SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
POLYCOM, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2000
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To The Stockholders of Polycom:
Notice is hereby given that the Annual Meeting of Stockholders of Polycom,
Inc., a Delaware corporation (the "Company"), will be held on Thursday, May 18,
2000 at 10:00 a.m., local time, at the Company's facilities, 1565 Barber Lane,
Milpitas, California 95035, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares
of Common Stock of the Company from 50,000,000 to 175,000,000.
3. To consider and approve an amendment to the Company's 1996 Stock
Incentive Plan changing the amount and characteristics of options granted
to non-employee directors under the automatic option grant program, and
to ratify and approve the material terms of the Company's 1996 Stock
Incentive Plan.
4. To consider and approve an amendment to the Company's 1996 Stock
Incentive Plan increasing the number of shares of Common Stock reserved
for issuance thereunder from 5,625,000 to 7,625,000 shares.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on March 24, 1999 are entitled to notice of and to vote at the Annual
Meeting.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy as
promptly as possible in the envelope enclosed. Should you receive more than one
proxy because your shares are registered in different names or addresses, please
sign and return each proxy to assure that all your shares will be voted. You may
revoke your proxy at any time prior to the Annual Meeting. If you attend the
Annual Meeting and vote by ballot, your proxy will be revoked automatically and
only your vote at the Annual Meeting will be counted.
By Order of the Board of Directors of
Polycom, Inc.
/s/ ROBERT C. HAGERTY
Robert C. Hagerty
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Milpitas, California
April 7, 2000
YOUR VOTE IS IMPORTANT TO THE COMPANY. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENVELOPE PROVIDED.
POLYCOM, INC.
1565 BARBER LANE
MILPITAS, CALIFORNIA 95035
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PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
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PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Polycom, Inc., a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Thursday, May 18,
2000 at 10:00 a.m., local time, and at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's facilities at
1565 Barber Lane, Milpitas, CA 95035. The Company's telephone number is (408)
526-9000. These proxy solicitation materials were mailed on or about April 7,
2000, together with the Company's 1999 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on March 24, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, shares of the Company's common stock, $0.0005 par
value (the "Common Stock"), were issued and outstanding and entitled to be voted
at the Annual Meeting. No shares of the Company's preferred stock were
outstanding as of the Record Date. For information regarding security ownership
by management and by the beneficial owners of more than 5% of the Company's
Common Stock, see "Management--Security Ownership of Management and Certain
Beneficial Owners."
VOTING
Each stockholder entitled to vote at the Annual Meeting is entitled to one
vote for each share of Common Stock held as of the Record Date on all matters
presented at the Annual Meeting. The required quorum for the transaction of
business at the Annual Meeting is a majority of shares of Common Stock
outstanding on the Record Date, entitled to vote, present in person or
represented by proxy. Under the General Corporation Law of the State of
Delaware, abstentions and broker "non-votes" are counted as present for the
purpose of determining the presence or absence of a quorum for the transaction
of business. A plurality of the votes duly cast is required for the election of
directors. The affirmative vote of a majority of the votes duly cast is required
to amend the Company's 1996 Stock Incentive Plan and to ratify the appointment
of auditors. The affirmative vote of a majority of the outstanding stock of the
corporation entitled to vote on the matter is required to amend the Certificate
of Incorporation.
Neither abstentions nor broker "non-votes" affect the election of directors
as the vote required is a plurality of the votes duly cast, which means that
only affirmative votes will affect the outcome of the election. Broker
"non-votes" are not deemed to be "votes cast." As a result, while abstentions
are deemed to be "votes cast" and will have the effect of votes in opposition of
a given proposal, broker "non-votes" are not included in the tabulation of the
voting results on issues requiring approval of a majority of the votes cast and,
therefore, do not have the effect of votes in opposition in such tabulations.
However, in the case of the amendment of the Certificate of Incorporation,
broker "non-votes" will have the same effect as votes against the proposal since
the affirmative vote of the outstanding stock of the corporation entitled to
vote on the matter is required to amend the Certificate of Incorporation. All
votes will be tabulated by the inspector of election appointed for the meeting,
who will separately tabulate affirmative and negative votes, abstentions and
broker non-votes.
A broker "non-vote" occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
REVOCABILITY OF PROXIES
Any proxy given pursuant to the 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
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at 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 of revocation or
subsequent proxy should be delivered to Polycom, Inc., 1565 Barber Lane,
Milpitas, CA 95035, Attention: Secretary, or hand-delivered to the Secretary of
the Company at or before the taking of the vote at the Annual Meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, personally or by
telephone, letter facsimile or other means of communication. No additional
compensation will be paid to directors, officers and employees who participate
in these communications.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors has selected seven nominees, all of whom are
currently serving as directors of the Company. The names of the persons who are
nominees for director and their positions with the Company as of March 24, 2000
are set forth in the table below. Two of the directors who were elected at the
last annual meeting, Bandel Carano and John Morgridge, decided to resign from
the board during 1999 and are not seeking election. Two other additional
directors who were elected at the last annual meeting, Brian Hinman and James
Swartz, are not seeking election for 2000. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unavailable to serve. In the event any nominee is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who may be designated by the present Board of
Directors to fill the vacancy. Unless otherwise instructed, the proxy holders
will vote the proxies received by them FOR the nominees named below.
The name of and certain information regarding each nominee is set forth
below.
NAME AGE POSITION
- ----------------------------- ----------- -----------------------------------------------------------------------------
Robert C. Hagerty............ 48 Chairman of the Board, President, and, Chief Executive Officer
Michael R. Kourey............ 40 Senior Vice President, Finance and Administration, Chief Financial Officer,
Secretary and Director
Betsy S. Atkins(2)........... 44 Director
John Seely Brown(2).......... 59 Director
John A. Kelley............... 50 Director
Stanley J. Meresman(1)....... 53 Director
William A. Owens(1).......... 59 Director
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(1) Member of Audit Committee
(2) Member of Compensation Committee
ROBERT C. HAGERTY joined the Company in December 1996 as President and Chief
Operating Officer and as a member of the Board of Directors. In July 1998,
Mr. Hagerty was named the Company's Chief Executive Officer. In March 2000,
Mr. Hagerty was named the Company's Chairman of the Board of Directors. Prior to
joining Polycom, Mr. Hagerty served as President of Stylus Assets, Ltd., a
developer of software and hardware products for fax, document management and
Internet communications. He also held several key management positions with
Logitech, including Operating Committee Member to the Office of the President,
and Senior Vice President/General Manager of Logitech's retail division and
worldwide operations. In addition, Mr. Hagerty's career history includes
positions as Vice President, High Performance Products for Conner Peripherals,
Director of Manufacturing Operations and General Manager for Signal Corporation,
and Operations Manager for Digital Equipment Corporation. Mr. Hagerty holds a
B.S. in Operations Research and Industrial Engineering from the University of
Massachusetts, and an M.A. in Management from St. Mary's College of California.
MICHAEL R. KOUREY has been a director of the Company since January 1999.
Mr. Kourey has served as Senior Vice President, Finance and Administration since
January 1999 and as Chief Financial Officer of the Company since January 1995.
Mr. Kourey has served as the Secretary of the Company since June 1993. He also
served as Vice President, Finance and Administration from January 1995 to
January 1999, as Vice President, Finance and Operations from July 1991 to
January 1995 and as the Treasurer of the Company from June 1993 to March 1997.
Prior to joining Polycom, he was Vice President, Operations of Verilink
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Corporation. Mr. Kourey holds a B.S. in Managerial Economics from the University
of California, Davis, and an M.B.A. from the University of Santa Clara.
BETSY S. ATKINS has been a director of the Company since April 1999.
Ms. Atkins has been a private investor since August 1993. Ms. Atkins served as
President and Chief Executive Officer of NCI, Inc. from 1990 to 1993. From 1989
to 1990, Ms. Atkins was Vice President of Marketing and Sales for Ascend
Communications Corporation. Ms. Atkins is also a director of Ascend
Communications Corporation, Paradyne Corporation, Olympic Steel, Inc., Selectica
Corporation, and a number of private companies. Ms. Atkins holds a B.A. from the
University of Massachusetts.
JOHN A. KELLEY has been a director of the Company since March 2000.
Mr. Kelley has been President of Wholesale Markets for U S West since May 1998.
From 1995 to April 1998, Mr. Kelley served as Vice President and General Manager
of Large Business and Government Accounts and President of Federal Services for
U S West. Prior to joining U S West, Mr. Kelley was the Area President for Mead
Corporation's Zellerbach Southwest Business Unit and Vice President and General
Manager for the Zellerbach Industrial Business Unit during 1991 to 1995.
Mr. Kelley is also a director of InRoads of Colorado, a non-profit mentoring
program for talented, low-income students and a director of the University of
Southern California Center for Telecommunications Management. Mr. Kelley holds a
B.S. in business from the University of Missouri.
JOHN SEELY BROWN has been a director of the Company since August 1999.
Mr. Brown has been the chief scientist at Xerox Corporation since 1992 and the
director of its Palo Alto Research Center since 1990. In addition, Mr. Brown is
a co-founder of the Institute for Research on Learning, a non-profit institute
for addressing learning problems, a member of the National Academy of Education
and a fellow of the American Association for Artificial Intelligence. Mr. Brown
serves on the boards of General Instrument Corporation, Varian Medical Systems,
FX Palo Alto Laboratories, and Corning Incorporated. Mr. Brown received a B.A.
in mathematics and physics from Brown University, a M.S. in mathematics from the
University of Michigan, and a Ph.D. in computer and communications sciences from
the University of Michigan.
