SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
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
SBE, INC.
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(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement If Other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1. Title of each class of securities to which transaction applies:
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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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/X/ 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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4. Date Filed:
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[SBE LOGO]
SBE, INC.
4550 NORRIS CANYON ROAD
SAN RAMON, CALIFORNIA 94583
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1996
TO THE SHAREHOLDERS OF SBE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of SBE, Inc.,
a California corporation (the "Company"), will be held on Tuesday, April 16,
1996, at 5:00 p.m. local time, at the Company's principal offices at 4550 Norris
Canyon Road, San Ramon, California, for the following purposes:
1. To elect five directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1987 Stock Option Plan, as amended and
restated, to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 200,000 shares, to extend the term of such plan
to January 17, 2006 and to permit the issuance of incentive stock options to
employees of the Company.
3. To approve an amendment to the Company's Amended and Restated Articles
of Incorporation to (a) increase the authorized number of shares of Common Stock
from 6,000,000 shares to 10,000,000 shares; and (b) increase the authorized
number of shares of Preferred Stock from 50,000 shares to 2,000,000 shares.
4. To approve the issuance and private sale of up to 1,500,000 shares of a
new series of the Company's Preferred Stock, designated "Series A Convertible
Preferred Stock," on the terms and subject to the conditions described in the
Proxy Statement.
5. To ratify the selection of Coopers & Lybrand LLP as the Company's
independent auditors for the fiscal year ending October 31, 1996.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 26, 1996
as the record date for the determination of shareholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
[Facsimile signature]
William R. Gage
CHAIRMAN OF THE BOARD
San Ramon, California
March 4, 1996
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT ATTENDANCE AT THE MEETING WILL NOT BY ITSELF REVOKE A PROXY.
FURTHERMORE, IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
SBE, INC.
4550 NORRIS CANYON ROAD
SAN RAMON, CALIFORNIA 94583
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of SBE, Inc., a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held on Tuesday,
April 16, 1996, at 5:00 p.m. local time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at 4550 Norris Canyon Road, San
Ramon, California. The Company intends to mail this proxy statement and
accompanying proxy card on or about March 4, 1996, to all shareholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to shareholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, Corporate Investor Communication, Inc. No
additional compensation will be paid to directors, officers or other regular
employees for such services, but Corporate Investor Communication, Inc. will be
paid its customary fee, estimated to be about $ , if it renders
solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on February
26, 1996 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on February 26, 1996, the Company had outstanding and entitled
to vote shares of Common Stock.
Each holder of record of Common Stock on February 26, 1996 will be entitled
to one vote for each share held on all matters to be voted upon. With respect to
the election of directors, shareholders may exercise cumulative voting rights.
Under cumulative voting, each holder of Common Stock will be entitled to five
votes for each share held. Each shareholder may give one candidate all the votes
such shareholder is entitled to cast or may distribute such votes among as many
such candidates as such shareholder chooses. However, no shareholder will be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and at least one shareholder has given notice at
the meeting, prior to the voting, of his or her intention to cumulate votes.
Unless the proxyholders are otherwise instructed, shareholders, by means of the
accompanying proxy, will grant the proxyholders discretionary authority to
cumulate votes.
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. Except for Proposal 2, abstentions and broker
non-votes are counted towards a quorum but are not counted for any purpose in
determining whether a matter is approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 4550
Norris Canyon Road, San Ramon, California 94583, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy. Furthermore, if the shares are held of record by a broker, bank
or other nominee and the shareholder wishes to vote at the meeting, the
shareholder must obtain from the record holder a proxy issued in the
shareholder's name.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the Company's
1997 Annual Meeting of Shareholders must be received by the Company not later
than October 16, 1996, in order to be included in the proxy statement and proxy
relating to that annual meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently authorized in
the Company's Bylaws. Each director to be elected will hold office until the
next annual meeting of shareholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company and was previously
elected by the shareholders. Mr. Edward H. Laird, currently a director of the
Company, has decided to retire from the Board, effective upon the election of
directors at the Annual Meeting. Accordingly, the Board adopted an amendment to
the Company's Bylaws decreasing the number of authorized directors to five, also
effective upon the election of directors at the Annual Meeting.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below, subject to
the discretionary power to cumulate votes. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
The five candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
NAME AGE DIRECTOR SINCE
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Mr. Raimon L. Conlisk........................................................ 73 1991
Mr. William R. Gage.......................................................... 53 1989
Mr. George E. Grega.......................................................... 66 1991
Mr. Harold T. Hahn........................................................... 56 1991
Mr. William B. Heye, Jr...................................................... 57 1991
From 1977 to date, Mr. Conlisk has been President of Conlisk Associates, a
management consulting firm serving high-technology companies in the United
States and foreign countries. Since April 1994, Mr. Conlisk has served as
Chairman of the Board of Directors of Exar Corporation ("Exar"), a manufacturer
of application-specific integrated circuits. Mr. Conlisk also has served as a
director of Exar since 1985. Mr. Conlisk was President, from 1984 to 1989, and
Chairman of the Board of
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Directors, from 1989 until retirement in June 1990, of Quantic Industries, Inc.
("Quantic"), a manufacturer of electronic systems and devices for aerospace,
defense, and factory automation applications, and he served as a director of
Quantic from 1970 until retirement. From 1970 to 1973 and from 1987 to 1990, Mr.
