the
A-11
event the shares are repurchased by the Company or forfeited by the holder
pursuant to applicable restrictions. The amount of any cash bonus to be awarded
and timing of payment of a cash bonus shall be determined by the Board of
Directors.
(e) TAXES. The Company shall withhold from any cash bonus paid
pursuant to paragraph 10 the amount necessary to satisfy any applicable federal,
state and local withholding requirements.
11. PERFORMANCE UNITS. The Board of Directors may grant performance units
consisting of monetary units which may be earned in whole or in part if the
Company achieves certain goals established by the Board of Directors over a
designated period of time, but not in any event more than 10 years. The goals
established by the Board of Directors may include earnings per share, return on
shareholders' equity, return on invested capital, and such other goals as may be
established by the Board of Directors. In the event that the minimum performance
goal established by the Board of Directors is not achieved at the conclusion of
a period, no payment shall be made to the participants. In the event the maximum
corporate goal is achieved, 100 percent of the monetary value of the performance
units shall be paid to or vested in the participants. Partial achievement of the
maximum goal may result in a payment or vesting corresponding to the degree of
achievement as determined by the Board of Directors. Payment of an award earned
may be in cash or in Common Stock or in a combination of both, and may be made
when earned, or vested and deferred, as the Board of Directors determines.
Deferred awards shall earn interest on the terms and at a rate determined by the
Board of Directors. Unless otherwise determined by the Board of Directors with
respect to a performance unit granted to a person who is neither an Officer nor
a director of the Company, each performance unit granted under the Plan by its
terms shall be nonassignable and nontransferable by the holder, either
voluntarily or by operation of law, except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death. Each participant who has been awarded a performance unit shall, upon
notification of the amount due, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding requirements. If
the participant fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the participant, including
salary or fees for services, subject to applicable law. With the consent of the
Board of Directors a participant may satisfy this obligation, in whole or in
part, by having the Company withhold from any shares to be issued that number of
shares that would satisfy the withholding amount due or by delivering Common
Stock to the Company to satisfy the withholding amount. The payment of a
performance unit in cash shall not reduce the number of shares of Common Stock
reserved for issuance under the Plan. The number of shares reserved for issuance
under the Plan shall be reduced by the number of shares issued upon payment of
an award.
12. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such
officers and employees of the Company and its subsidiaries and such other
persons described in paragraph 1 residing in foreign jurisdictions as the Board
of Directors may
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determine from time to time. The Board of Directors may adopt such supplements
to the Plan as may be necessary to comply with the applicable laws of such
foreign jurisdictions and to afford participants favorable treatment under such
laws; provided, however, that no award shall be granted under any such
supplement with terms which are more beneficial to the participants than the
terms permitted by the Plan.
13. CHANGES IN CAPITAL STRUCTURE.
(a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the Company by
reason of any stock split, combination of shares or dividend payable in shares,
recapitalization or reclassification appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares available for grants under
the Plan. In addition, the Board of Directors shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or portions
thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive.
(b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party or
a sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors shall, in its sole discretion and to the
extent possible under the structure of the Transaction, select one of the
following alternatives for treating outstanding options under the Plan:
(i) Outstanding options shall remain in effect in accordance with
their terms.
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring
corporation in the Transaction. The amount, type of securities subject
thereto and exercise price of the converted options shall be determined by
the Board of Directors of the Company, taking into account the relative
values of the companies involved in the Transaction and the exchange rate,
if any, used in determining shares of the surviving corporation to be
issued to holders of shares of the Company. Unless otherwise determined by
the Board of Directors, the converted options shall be vested only to the
extent that the vesting requirements relating to options granted hereunder
have been satisfied.
A-13
(iii) The Board of Directors shall provide a 30-day period prior
to the consummation of the Transaction during which outstanding options may
be exercised to the extent then exercisable, and upon the expiration of
such 30-day period, all unexercised options shall immediately terminate.
The Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during such
30-day period.
(c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the
Company, options shall be treated in accordance with paragraph 13(b)(iii).
(d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may
also grant options, stock appreciation rights, performance units, stock bonuses
and cash bonuses and issue restricted stock under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, stock bonuses, cash
bonuses, restricted stock and performance units granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.
14. AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.
15. APPROVALS. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
16. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
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17. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
18. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
(a) Initial Board Grants. Each person who becomes a Non-Employee
Director after the Plan is adopted shall be automatically granted an option to
purchase 15,000 shares of Common Stock when he or she becomes a Non-Employee
Director, so long as such person has not previously served as a director of the
Company. A "Non-Employee Director" is a director who is not an employee of the
Company or any of its subsidiaries, but does not include such a director whose
employer prohibits such director from receiving any grant of an option to
purchase shares of Common Stock of the Company.
(b) Additional Grants. Each Non-Employee Director shall be
automatically granted an option to purchase additional shares of Common Stock in
each calendar year subsequent to the year in which such Non-Employee Director
was granted an option pursuant to paragraph 18(a), such option to be granted as
of the date of the Company's annual meeting of shareholders held in such
calendar year, provided that the Non-Employee Director continues to serve in
such capacity as of such date. The number of shares subject to each additional
grant shall be 5,000 shares for each Non-Employee Director.
(c) Exercise Price. The exercise price of all options granted pursuant
to this paragraph 18 shall be equal to 100 percent of the fair market value of
the Common Stock determined pursuant to paragraph 6(b)(iv).
(d) Term of Option. The term of each option granted pursuant to this
paragraph 18 shall be 10 years from the date of grant.
(e) Exercisability. Until an option expires or is terminated and
except as provided in paragraphs 18(g) and 13, an option granted under this
paragraph 18 shall be exercisable in full on the date one year following the
grant of the option.
(f) Termination As a Director. If an optionee ceases to be a director
of the Company for any reason, including death, the option may be exercised at
any time prior to the expiration date of the option or the expiration of 30 days
(or 12 months in the event of death) after the last day the optionee served as a
director, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option as of the last day the optionee
served as a director.
A-15
(g) Nontransferability. Each option by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the optionee's domicile at the time of death, and each
option by its terms shall be exercisable during the optionee's lifetime only by
the optionee.
(h) Exercise of Options. Options may be exercised upon payment of cash
or shares of Common Stock of the Company in accordance with paragraph 6(a)(v).
Adopted: August 7, 1995
A-16
PROXY
RADISYS CORPORATION
Annual Meeting, May 20 1997
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Dr. Glenford J. Myers, James F. Dalton, Richard
C. Faubert, C. Scott Gibson, Dr. William W. Lattin, and Jean-Claude
Peterschmitt, and each of them, proxies with power of substitution to vote on
behalf of the undersigned all shares that the undersigned may be entitled to
vote at the Annual Meeting of Shareholders of RadiSys Corporation (the
"Company") on May 20, 1997 and any adjournments thereof, with all powers that
the undersigned would possess if personally present, with respect to the
following:
1. Election of Directors: [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
except as marked to vote for all
to the contrary nominees listed
below. below.
(Instructions: To withhold authority to vote for any individual, strike a
line through the nominee's name below.)
Dr. Glenford J. Myers, James F. Dalton, Richard C. Faubert, C. Scott
Gibson, Dr. William W. Lattin, and Jean-Claude Peterschmitt
2. To amend the Company's Second Restated Articles of Incorporation to increase
the authorized shares of Common Stock from 15,000,000 to 50,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To amend the Company's 1995 Stock Incentive Plan to increase the number of
shares of the Company's Common Stock that may be issued pursuant to the plan
from 1,000,000 to 1,500,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Transaction of any business that properly comes before the meeting or any
adjournments thereof. A majority of the proxies or substitutes at the meeting
may exercise all the powers granted hereby.
(Continued and to be signed on the other side.)
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted
for the election of directors and for Proposal (2), above, and for Proposal
(3), above. The proxies may vote in their discretion as to other matters
that may come before this meeting.
Shares:
Date:_________________________________, 1997
P
R
0 ____________________________________________
X Signature or Signatures
Y
Please date and sign as name is imprinted
hereon, including designation as executor,
trustee, etc., if applicable. A corporation
must sign its name by the president or other
authorized officer. If a partnership, please
sign in partnership name by authorized
persons.
The Annual Meeting of Shareholders of
RadiSys Corporation will be held on May 20,
1997 at 8:30 am., Pacific Daylight Time, at
the corporate headquarters at 5445 N.E.
Dawson Creek Drive, Hillsboro, Oregon.
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself--the beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entity in whose name the shares are held how to vote the
shares held for the beneficial owner. Therefore, if any shares of stock of the
Company are held in "street name" by a brokerage house, only the brokerage
house, at the instructions of its client, may vote or appoint a proxy to vote
the shares.