STANLEY J. MERESMAN has been a director of the Company since January 1995.
Mr. Meresman has been a private investor since August 1997. Mr. Meresman served
as the Senior Vice President, Finance and Chief Financial Officer of Silicon
Graphics, Inc. from May 1989 to May 1997. Prior to joining Silicon Graphics,
Mr. Meresman was Vice President, Finance and Administration, and Chief Financial
Officer of Cypress Semiconductor Corporation. Mr. Meresman is also a director of
GRIC Corporation and a number of private companies. Mr. Meresman holds a B.S. in
Industrial Engineering and Operations Research from the University of
California, Berkeley and an M.B.A. from Stanford University.
WILLIAM A. OWENS has been a director of the Company since August 1999.
Mr. Owens has been Co-Chief Executive Officer of Teledesic LLC, a satellite
communications company, since February 1999 and Vice Chairman since 1998. He is
also the Chairman and Chief Executive Officer of the affiliated Teledesic
Holdings Ltd. From 1996 to 1998, Mr. Owens was President, Chief Operating
Officer and Vice Chairman of Science Applications International Corporation
(SAIC), an information technology systems integrator. From 1994 to 1996, he was
Vice Chairman of the Joint Chiefs of Staff. Mr. Owens holds a B.A. in
mathematics from the U.S. Naval Academy, bachelor's and master's degrees in
politics, philosophy, and economics from Oxford University, and a master's in
management from George Washington University.
There are no family relationships among any of the directors or executive
officers of the Company. The Company's bylaws authorize the Board of Directors
to fix the number of directors by resolution. The Company currently has
authorized nine directors. Each director holds office until the next annual
meeting of stockholders or until his successor is duly elected and qualified.
The officers serve at the discretion of the Board of Directors.
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VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The seven candidates receiving the highest number of affirmative votes of
the shares represented in person or by proxy and voting on this particular
matter at the Annual Meeting will be elected directors of the Company to serve
until the next Annual Meeting or until their successors have been elected and
qualified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINEES LISTED ABOVE.
BOARD AND COMMITTEES MEETINGS
During the fiscal year ended January 2, 2000, the Board of Directors held
six meetings. Each of the directors attended or participated in 75% or more of
the aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board on which
he served during the past fiscal year. The Board of Directors of the Company has
two standing committees: an Audit Committee and a Compensation Committee. The
Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee, which currently consists of Messrs. Meresman and Owens,
is responsible for reviewing internal auditing procedures, the adequacy of
internal controls, and the results and scope of the audit and other services
provided by the Company's independent accountants. The Audit Committee held five
meetings during the last fiscal year.
The Compensation Committee, which currently consists of Ms. Atkins and
Mr. Brown, is primarily responsible for reviewing and approving the Company's
general compensation policies and establishing salaries, incentives and other
forms of compensation for the Company's executive officers and other employees
of the Company. The Compensation Committee also has the exclusive authority to
administer the Company's 1996 Stock Incentive Plan and make option grants
thereunder, and administers the other benefit plans of the Company. The
Compensation Committee held four meetings during the last fiscal year.
COMPENSATION OF DIRECTORS
The Company has not in the past paid cash compensation to its employee
directors. From January 1999 through July 1999, each non-employee director
received $2,500 for each attended meeting of the Board of Directors and $2,500
for each attended Board committee meeting, plus all expenses associated with
attendance at such meetings, as their sole cash compensation. Since August 1999,
the Company has not paid any cash compensation to non-employee directors, other
than for reimbursement of meeting expenses, if any. In fiscal 2000, the Company
will not pay cash compensation to its directors except for reimbursement of
expenses.
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In addition, non-employee members of the Board of Directors are eligible to
receive periodic option grants under the Automatic Option Grant program under
the Company's 1996 Stock Incentive Plan. During fiscal 1999, non-employee
directors received the following stock option grants:
NAME SHARES EXERCISE PRICE VESTING TERM
- ------------------------------------------------------------- --------- ------------------ ------------ ---------
Betsy S. Atkins.............................................. 9,375 $25.00 to $32.00 Immediate 2 yrs.
7,500 $43.00 5/18/00 5 yrs.
John Seely Brown............................................. 3,750 $33.00 Immediate 2 yrs.
11,250 $43.00 5/18/00 5 yrs.
Bandel Carano................................................ 3,750 $25.13 Immediate 2 yrs.
Stanley J. Meresman.......................................... 7,500 $25.13 to $32.00 Immediate 2 yrs.
7,500 $43.00 5/18/00 5 yrs.
John P. Morgridge............................................ 7,500 $25.13 to $32.00 Immediate 2 yrs.
7,500 $43.00 5/18/00 5 yrs.
William A. Owens............................................. 3,750 $33.00 Immediate 2 yrs.
11,250 $43.00 5/18/00 5 yrs.
James R. Swartz.............................................. 7,500 $25.13 to $32.00 Immediate 2 yrs.
7,500 $43.00 5/18/00 5 yrs.
Messrs. Carano and Morgridge resigned from the Board effective July 23, 1999
and November 27, 1999, respectively.
PROPOSAL TWO
APPROVAL OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has determined that it is in the best interests of
the Company and its stockholders to amend the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock of the Company from 50,000,000 to 175,000,000 (the "Amendment").
Accordingly, the Board of Directors has unanimously approved the Amendment and
hereby solicits the approval of the Company's stockholders of the Amendment. If
the Amendment is adopted by the stockholders, it will become effective upon
filing of an Amended and Restated Certificate of Incorporation on behalf of the
Company in substantially the form attached hereto Exhibit A, with the Secretary
of State of the State of Delaware.
As of March 24, 2000, the Company has 50,000,000 authorized shares of Common
Stock. Of this authorized number, shares were outstanding and shares
were reserved for issuance under the Company's equity compensation plans,
leaving shares unreserved, unissued, and available for issuance.
PURPOSE AND EFFECT OF THE AMENDMENT
The principal purpose of the proposal to authorize additional shares of
Common Stock is to provide the Company with the flexibility to issue Common
Stock for a variety of proper corporate purposes which the Board of Directors
may deem advisable without further action by the Company's stockholders, except
as may be required by law, regulation or Nasdaq rule. These purposes include,
among other things, raising equity capital, adopting additional equity incentive
plans or reserving additional shares for issuance under such plans, making
acquisitions through the use of stock and declaring stock splits in the form of
stock dividends or distributions. The availability of additional shares of
Common Stock is particularly important in the event that the Board of Directors
needs to undertake any of the foregoing actions on an expedited
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basis and thus avoid the time (and expense) of seeking stockholder approval in
connection with the contemplated action. The Board of Directors has no present
agreement, arrangement or intention to issue any of the additional shares for
which approval is sought. However, if these situations were to arise, the
issuance of additional shares of Common Stock could have a dilutive effect on
earnings per share and a stockholder's percentage voting power in the Company.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could, under certain circumstances, have the
effect of delaying or preventing a change in control of the Company without
further action by the stockholders (for example, by diluting the stock ownership
of a person seeking to effect a change in the composition of the Board of
Directors or contemplating a tender offer). The Company is not presently aware
of any pending or proposed transaction involving a change in control of the
Company. While it may be deemed to have potential anti-takeover effects, the
proposed amendment to increase the authorized Common Stock is not prompted by
any specific effort or takeover threat currently perceived by management.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock will be required to approve this Amendment to the Company's
Amended and Restated Certificate of Incorporation. As a result, abstentions and
broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL THREE
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN TO CHANGE THE AMOUNT AND
CHARACTERISTICS OF OPTIONS GRANTED TO NON-EMPLOYEE MEMBERS OF THE BOARD
OF DIRECTORS UNDER THE AUTOMATIC OPTION GRANT PROGRAM
Since 1996, the Company has provided stock options as an incentive to its
non-employee members of the Board of Directors. In light of competition among
companies for directors with appropriate experience, the purpose of the
amendment is to attract the best available personnel for service as outside
directors of the Company and to provide additional incentive to the outside
directors to encourage their continued service on the Board.
PROPOSED AMENDMENT
In February 2000, the Company's Board of Directors, subject to stockholder
approval, adopted an amendment to the automatic option grant program under the
Company's 1996 Stock Incentive Plan (the "1996 Plan") to provide, (i) that all
non-employee directors of the Company will be granted stock options, on the date
of each annual meeting of the Company's stockholders (beginning in 2000), for
15,000 shares of Company common stock (with the number of shares adjusted for
any changes in capitalization effected without receipt of consideration to the
Company, such as stock splits), with an exercise price equal to 100% of the fair
market value on the date of grant, which options shall vest 100% on the
anniversary of the date of grant, subject to the non-employee director remaining
a member of the Board on such date, and with a five-year term (or a lesser term
upon the termination of Board membership, as specified in the 1996 Stock
Incentive Plan), and (ii) that all non-employee directors of the Company are
hereby granted, as of the date they first join the Board, a stock option
covering 15,000 shares of Company common stock, with an exercise price equal to
100% of the fair market value on the date of grant, which options shall vest 50%
upon the first anniversary of the date of grant, and 50% upon the second
anniversary of the date of grant subject to the non-employees remaining a member
of the Board on each such date, and with a term ending on the fifth anniversary
of the date of grant.
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REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of the Company
present in person or represented by proxy and entitled to vote at the Annual
Meeting is required for approval of the amendment to the Automatic Option Grant
Program under the 1996 Plan. The effect of an abstention is the same as a vote
against approval of the amendment. Should such stockholder approval not be
obtained, then the 1996 Plan will remain unchanged, and option grants and direct
stock issuances will continue to be made pursuant to the provisions of the 1996
Plan in effect prior to the amendments summarized in this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE AUTOMATIC
OPTION GRANT PROGRAM UNDER THE 1996 STOCK INCENTIVE PLAN.
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
The following is a summary of the principal features of the 1996 Plan.
However, the summary does not purport to be a complete description of all the
provisions of the 1996 Plan, which in its current form is filed as Exhibit 99.1
to the Company's Registration Statement on Form S-8 (Registration No.
333-43059).
EQUITY INCENTIVE PROGRAMS
The 1996 Plan contains three (3) separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program, and
(iii) a Stock Issuance Program. The principal features of these programs are
described below. The 1996 Plan (other than the Automatic Option Grant Program)
is administered by the Compensation Committee of the Board. The Compensation
Committee acting in such administrative capacity (the "Plan Administrator") has
complete discretion (subject to the provisions of the 1996 Plan) to authorize
option grants and direct stock issuances under the 1996 Plan. Pursuant to
provisions in the 1996 Plan, the Board may appoint a Secondary Committee of one
or more Board members, including employee directors, to authorize option grants
and direct stock issuances to eligible persons other than Board members and
executive officers subject to the short-swing liability provisions of the
federal securities laws. In April 1999, the Board appointed such a Secondary
Committee composed of Michael Kourey to grant options, in amounts pre-approved
by the Board, to newly hired employees other than executive officers. All grants
under the Automatic Option Grant Program are to be made in strict compliance
with the provisions of that program, and no administrative discretion will be
exercised by the Plan Administrator with respect to the grants made under such
program. Options granted through either the Discretionary or Automatic Option
Grant Program do not give the holder of the options any shareholder rights until
such person has exercised the option, paid the exercise price and become a
holder of record of the purchased shares. In connection with the 1996 Plan, the
Company has adopted subplans to allow for the grant of options to employees,
consultants and directors in the Company's subsidiaries in the United Kingdom
and the Netherlands.
SHARE RESERVE
A total of 5,625,000 shares of Common Stock has been reserved for issuance
over the term of the 1996 Plan. However, Proposal Four, if approved, will raise
the number of shares reserved to 7,625,000 shares. Should an option expire or
terminate for any reason prior to exercise in full or be canceled in accordance
with the provisions of the 1996 Plan, the shares subject to the portion of the
option not so exercised or canceled will be available for subsequent issuance
under the 1996 Plan. Unvested shares issued under the 1996 Plan and subsequently
repurchased by the Company at the original option exercise or direct issue price
paid per share will also be added back to the share reserve and will accordingly
be available for subsequent issuance under the 1996 Plan. In the event any
change is made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of
8
consideration, appropriate adjustments will be made to (i) the maximum number
and class of securities issuable under the 1996 Plan, (ii) the maximum number
and class of securities for which any one participant may be granted stock
options and direct stock issuances under the 1996 Plan, (iii) the number and
class of securities for which option grants will subsequently be made under the
Automatic Option Grant Program to each continuing non-employee Board member, and
(iv) the number and class of securities and the exercise price per share in
effect under each outstanding option.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
places limits on the deductibility for federal income tax purposes on
compensation paid to certain executive officers of the Company. In order to
qualify the compensation income associated with options granted to such persons
as "performance-based" compensation under Section 162(m) of the Code, thereby
preserving the Company's ability to deduct such compensation income, the 1996
Plan provides that in no event may any one participant in the 1996 Plan be
granted stock options, separately exercisable stock appreciation rights, and
direct stock issuances for more than 300,000 shares in the aggregate per
calendar year under the 1996 Plan.
ELIGIBILITY
Employees of the Company or any parent or subsidiary, non-employee members
of the Board or the board of directors of any parent or subsidiary corporation,
and consultants and other independent advisors in the service of the Company or
its parent or subsidiary corporations will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Non-employee members of
the Board will also be eligible to participate in the Automatic Option Grant
Program.
As of March 24, 2000, seven executive officers, six non-employee Board
members and approximately 400 other employees were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, and the six
non-employee Board members were also eligible to participate in the Automatic
Option Grant Program.
DISCRETIONARY OPTION GRANT PROGRAM
Options granted under the Discretionary Option Grant Program must have an
exercise price per share not less than the fair market value per share of Common
Stock on the option grant date. No granted option can have a term in excess of
ten years.
Since December 1998, granted options generally become vested and exercisable
in a series of installments over four years so long as the optionees remain in
service to the Company. Prior to December 1998, granted options generally became
vested and exercisable in a series of installments over five years so long as
the optionees remained in service to the Company. Periodically, the Company
grants options to all employees below a certain management level as a special
incentive to retain them and/or as a special reward for past performance. These
options generally vest and become exercisable fully within one year so long as
the employee remains employed with the Company. During October 1998 and
January 2000, the Company rewarded each employee below the director management
level with such an option grant of 500 shares and 250 shares, respectively.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator has complete discretion
to extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more options
may be unvested and subject to repurchase by the Company, at the original
exercise price paid per share, if the optionee ceases service with the Company
prior to vesting in those shares. The Plan Administrator has complete discretion
9
to establish the vesting schedule to be in effect for any such unvested shares
and, in certain circumstances, may cancel the Company's outstanding repurchase
rights with respect to those shares and thereby accelerate the vesting of those
shares.
CANCELLATION AND REGRANT OF OPTIONS. The Plan Administrator also has the
authority to effect the cancellation of outstanding options under the
Discretionary Option Grant Program (including outstanding options under the
Predecessor Plan) and to issue replacement options with an exercise price based
on the fair market price of Common Stock at the time of the new grant. However,
any repricing of stock options, effected either by reducing the exercise price
of outstanding options or canceling outstanding options and granting replacement
options with a lower exercise price, shall require the approval of the holders
of a majority of the Company's voting shares.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for those shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
LIMITED STOCK APPRECIATION rights may be provided to one or more
non-employee Board members or officers of the Company as part of their option
grants. Any option with such limited stock appreciation rights may be
surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the officer will be entitled to a cash distribution from
the Company in an amount per surrendered option share equal to the excess of (a)
the highest price paid per share of Common Stock in connection with the tender
offer over (b) the exercise price payable for such share.
AUTOMATIC OPTION GRANT PROGRAM
On every Annual Meeting on or prior to January 26, 1999, each non-employee
Board member was granted a non-statutory option to purchase 5,000 shares of the
Company's Common Stock, provided the individual had served as a non-employee
Board member for at least six (6) months; except that prior to the 1998 Annual
Meeting, such option was to purchase 4,000, not 5,000 shares. Each of these
options granted prior to January 26, 1999 has a term of ten (10) years from its
date of grant. Any shares purchased under these options will be subject to
repurchase by the Company, at the option exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
options dated during this period vest in two successive equal annual
installments over the optionee's period of continued service as a Board member,
with the first such installment to vest upon the optionee's completion of one
year of Board service measured from the grant date.
On every Annual Meeting after January 26, 1999 and before October 26, 1999,
each non-employee Board member was granted a non-statutory option to purchase
15,000 shares (3,750 was granted each quarter). Each of these options granted
after January 26, 1999 and before October 26, 1999 has a term of two (2) years
from its grant date. The options dated during this period shall be fully vested
and immediately exercisable on the grant date.
On October 26, 1999 each non-employee Board member was granted a
non-statutory option to purchase a number of shares of Common Stock equal to (x)
15,000 minus (y) the number of shares of Common Stock options granted to such
individual since the prior Annual Stockholders Meeting and including the grant
at such meeting ("Interim Option"). Each of these options granted on October 26,
1999 has a term of five (5) years from the date of the 1999 Annual Shareholders
Meeting. The options
10
dated during this period shall vest and become exercisable on the first
anniversary of the 1999 Annual Shareholders Meeting, provided the Optionee
remains a Board member on such date.
If Proposal Three is adopted, in every Annual Meeting after October 26,
1999, each individual who is serving as a non-employee Board member is
automatically granted an automatic non-statutory option to purchase an amount
equal to 15,000 shares of the Company's Common Stock (a "Recurring Grant").
There is no limit on the number of such Recurring Grants that any one
non-employee Board member may receive over his or her period of Board service.
Each Recurring Grant has an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of five (5) years measured from the grant date, subject to earlier
termination. Each Recurring Grant shall vest and become exercisable on the first
anniversary of their grant date, provided the Optionee remains a Board member on
such date.
Each non-employee Board member on the Underwriting Date or elected to the
Board before January 26, 1999 was granted, on such date, a non-statutory option
to purchase 20,000 shares of Common Stock ("Initial Grant"), except that prior
to the 1998 Annual Meeting, such Initial Grant was for 16,000 shares instead of
20,000. This grant was automatic provided such individual had not previously
been in the Company's employ and had not received a prior stock option grant
from the Corporation. After January 26, 1999, no more Initial Grants were be
made. Current non-employee members of the Board will continue to hold and vest
in their Initial Grants pursuant to the original terms of such grants. Proposal
Three, if adopted by the Stockholders, will reinstate the Initial Grants in an
amount equal to 15,000 shares.
Should the optionee cease to serve as a Board member, the optionee generally
has until the earlier of (i) the twelve month period following such cessation of
service or (ii) the expiration date of the option term, in which to exercise the
option for the number of shares that are vested at the time of such individual's
cessation of Board service. Under the existing plan, the shares subject to each
automatic option grant immediately vest in full upon (i) the optionee's death or
permanent disability while a Board member, (ii) an acquisition of the Company by
merger or asset sale, (iii) the successful completion of a tender offer for more
than 50% of the Company's outstanding voting stock or (iv) a change in the
majority of the Board effected through one or more proxy contests for Board
membership. In addition, upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock, each option
may be surrendered to the Company for a cash payment in an amount equal to the
excess of the highest price per share of Common Stock paid in connection with
such tender offer over the per share exercise price multiplied by the number of
shares subject to such option.
Proposal Three, if approved by the stockholders, will (i) provide that all
non-employee directors of the Company will be granted stock options, on the date
of each annual meeting of the Company's stockholders (beginning in 2000),
covering 15,000 shares of Company common stock, such options to vest in full
after one year, subject to the non-employee director remaining a member of the
Board on such date, and with a five-year term (or a lesser term upon the
termination of Board membership, as specified in the 1996 Stock Incentive Plan),
and (ii) that all non-employee directors of the Company are granted, as of the
date they first join the Board, a stock option covering 15,000 shares of Company
common stock, vesting 50% upon the first anniversary of the date of grant and
50% upon the second anniversary of the date of grant, subject to the
non-employees remaining a member of the Board on each such date, and with a term
ending on the fifth anniversary of the date of grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than the fair market value on the issuance date, payable in cash or through
a promissory note payable to the Company. Shares may also be issued solely as a
bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. However, the Participant has
11
full stockholder rights with respect to any shares of Common Stock issued under
the Stock Issuance Program, whether or not the interest in those shares is
vested. The Plan Administrator also has the discretionary authority at any time
to accelerate the vesting of any and all unvested shares outstanding under the
1996 Plan.
Upon cessation of service, any unvested shares of Common Stock issued under
the Stock Issuance Program shall be immediately surrendered to the Corporation
for cancellation. However, the Plan Administrator may, in its discretion, waive
the surrender and cancellation of one or more unvested shares of Common Stock.
CHANGE OF CONTROL PROVISIONS
In the event that the Company is acquired by merger or asset sale, the
vesting of each outstanding option under the Discretionary Option Grant Program
which is not to be assumed by the successor corporation, including options held
by the Company's executive officers, will automatically accelerate in full, and
all unvested shares issued under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed in connection with such acquisition
may, in the Plan Administrator's discretion, be subject to immediate
acceleration of vesting, and any unvested shares which do not vest at the time
of such acquisition may be subject to full and immediate vesting, in the event
the individual's service with the successor entity is subsequently terminated
within a specified period following the acquisition. In connection with a change
in control of the Company other than by merger or asset sale (whether such
change of control is by successful tender offer for more than 50% of the
outstanding voting stock or a change in the majority of the Board by one or more
contested elections for Board membership), the Plan Administrator will have the
discretionary authority to provide for automatic acceleration of vesting of
outstanding options under the Discretionary Option Grant Program and the
automatic vesting of all unvested shares issued under the Discretionary Option
Grant and Stock Issuance Programs, with such acceleration of vesting to occur
either at the time of such change in control or upon the subsequent termination
of the individual's service.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to have the Company withhold a
portion of the shares otherwise issuable to such individuals in satisfaction of
the tax liability incurred by such individuals in connection with the exercise
of those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will,
12
however, recognize taxable income in the year in which the purchased shares are
sold or otherwise made the subject of a taxable disposition. For Federal tax
purposes, dispositions are divided into two categories: (i) qualifying and
(ii) disqualifying. A qualifying disposition occurs if the sale or other
disposition is made after the optionee has held the shares for more than two
years after the option grant date and more than one year after the exercise
date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will generally recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1996 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
13
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Internal Revenue Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices equal to the
fair market value of the shares at the time of issuance or grant will not result
in any charge to the Company's earnings, but the Company must disclose in the
notes to the Company's financial statements the fair value of options granted
under the 1996 Plan and the pro forma impact on the Company's annual net income
and earnings per share as though the computed fair value of such options had
been treated as compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law or
regulation. The Board may terminate the 1996 Plan at any time, and the 1996 Plan
will in all events terminate on December 31, 2005.
PLAN BENEFITS
If the amendment to the Automatic Option Grant Program under the 1996 Stock
Incentive Plan is approved, each non-employee Board member will receive an
annual grant of options to purchase an aggregate of 15,000 shares of the Common
Stock of the Company and each future non-employee Board member will receive a
grant of 15,000 shares upon first joining the Board. Assuming the current
nominees to the Company's Board of Directors are elected by the stockholders at
the Annual Meeting, the aggregate number of stock options to be granted to the
non-employee Board members as a group in the fiscal year ending December 31,
2000 pursuant to the Automatic Option Grant Program will be 75,000. The Company
cannot currently determine the number of shares for which options will be
granted in the future to all executive officers as a group or all employees
(including current officers who are not executive officers) as a group. However,
see "MANAGEMENT--Option Grants in Last Fiscal Year" for the number of stock
options granted to the officers named in the Summary Compensation Table in the
last fiscal year. In the fiscal year ended January 2, 2000, options to purchase
an aggregate of 475,000 shares of Common Stock of the Company were granted to
executive officers as a group at a weighted average exercise price of
approximately $34.94, and options to purchase an aggregate of 1,250,784 shares
of Common Stock of the Company were granted to all employees (including current
officers who are not executive officers) as a group at a weighted average
exercise price of approximately $33.48.
14
PROPOSAL FOUR
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
Since 1991, the Company has provided stock options as an incentive to its
employees to promote increased stockholder value. Management believes that stock
options are one of the prime ways to attract and retain key personnel
responsible for the continued development and growth of the Company's business,
and to motivate all employees to increase stockholder value. In addition, stock
options are considered a competitive necessity in the high technology industries
in which the Company competes.
The Company currently grants options to all employees upon initial hire, and
periodically to key employees or in recognition of achievement of certain
performance criteria. In the recent fiscal year, the Company experienced revenue
growth from $116.9 million in fiscal 1998 to $200.1 million in fiscal 1999.
Critical hires were made in all functional areas. Consequently, the number of
employees during fiscal 1999 grew from 243 to 362 at fiscal year end. In
addition, during October 1998 and January 2000, the Company rewarded each
employee below the director management level with a special option grant of 500
shares and 250 shares, respectively.
As a result of the increase in number of employees during fiscal 1999 and
the desire to give further incentive to and retain current employees and
officers in today's highly competitive and tight labor market, options to
purchase 1,715,270 shares were granted from the 1996 Plan and consequently as of
December 31, 1999, there were 353,200 shares available for issuance under the
1996 Plan, not including the 2,000,000 shares subject to shareholder approval at
this Annual Meeting.
As of March 15, 2000, 112,162 shares are available for issuance under the
1996 Plan, not including the 2,000,000 shares subject to shareholder approval at
this Annual Meeting, and 4,266,117 option shares are outstanding that were
issued under the 1996 Plan and the assumed stock option plans of ViaVideo
Communications, Inc. and Atlas Communication Engines, Inc.
PROPOSED AMENDMENT
In February 2000, the Board of Directors adopted, subject to stockholder
approval, an amendment to the 1996 Plan to increase the number of shares
reserved for issuance thereunder from 5,625,000 to 7,625,000 shares.
Stockholders are being asked at the Annual Meeting to approve the increase in
shares reserved under the 1996 Plan.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of the Company
present in person or represented by proxy and entitled to vote at the Annual
Meeting is required for approval of the amendment to the 1996 Plan. The effect
of an abstention is the same as a vote against approval of the amendments to the
1996 Plan. Should such stockholder approval not be obtained, then the 1996 Plan
will remain unchanged, and option grants and direct stock issuances will
continue to be made pursuant to the 1996 Plan in effect until there are no
remaining shares available for issuance pursuant to the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
1996 STOCK INCENTIVE PLAN INCREASING THE NUMBER OF SHARES RESERVED THEREUNDER.
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
For a description of the 1996 Stock Option Plan, please see "Proposal
Three--Amendment To The 1996 Stock Incentive Plan To Change the Amount and
Characteristics of Options Granted To Non-Employee Members Of The Board Of
Directors Under the Automatic Option Grant Program--Description of the 1996
Stock Incentive Plan" beginning on page [ ].
15
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 2000. PricewaterhouseCoopers LLP has audited the
Company's financial statements since 1991. A representative of
PricewaterhouseCoopers LLP is expected to be present at the meeting, will have
the opportunity to make a statement if he or she desires to do so, and is
expected to be available to respond to appropriate questions.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has conditioned its appointment of the Company's
independent accountants upon the receipt of the affirmative vote of a majority
of the shares represented, in person or by proxy, and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a majority
of the required quorum. The effect of an abstention is the same as a vote
against the ratification of the appointment of the independent accountants. In
the event that the stockholders do not approve the selection of
PricewaterhouseCoopers LLP, the appointment of the independent accountants will
be reconsidered by the Board of Directors. The Board of Directors may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors believes that such a change would be in the best
interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLP, AS INDEPENDENT ACCOUNTANTS
FOR THE COMPANY'S FISCAL YEAR ENDING DECEMBER 31, 2000.
16
MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 24, 2000 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's directors;
(iii) the Company's Chief Executive Officer and each of the officers ("Named
Officers") named in the Summary Compensation Table on page [__] hereof; and (iv)
all directors and executive officers of the Company as a group.
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS AND OFFICERS(1) OWNED(2) OWNED(2)
- ---------------------------------------------------------------------------------------- ----------- ---------------
PRINCIPAL STOCKHOLDERS
Pilgrim Baxter & Associates, Ltd.(3).................................................... 2,637,350 7.5%
FMR Corp.(4)............................................................................ 2,399,600 6.8%
Minnesota Mining and Manufacturing Company(5)........................................... 2,000,000 5.7%
Amvescap PLC(6)......................................................................... 1,946,500 5.5%
DIRECTORS
Betsy S. Atkins(7)...................................................................... 17,875 *
John Seely Brown(8)..................................................................... 15,000 *
Brian L. Hinman(9)...................................................................... 170,817 *
John A. Kelley.......................................................................... -- *
Stanley J. Meresman(10)................................................................. 24,500 *
William A. Owens(11).................................................................... 15,000 *
James R. Swartz(12)..................................................................... 88,006 *
NAMED EXECUTIVE OFFICERS
Dale A. Bastian(13)..................................................................... 20,345 *
Alan D. Hagedorn(14).................................................................... 71,763 *
Robert C. Hagerty(15)................................................................... 88,832 *
Michael R. Kourey(16)................................................................... 180,753 *
Craig B. Malloy(17)..................................................................... 196,624 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(13 persons)(18)...................................................................... 1,014,764 2.9%
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address for each listed stockholder is c/o
Polycom, Inc., 1565 Barber Lane, Milpitas, California 95035.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Shares of
Common Stock subject to options which are currently exercisable or which
will become exercisable within sixty (60) days after March 24, 2000 are
deemed outstanding for purposes of computing the beneficial ownership of
the person holding such options but are not deemed outstanding for purposes
of computing the beneficial ownership of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(3) The address of Pilgrim Baxter & Associates, Ltd. Is 825 Duportail Road,
Wayne, PA 19087.
17
(4) The address of FMR Corp. is 82 Devonshire Street, Boston, MA 02109.
(5) The address of Minnesota Mining and Manufacturing Company is 3M Center,
Building 224-5S-28, St. Paul, MN 55144.
(6) The address of Amvescap PLC is 1315 Peachtree St. N.E., Atlanta, GA 30309.
Amvescap PLC, a parent holding company, holds the securities through its
subsidiaries AVZ, Inc., AIM Management Group, Inc., AMVESCAP Group
Services, Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO North
American Holdings, Inc., INVESCO Funds Group, Inc. and INVESCO
Management & Research, Inc.
(7) Includes 7,500 shares owned by Ms. Atkins in the form of immediately
exercisable options.
(8) Includes 15,000 shares owned by Dr. Brown in the form of immediately
exercisable options.
(9) Includes 6,667 shares owned by Mr. Hinman in the form of immediately
exercisable options.
(10) Includes 24,000 shares owned by Mr. Meresman in the form of immediately
exercisable options.
(11) Includes 15,000 shares owned by Mr. Owens in the form of immediately
exercisable options.
(12) Includes 40,000 shares owned by Mr. Swartz in the form of immediately
exercisable options.
(13) Includes 7,500 shares owned by Mr. Bastian in the form of immediately
exercisable options.
(14) Includes 23,540 shares owned by Mr. Hagedorn in the form of immediately
exercisable options.
(15) Includes 67,535 shares owned by Mr. Hagerty in the form of immediately
exercisable options. Mr. Hagerty is also a director of the Company.
(16) Includes 119,423 shares owned by Mr. Kourey in the form of immediately
exercisable options. Mr. Kourey is also a director of the Company.
(17) Includes 74,573 unvested shares owned by Mr. Malloy that are subject to a
repurchase right of the Company that lapses over time.
(18) Includes options to purchase 407,664 shares of common stock, and 74,573
shares of unvested common stock. Unvested shares are subject to a
repurchase right of the Company that lapses over time.
18
EXECUTIVE OFFICER COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
four other most highly compensated executive officers whose salary plus bonus
exceeded $100,000 during the last fiscal year, information concerning
compensation paid for services to the Company in all capacities during the last
three fiscal years. The individuals in the table will be collectively referred
to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
-------------
-------------------- SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS (#) ($)(2)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
Robert C. Hagerty.................................... 1999 272,404 141,650 200,000 13,428
Chairman of the Board, President, and 1998 194,346 167,428 200,000 4,721
Chief Executive Officer 1997 159,539 -- 300,000 4,254
Michael R. Kourey.................................... 1999 223,789 93,096 -- 23,089(3)
Senior Vice President, Finance and 1998 189,279 115,933 75,000 18,312(3)
Administration and Chief Financial Officer 1997 186,029 -- 200,000 15,012(3)
Craig B. Malloy(4)................................... 1999 179,391 98,665 200,000 9,431
Senior Vice President / General Manager 1998 152,361 97,131 -- 4,683
Videoconferencing 1997 129,095 -- -- 5,519
Alan D. Hagedorn..................................... 1999 174,481 79,389 -- 8,792
Senior Vice President, Manufacturing 1998 145,808 79,097 50,000 4,544
1997 130,000 -- -- 4,094
Dale A. Bastian(5)................................... 1999 194,308 93,377 75,000 12,566
Senior Vice President, Worldwide Sales 1998 173,558 139,503 -- 4,697
and Service 1997 71,923 -- 150,000 61,736(6)
- ------------------------
(1) Includes bonuses earned or accrued with respect to services rendered in the
fiscal year indicated, whether or not such bonus was actually paid during
such fiscal year.
(2) Includes health, life, dental, vision and disability insurance premiums paid
by the Company pursuant to employee benefit programs available to all
employees. Also includes tax return preparation services for 1999.
(3) Includes imputed interest of 5.44% on Mr. Kourey's interest free loan issued
by the Company in 1997. The loan was paid in full in September 1999.
(4) Mr. Malloy joined the Company in January 1998. Compensation amounts for
previous years reflect the compensation he received while employed at
ViaVideo Communications, Inc. prior to its merger with the Company.
Mr. Malloy joined Via Video in September 1996.
(5) Mr. Bastian joined the Company in July 1997.
(6) Includes $60,000 of relocation assistance paid to Mr. Bastian.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table shows, as to each of the Named Executive Officers,
information concerning stock options granted during the fiscal year ended
January 2, 2000. No stock appreciation rights were granted to the Named
Executive Officers during such fiscal year.
19
OPTION GRANTS IN FISCAL 1999
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT
------------------------------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(5)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE(3) DATE(4) 5% 10%
- -------------------------------- ----------- --------------- ---------- ------------- ------------ -------------
Robert C. Hagerty............... 200,000 11.6% $ 34.9375 7/09 $ 4,394,401 $ 11,136,275
Michael R. Kourey............... -- -- -- -- -- --
Craig B. Malloy................. 200,000 11.6% $ 34.9375 7/09 $ 4,394,401 $ 11,136,275
Alan D. Hagedorn................ -- -- -- -- -- --
Dale A. Bastian................. 75,000 4.3% $ 34.9375 7/09 $ 1,647,900 $ 4,176,103
- ------------------------
(1) All options in this table are incentive stock options to extent permissible
by IRS limitations with the remainder being non-qualified options, were
granted under the 1996 Stock Incentive Plan, and have exercise prices equal
to the fair market value on the date of grant. All such options have
ten-year terms (subject to earlier termination upon the optionee's cessation
of service) and vest over a four-year period at the rate of one-fourth at
the end of one year from the date of grant and 1/36th each month thereafter.
The shares subject to each option will immediately vest in full in the event
the Company is acquired by a merger or asset sale (unless the Company's
repurchase right with respect to the unvested shares is to be assigned to
the acquiring entity or the option is to be assumed by such entity).
(2) The Company granted options to purchase a total of 1,724,784 shares of
Common Stock to employees in fiscal 1999 including those granted under the
Atlas Communication Engines, Inc. 1996 Stock Option Plan.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by lending the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
(4) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of the Company.
(5) Potential realizable value assumes that the stock price increases from the
exercise price from the date of grant until the end of the option term (10
years) at the annual rate specified (5% and 10%). Annual compounding results
in total appreciation of approximately 62.9% (at 5% per year) and 159.4% (at
10% per year). The assumed annual rates of appreciation are specified in SEC
rules and do not represent the Company's estimate or projection of future
stock price growth. The Company does not necessarily agree that this method
can properly determine the value of an option.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the Named Executive Officers,
certain information concerning stock options exercised during the fiscal year
ended January 2, 2000 and the number of shares subject to exercisable stock
options as of January 2, 2000. Also reported are values for "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Common Stock as of December 31, 1999 (the last trading day of fiscal 1999) which
was $63.6875 per share.
20
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON REALIZED -------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------ ---------- ----------- ------------- ------------ -------------
Robert C. Hagerty............. 125,797 3,621,415 50,870 448,333 $ 2,986,774 $ 20,410,606
Michael R. Kourey............. 32,137 1,253,686 164,946 184,584 $ 9,438,572 $ 10,107,175
Craig B. Malloy............... -- -- -- 200,000 -- $ 5,750,000
Alan D. Hagedorn.............. 30,000 1,168,125 47,000 83,000 $ 2,525,012 $ 4,236,325
Dale A. Bastian............... 57,499 1,399,978 5,001 152,500 $ 292,246 $ 6,685,156
CERTAIN TRANSACTIONS
In 1997, the Company issued a $250,000 interest free loan to Michael R.
Kourey, Vice President, Finance and Administration and Chief Financial Officer.
The loan was due in March, 2002, or within four months of Mr. Kourey's
resignation from the Company, if earlier. The Company has previously made loans
for an aggregate of $12,000 to Mr. Kourey bearing a weighted average interest
rate of 7.29%. The loans were secured by 17,900 shares of Common Stock of the
Company owned by Mr. Kourey. Mr. Kourey paid the loan in full in September 1999,
and no balance is outstanding as of December 31, 1999.
In 1998, the Company issued a $250,000 loan to Craig B. Malloy, Vice
President and General Manager, Videoconferencing. The loan was due in
April 1999 and bore interest at an annual rate of 5.44%. The loan was secured by
25,000 shares of common stock of the Company owned by Mr. Malloy. Mr. Malloy
repaid the loan in full in March 1999, and no balance is outstanding as of
December 31, 1999.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of directors
Betsy S. Atkins and John Seely Brown, neither of whom is an employee or officer
of the Company. The Compensation Committee of the Board of Directors sets the
compensation of the Chief Executive Officer and the other executive officers and
key employees, subject to ratification by the Board. The Compensation Committee
also administers the Company's 1996 Stock Incentive Plan and approves stock
option grants for all executive officers and other key employees.
GENERAL COMPENSATION POLICY
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
executive officers of the Company should be designed to attract, motivate and
retain talented executives responsible for the success of the Company and should
be determined within a competitive framework and based on the achievement of
overall financial results, individual contributions and a measure of customer
satisfaction. Within this overall philosophy, the Committee's objectives are to:
1. Offer a total compensation program that takes into consideration the
compensation practices of a specifically identified peer group of companies and
other selected companies with which the Company competes for executive talent.
2. Provide annual variable incentive awards that take into account the
Company's overall financial performance relative to corporate objectives and the
performance of the peer group companies and that are also based on individual
contributions.
3. Align the financial interests of executive officers with those of
stockholders by providing significant equity-based, long-term incentives.
21
COMPENSATION PROCESS AND COMPONENTS
The Committee determines the compensation levels for the executive officers
with the assistance of the Company's Human Resources Department, utilizing
executive compensation data drawn from a nationally recognized survey of
similarly sized technology companies (the "Peer Companies"). A significant
number of the Peer Companies are listed in the Hambrecht & Quist Technology
Index, included in the Performance Graph for this Proxy Statement (see
"Comparison of Stockholder Return"). Certain companies not included in this
Index were also taken into account as Peer Companies because the Company
competes for executive talent with those firms. The positions of the Company's
Chief Executive Officer and other executive officers were compared with those of
their counterparts at the Peer Companies, and the market compensation levels for
comparable positions were examined to determine base salary, target incentives
and total cash compensation. In addition, the Peer Companies' practices
concerning stock option grants were reviewed and compared.
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term
equity-based incentive awards.
BASE SALARY. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at the Peer Companies.
VARIABLE INCENTIVE AWARDS. To reinforce the importance of Company goals,
the Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive pool set aside for executive officers is determined on the
basis of the Company's achievement of the financial performance targets
established at the beginning of the fiscal year and a range for the executive's
contribution. The incentive plan requires a threshold level of Company
performance based on both revenue and profit before interest and taxes that must
be attained before any incentives are awarded. Once the fiscal year's threshold
is reached, specific formulas are in place to calculate the actual incentive
payment for each officer. A target is set for each executive officer based on
targets for comparable positions at the Peer Companies. In fiscal 1999, the
Company met many of its performance targets. Consequently the variable incentive
awards were accrued in 1999 and paid out in February 2000.
LONG-TERM, EQUITY-BASED INCENTIVE AWARDS. The goal of the Company's
long-term equity-based incentive awards is to align the interests of executive
officers with stockholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The Committee determines the size of
long-term, equity-based incentives according to each executive's position within
the Company and sets a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Committee takes into account
an individual's recent performance, his or her potential for future
responsibility and promotion, comparable awards made to individuals in similar
positions with the Peer Companies, and the number of unvested options held by
each individual at the time of the new grant. The relative weight given to each
of these factors varies among individuals at the Committee's discretion.
During fiscal 1999, the Committee made option grants to Messrs. Hagerty,
Malloy, and Bastian under the Company's 1996 Stock Incentive Plan. Each grant
allows the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the market price on the grant date) over a specified period of
time. Generally, each option granted under the 1996 Stock Incentive Plan vests
in periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return only if the officer remains with the Company and only if the
market price appreciates over the option term.
CHIEF EXECUTIVE OFFICER COMPENSATION. The annual base salary for
Mr. Hagerty for the 1999 fiscal year was based on an evaluation of his personal
performance and the salary levels paid to chief executive officers of the Peer
Companies. Mr. Hagerty's 1999 fiscal year incentive compensation was based on
the
22
actual financial performance of the Company relative to corporate objectives.
Mr. Hagerty's incentive compensation provided no dollar guarantees.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). As a result of
Section 162(m) of the Internal Revenue Code, which was enacted into law in 1993,
the Company will not be allowed a Federal income tax deduction for compensation
paid to certain officers to the extent that compensation exceeds one million
dollars per officer in any one year. This limitation will apply to all
compensation which is not considered to be performance based. Compensation which
does qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation.
The cash compensation paid to the Company's executive officers during fiscal
1999 did not exceed the one million dollar limit per officer, nor is the cash
compensation to be paid to the Company's executive officers for the 2000 fiscal
year expected to reach that level. Because it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this decision should the individual
compensation of any executive officer ever approach the one million dollar
level.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Company Stock Performance Graph (set forth below) will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
THE COMPENSATION COMMITTEE
Betsy S. Atkins
John Seely Brown
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in January 1995 and is
currently composed of Ms. Atkins and Mr. Brown. No interlocking relationship
exists between any member of the Company's Board of Directors or Compensation
Committee and any member of the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. No member of the Compensation Committee is or was formerly an officer or
an employee of the Company or its subsidiaries.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has agreed to pay certain Named Executive Officers severance pay
in the event that they are terminated without cause or in certain other
specified circumstances. The amount of such severance payment is the executive's
salary and benefits for a period of three to six months. In addition, pursuant
to the merger with ViaVideo Communications, Inc., the Company entered into a
three-year employment contract with Mr. Malloy, Vice President and General
Manager, Videoconferencing. In the event Mr. Malloy is terminated without "good
cause," the Company has agreed to pay him severance in an amount equal to what
would have been paid to him in salary over the remaining balance of the
three-year term up to a maximum of eighteen months.
COMPARISON OF STOCKHOLDER RETURN(1)
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock with the cumulative total returns of the Nasdaq National Stock
Market Index and the Hambrecht & Quist Technology Index. The graph covers the
23
period from April 29, 1996, the date the Company's initial public offering
commenced, through the fiscal year ended January 2, 2000.
The graph assumes that $100 was invested on April 29, 1996 in the Company's
Common Stock and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock.
COMPANY STOCK PRICE PERFORMANCE GRAPH(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
POLYCOM, INC. NASDAQ INDEX H&Q TECHNOLOGY
4/96 $100 $100 $100
6/96 $78 $100 $94
9/96 $68 $103 $100
12/96 $51 $108 $107
3/97 $44 $103 $102
6/97 $58 $121 $123
9/97 $60 $142 $149
12/97 $57 $133 $126
3/98 $115 $156 $152
6/98 $167 $160 $156
9/98 $147 $145 $138
1/99 $247 $187 $195
3/99 $208 $210 $213
6/99 $433 $229 $252
9/99 $530 $235 $267
1/00 $708 $339 $436
- ------------------------
(1) The stock price performance shown on the graph is not indicative of future
price performance. Information used on the graph was obtained from sources
believed to be reliable, but the Company is not responsible for any errors
or omissions in such information.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States (Section 16 of the Securities
Exchange Act of 1934, as amended), the Company's directors, executive officers
and any persons holding more than 10% of the Company's Common Stock are required
to report initial ownership of the Company's Common Stock and any subsequent
changes in ownership to the Securities and Exchange Commission ("SEC"). Specific
due dates have been established by the SEC, and the Company is required to
disclose in this Proxy Statement any failure to file by these dates. Based
solely upon (i) the copies of Section 16(a) reports that the Company received
from such persons for their 1999 fiscal year transactions and (ii) the written
representations received from certain of such persons that no reports were
required to be filed for them for the 1999 fiscal year, the Company believes
that there has been compliance with all Section 16(a) filing requirements
applicable to such officers, directors and 10% beneficial owners for such fiscal
year, except that Mr. Hagerty did not file a Form 4 for a stock sale in
May 1999, which sale was subsequently reported on his Form 4 in June 1999.
24
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission. Proposals of stockholders of the Company
which are intended to be included in the proxy statement and proxy card for the
Company's 2000 Annual Meeting of Stockholders must be received by the Company no
later than December 7, 2000 in order to be considered for inclusion in such
proxy materials. In addition, a stockholder who intends to present a proposal at
the Company's 2001 Annual Meeting of Stockholders without inclusion of the
proposal in the Company's proxy materials must provide written notice of such
proposal to the Company's Secretary no later than February 22, 2001.
Discretionary authority with respect to stockholder proposals submitted beyond
February 22, 2001 is granted by the execution of the enclosed proxy. Further,
the Company reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with the
foregoing requirements and other requirements of the proxy rules promulgated by
the Securities and Exchange Commission. In order to avoid any dispute as to the
date on which a proposal was received by the Company, it is suggested that
proponents submit their proposals by certified mail, return receipt requested.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
It is important that your shares are represented at the meeting, regardless
of the number of shares that you own. We therefore urge you to execute and
return the accompanying proxy card in the envelope which has been enclosed for
your convenience.
THE BOARD OF DIRECTORS
Milpitas, California
April 7, 2000
25
SKU # 1513-PS-00
PROXY
POLYCOM, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 18, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF POLYCOM, INC.
PROXY - The undersigned stockholder of Polycom, Inc., a Delaware
corporation, hereby acknowledges receipt of the 1999 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and the Proxy
Statement, each dated April 7, 2000, for the Annual Meeting of Stockholders of
Polycom, Inc. to be held on May 18, 2000 at 10:00 a.m., local time at Polycom,
Inc.'s headquarters facilities and revoking all prior proxies, hereby appoints
Robert C. Hagerty and Michael R. Kourey, and each of them, as proxies and
attorneys-in-fact, each with full power of substitution, and to represent and to
vote, as designated on the reverse side, all shares of Common Stock of Polycom,
Inc. held on record by the undersigned on March 24, 2000 at the Annual Meeting
to be held on May 18, 2000, or any postponement or adjournment thereof.
The Board of Directors recommends a vote FOR the election of directors and
proposals 2, 3, 4 and 5.
SEE REVERSE SIDE
Please mark votes as in this example [X]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS AND FOR THE PROPOSALS IN ITEMS 2, 3, 4, 5 AND
6.
1. Election of all nominees listed below to the Board of
Directors to serve until the next Annual Meeting and until
their successors have been duly elected and qualified, except
as noted (write the names, if any, of nominees for whom you
withhold authority to vote).
NOMINEES: Robert C. Hagerty, Michael R. Kourey, Betsy S. Atkins, John
Seely Brown, John A. Kelley, Stanley J. Meresman, and William
A. Owens
/ / FOR ALL NOMINEES
/ / WITHHELD FROM ALL NOMINEES
/ / ____________________________________
For all nominees except as noted above
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of
authorized shares of Common Stock of the Company from
50,000,000 to 175,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's 1996 Stock Incentive
Plan changing the amount and characteristics of options
granted to non-employee directors under the automatic option
grant program, and to ratify and approve the material terms of
the Company's 1996 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an amendment to the Company's 1996 Stock Incentive
Plan increasing the number of shares reserved for issuance
thereunder from 5,625,000 to 7,625,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
5. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year
ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, the proxies and attorneys-in-fact are
authorized to vote upon such other business as may properly
come before the Annual Meeting or any adjournment(s) thereof.
/ / Mark here for address change and note below
(This Proxy should be dated, signed by the stockholder(s) exactly as his or her
name(s) appears hereon, and returned promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so indicate.)
Signature:_____________________ Date:________________________
Signature:_____________________ Date:________________________
APPENDIX B
AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF POLYCOM, INC.,
A DELAWARE CORPORATION
Polycom, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
FIRST: That the name of this corporation is Polycom, Inc., and that
this corporation was originally incorporated on December 13, 1990 under the name
Polycom Corporation.
SECOND: That the Board of Directors of this corporation as of May 18,
2000 duly adopted resolutions proposing to amend and restate the Restated
Certificate of Incorporation of the corporation (the "Certificate"), declaring
said amendment and restatement to be advisable and in the best interests of the
corporation and its stockholders and authorizing the appropriate officers of the
corporation to solicit the consent of the stockholders therefor which
resolution, setting the proposed amendment and restatement is as follows:
"RESOLVED, that the Restated Certificate of Incorporation of this corporation
(the "Certificate") be amended and restated to read in its entirety as follows:
ARTICLE I
The name of this corporation is Polycom, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, County of New Castle, Wilmington, Delaware, 19805.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
(1) CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is One Hundred Eighty Million (180,000,000) shares. One Hundred Seventy-Five
Million (175,000,000) shares shall be Common Stock, with a par value per share
of $.0005, and Five Million (5,000,000) shares shall be Preferred Stock, with a
par value share of $.001.
(2) PREFERRED STOCK. The Board of Directors is authorized, subject
to limitations prescribed by law and the provisions of this Article IV, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
B-1
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(c) Whether that series shall have voting rights in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such privileges, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable on case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(h) Any other relative rights, preferences and
limitations of that series.
(3) Common Stock
(a) Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights
as to dividends, the holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
the corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
(b) Redemption. The Common Stock is not redeemable.
(c) Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of
any stockholders' meeting in accordance with the Bylaws of this corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Certificate, in furtherance and
not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind any or all of the
Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
B-2
ARTICLE VII
Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as the same may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Restated Certificate of Incorporation inconsistent with
this Article shall eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE X
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
THIRD: The amendment to the Restated Certificate of Incorporation of
the Corporation set forth in this Certificate of Amendment has been duly adopted
in accordance with the provisions of Section 242 and 245 of the Delaware General
Corporation Law by (a) the Board of Directors of the Corporation having duly
adopted a resolution setting forth such amendment and declaring its advisability
and submitting it to the stockholders of the Corporation for their approval, and
(b) the stockholders of the Corporation having duly adopted such amendment by
vote of the holders of a majority of the outstanding stock entitled to vote
thereon at a special meeting of stockholders called and held upon notice in
accordance with Section 222 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
May 18, 2000.
POLYCOM, INC.
----------------------------
Robert C. Hagerty, President
----------------------------
Michael R. Kourey, Secretary
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APPENDIX C
POLYCOM, INC. 1996 STOCK INCENTIVE PLAN
(AS AMENDED THROUGH FEBRUARY 7, 2000)
The following constitute the provisions of the 1996 Stock Incentive Plan (herein
called the "Plan") of Polycom, Inc. (herein called the "Corporation").
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of
Polycom, Inc., a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three (3) separate equity
programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
and
(iii) the Automatic Option Grant Program under which
Eligible Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The Discretionary Option Grant and Stock Issuance Programs
became effective immediately upon the Plan Effective Date, and the Automatic
Option Grant Program became effective upon the Underwriting Date.
C. The provisions of Articles One and Five shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the
Discretionary Option Grant and Stock Issuance Programs were administered by the
Board. Beginning with the Section 12(g) Registration Date, the Primary Committee
shall have sole and exclusive authority to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to Section 16 Insiders.
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B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are also Employees.
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any stock option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
1. Employees,
2. non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
3. consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to
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receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid for such
shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
D. The individuals eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
non-employee Board members on the Underwriting Date, (ii) those individuals who
first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who continue to serve as non-employee Board members
through one or more Annual Stockholders Meetings held after the Underwriting
Date. A non-employee Board member shall not be eligible to receive an initial
option grant under the Automatic Option Grant Program on the Underwriting Date
if such individual has previously been in the employ of the Corporation (or any
Parent or Subsidiary) or has otherwise received a prior stock option grant from
the Corporation. A non-employee Board member who first joins the Board after the
Underwriting Date shall not be eligible to receive an initial option grant under
the Automatic Option Grant Program if such individual has previously been in the
employ of the Corporation (or any Parent or Subsidiary). Non-employee Board
members who have previously been in the employ of the Corporation (or any Parent
or Subsidiary) or who have previously received a stock option grant from the
Corporation shall, however, be eligible to receive one or more annual option
grants under the Automatic Option Grant Program over their period of continued
Board service.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed
approximately 7,625,000 shares.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 300,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Two.
In addition, any unvested shares issued under the Plan and subsequently
repurchased by the Corporation, at the option exercise or direct issue price
paid per share, pursuant to the Corporation's repurchase rights under the Plan
shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under the
Plan. However, should the exercise price of an option under the Plan (including
any option incorporated from the Predecessor Plan) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which any
one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances per
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calendar year, (iii) the number and/or class of securities for which automatic
option grants are to be made subsequently per Eligible Director under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and the exercise price per share in effect under each outstanding option
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable written instructions
to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state
and local income and employment taxes required to be
withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to
such brokerage firm in order to complete the sale
transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
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C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall
remain exercisable for such period of time thereafter
as shall be determined by the Plan Administrator and
set forth in the documents evidencing the option, but
no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part
by the Optionee at the time of death may be exercised
subsequently by the personal representative of the
Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the
aggregate for more than the number of vested shares
for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding
for any vested shares for which the option has not
been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent
the option is not otherwise at that time exercisable
for vested shares.
(iv) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by
the Optionee shall terminate immediately and cease to
be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the
Optionee's cessation of Service from the period
otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration
date of the option term, and/or
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only
with respect to the number of vested shares of Common
Stock for which such option is exercisable at the
time of the Optionee's cessation of Service but also
with respect to one or more additional installments
in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
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F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, Non-Statutory Options
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall NOT be subject to the terms of this Section II
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, to be assumed by the successor corporation (or
parent thereof) or (ii) such option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
unvested option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the
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shares of Common Stock subject to those rights) upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed (or those
repurchase rights are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in whole or in part should the Optionee's Service
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Corporate Transaction in which those options are assumed or replaced
and do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the EARLIER of (i) the expiration of
the option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.
G. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in whole or in part should the Optionee's Service
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Change in Control. Each option so accelerated shall remain
exercisable for fully-vested shares until the EARLIER of (i) the expiration of
the option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new
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options covering the same or different number of shares of Common Stock but with
an exercise price per share based on the Fair Market Value per share of Common
Stock on the new grant date. However, any repricing of stock options, effected
either by reducing the exercise price of outstanding options or canceling
outstanding options and granting replacement options with a lower exercise
price, shall require the approval of the holders of a majority of the company's
voting shares.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying
option for shares of Common Stock and the surrender of that
option in exchange for a distribution from the Corporation in
an amount equal to the excess of (a) the Fair Market Value (on
the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered
option (or surrendered portion thereof) over (b) the aggregate
exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly
in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered
portion thereof) on the option surrender date and may exercise
such rights at any time prior to the LATER of (a) five (5)
business days after the receipt of the rejection notice or (b)
the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than
ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited
stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for
the surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such
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shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time
the limited stock appreciation right is granted, the
subsequent exercise of that right in accordance with the terms
of the grant and the provisions of this Section V.C. No
additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender
and cash distribution.
(iv) The balance of the option (if any) shall continue in
full force and effect in accordance with the documents
evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the
Plan Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Five, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan
Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over
the Participant's period of Service or upon
attainment of specified performance objectives. The
elements of the vesting schedule applicable to any
unvested shares of Common Stock issued under the
Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be
attained,
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(ii) the number of installments in which the
shares are to vest,
(iii) the interval or intervals (if any) which are
to lapse between installments, and
(iv) the effect which death, Permanent Disability
or other event designated by the Plan
Administrator is to have upon the vesting
schedule, shall be determined by the Plan
Administrator and incorporated into the
Stock Issuance Agreement.
2. Any new, substituted or additional securities or
other property including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).
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C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. On the date of each Annual Stockholders Meeting held
after October 26, 1999, each non-employee member of the Board (an "Eligible
Director"), whether or not that Eligible Director is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase an amount equal to 15,000 shares of Common
Stock. There shall be no limit on the number of such option grants any one
Eligible Director may receive over his or her period of Board service, and
Eligible Directors who have previously been in the employ of the Corporation (or
any Parent or Subsidiary) or who have otherwise received a stock option grant
from the Corporation shall be eligible to receive such option grants over their
period of continued Board service. Each individual serving as a non-employee
Board member shall, upon the date such individual joins the Board of Directors,
be automatically granted on such date a non-statutory option to purchase 15,000
shares (a "Primary Grant"), provided such individual (i) had not previously been
in the employ of the Corporation (or any Parent or Subsidiary) and (ii) had not
otherwise received a prior stock option grant from the Corporation.
2. Each Eligible Director on October 26, 1999 shall
automatically be granted a Non-Statutory Option to purchase a number of shares
of Common Stock equal to (x) 15,000 minus (y) the number of shares of Common
Stock granted to such individual since the prior Annual Stockholders Meeting and
including the grant at such meeting (the "Interim Option").
3. Each individual serving as a non-employee Board
member on the Underwriting Date and each Eligible Director elected to the Board
prior to January 26, 1999 was automatically granted, on such date, a
Non-Statutory Option to purchase 20,000 shares of Common Stock (an "Initial
Grant"), provided such individual (i) had not previously been in the employ of
the Corporation (or any Parent or Subsidiary) and (ii) had not otherwise
received a prior stock option grant from the Corporation, except that prior to
the 1998 Annual Meeting such Initial Grant was for 16,000 shares instead of
20,000. On every Annual Shareholder Meeting after the Underwriting Date but on
or prior to January 26, 1999, each Eligible Director was granted a Non-Statutory
Option for 5,000 shares of Common Stock, provided such individual was an
Eligible Director for at least six (6) months, except that prior to the 1998
Annual Meeting, such option was to purchase 4,000 shares, not 5,000. After
January 26, 1999 and prior to October 26, 1999, Eligible Directors were granted
a Non-Statutory Option to purchase 3,750 shares of Common Stock on the date of
each Annual Shareholders Meeting and grants of Non-Statutory Options to purchase
3,750 shares of Common Stock on the
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next three (3) month anniversaries following each applicable Annual
Shareholders Meeting. The automatic annual grant of 15,000 shares of Common
Stock is intended to replace these previous automatic quarterly grants.
B. EXERCISE PRICE.
1. The exercise price per share for any option grant
under this Article Four shall be equal to one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
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C. OPTION TERM. Each option granted after October 26, 1999 shall
have a term of five (5) years measured from the grant date. The Interim Option
shall have a term of five (5) years from the date of the 1999 Annual
Stockholders Meeting. Each option granted on or after January 26, 1999 and on or
before October 26, 1999 shall have a term of two (2) years measured from the
option grant date. Each option granted prior to January 26, 1999 shall have a
term of ten (10) years from its date of grant.
D. EXERCISE AND VESTING OF OPTIONS. Automatic option grants made
on the date of each Annual Stockholders Meeting held after October 26, 1999
shall vest and become exercisable on the first anniversary of that Annual
Stockholder's Meeting, provided the Optionee remains a Board member on such
date. Each Primary Grant shall vest and become exercisable 50% on the first
anniversary of the date of grant and 50% on the second anniversary of the date
of grant, provided the Optionee remains a Board member on such dates. Each
Interim Option shall vest and become exercisable on the first anniversary of the
1999 Annual Shareholders Meeting, provided the Optionee remains a Board member
on such date. Each option granted on or after January 26, 1999 and on or before
October 26, 1999 shall be fully vested and immediately exercisable on the option
grant date for any or all of the option shares. Any shares purchased under an
option granted prior to January 26, 1999 shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each Initial Grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of four
(4) successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. With respect to annual share grants made prior to January 26, 1999,
such options shall vest, and the Corporation's repurchase right shall lapse, in
two (2) successive equal annual installments over the Optionee's period of
continued service as a Board member, with the first such installment to vest
upon the Optionee's completion of one (1) year of Board service measured from
the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's
estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution)
shall have a twelve (12)-month period following the
date of such cessation of Board service in which to
exercise each such option; provided, however, in no
event shall the option be exercised later than the
option term provided in such option.
(ii) During the twelve (12)-month exercise
period, the option may not be exercised in the
aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve as a
Board member by reason of death or Permanent
Disability, then all shares at the time subject to
the option shall immediately vest so that such option
may, during the twelve (12)-month exercise period
following such cessation of Board service, be
exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term.
Upon the expiration of the twelve (12)-month exercise
period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to
be outstanding for any vested shares for which the
option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of
Board service for any reason other than death or
Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her. The Optionee shall in return be entitled to
a cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory
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notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options or stock appreciation rights or upon the
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) STOCK WITHHOLDING: The election to have the
Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory
Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
(ii) STOCK DELIVERY: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised
or the shares vest, one or more shares of Common Stock
previously acquired by such holder (other than in connection
with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective with respect to the Discretionary
Option Grant and the Stock Issuance Programs immediately upon the Plan Effective
Date. The Automatic Option Grant Program under the Plan became effective on the
Underwriting Date. Options may be granted under the Discretionary Option Grant
Program at any time on or after the Plan Effective Date. In addition, the
initial option grants under the Automatic Option Grant Program were made on the
Underwriting Date to each Eligible Director at that time.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan as of such date shall be incorporated into the Plan at that
time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
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C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) December 31,
2005, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options or the issuance
of shares (whether vested or unvested) under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all outstanding stock options and unvested stock issuances
shall continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in excess of
the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short-Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically canceled and cease
to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
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VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's
stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that
a majority of the Board members ceases, by reason of one or
more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in clause (A) who were still in office at the time
the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such
transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Polycom, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Polycom, Inc. which shall by appropriate action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Article One.
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J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock,
as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be
equal to the price per share at which the Common Stock is to
be sold in the initial public offering pursuant to the
Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined
by the Plan Administrator, taking into account such factors as
it deems appropriate.
M. HOSTILE TAKE-OVER shall mean a change in ownership of the
Corporation effected through the direct or indirect acquisition by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base
salary, fringe benefits and participation in
corporate-
C-19
performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
W. PLAN shall mean the Corporation's 1996 Stock Incentive Plan,
as set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Board, the Primary Committee or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean March 5, 1996, the date on
which the Plan was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's existing 1991
Stock Option Plan.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
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AB. SECONDARY COMMITTEE shall mean a committee of at least one (1)
Board member appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than Section
16 Insiders.
AC. SECTION 12(g) REGISTRATION DATE shall mean the date on which
the Common Stock was first registered under Section 12(g) of the 1934 Act.
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AE. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AI. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AK. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
AL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AN. UNDERWRITING DATE shall mean April 29, 1996, the date on which
the Underwriting Agreement was executed and priced in connection with an initial
public offering of the Common Stock.
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