Conlisk served as a director of the American Electronics Association.
Mr. Gage has been Chairman of the Board since January 1990. From 1986 until
March 1989 he was President of the Company, from March 1989 until January 1990
he served as Senior Vice President of the Company and from January 1990 until
November 1991 he was Chief Executive Officer of the Company. From 1982 to 1986,
Mr. Gage also served at various times as Chief Operating Officer, Senior Vice
President, Vice President of Programming and Treasurer of the Company.
From January 1985 to date, Mr. Grega has been President of George E. Grega
Associates, an international business and management consulting firm. From 1985
to date, Mr. Grega has served as a director of Exar. Mr. Grega was an employee
of General Electric Company, a diversified international manufacturer of
defense, electrical and other products, from 1950 through 1984, including
service from 1970 to 1973 as President and Chief Executive Officer of General
Electric Japan, Ltd.
Mr. Hahn retired in November 1993 when he completed the sale of his former
company, Interpractice Systems, Inc., a medical systems software company
("ISI"). From November 1992 to November 1993, Mr. Hahn was President and Chief
Executive Officer of ISI. He joined ISI in 1991 as Chief Financial Officer. From
1989 to 1991, Mr. Hahn was an independent business consultant. Mr. Hahn served
as Vice President and Treasurer of Control Data Corporation, which manufactures
computers and implements computer systems, from 1985 to 1989 and he held various
general management positions in Control Data Corporation's computer systems and
services business between 1976 and 1985.
Mr. Heye has been President and Chief Executive Officer of the Company since
November 1991. From 1989 to November 1991, he served as Executive Vice President
of Ampex Corporation, a manufacturer of high-performance scanning recording
systems, and President of Ampex Video Systems Corporation, a wholly-owned
subsidiary of Ampex Corporation and a manufacturer of professional video
recorders and editing systems for the television industry. From 1986 to 1989,
Mr. Heye served as Executive Vice President of Airborn, Inc., a manufacturer of
connectors for the aerospace and military markets.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 1995, the Board held six meetings.
The Board has an Audit Committee and a Compensation Committee, but does not have
a nominating committee or any committee performing a similar function.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
receives and considers the auditors' comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
controls; and performs other related duties delegated to such committee by the
Board. The Audit Committee, which consisted of two non-employee directors,
Messrs. Hahn and Laird, held four meetings during fiscal 1995. The Board has
appointed Mr. Conlisk to fill the vacancy in the Audit Committee upon Mr.
Laird's retirement.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee, which consists of two non-employee
directors, Messrs. Conlisk and Grega, held 13 meetings during fiscal 1995.
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During fiscal 1995, each Board member attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he served during the
fiscal year, held during the period for which he was a director or committee
member, respectively.
PROPOSAL 2
APPROVAL OF THE 1987 STOCK OPTION PLAN,
AS AMENDED AND RESTATED
In July 1987, the Board adopted, and the shareholders subsequently approved,
the Company's 1987 Supplemental Stock Option Plan (the "1987 Plan"). As a result
of a series of amendments, at February 26, 1996 there were 930,000 shares of the
Company's Common Stock authorized for issuance under the 1987 Plan. At February
26, 1996, options (net of canceled or expired options) covering an aggregate of
shares of the Company's Common Stock had been granted under the
1987 Plan, and only shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the 1987 Plan.
In January 1996, the Board approved certain amendments to the 1987 Plan in
order to enhance the flexibility of the Board and the Compensation Committee in
granting stock options to the Company's employees. The first amendment increases
the number of shares authorized for issuance under the 1987 Plan from 930,000 to
1,130,000 shares. The second amendment extends the term of the 1987 Plan to
January 17, 2006. The Board adopted both of these amendments to ensure that the
Company can continue to grant stock options to employees at levels determined
appropriate by the Board and the Compensation Committee.
The third amendment permits the grant of stock options intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Prior to such amendment, the 1987
Plan only permitted the issuance of nonstatutory stock options. Under certain
circumstances, the exercise of an incentive stock option and the sale of Common
Stock acquired upon exercise thereof is given more beneficial tax treatment than
the exercise of a nonstatutory stock option and the sale of Common Stock
acquired upon exercise thereof. The Board believes that this beneficial tax
treatment will encourage long-term employee ownership of the Company's Common
Stock. See "Federal Income Tax Information" for a discussion of the tax
treatment of incentive and nonstatutory stock options. Finally, as a result of
the addition of incentive stock options to the 1987 Plan, the fourth amendment
changes the name of the 1987 Plan to the "1987 Stock Option Plan."
Shareholders are requested in this Proposal 2 to approve the 1987 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the meeting will be required to
approve the 1987 Plan, as amended and restated. In order to take advantage of
the exemption contained in Rule 16b-3 promulgated by the Securities and Exchange
Commission (the "Commission"), for purposes of this vote, abstentions will be
counted toward the tabulation of votes counted and will have the same effect as
negative votes, while broker non-votes will not be counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1987 Plan, as amended and restated, are
outlined below:
GENERAL
The 1987 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1987 Plan are intended
to qualify as "incentive stock options" within
4
the meaning of Section 422 of the Code. Nonstatutory stock options granted under
the 1987 Plan are intended not to qualify as incentive stock options under the
Code. See "Federal Income Tax Information" for a discussion of the tax treatment
of incentive and nonstatutory stock options.
PURPOSE
The 1987 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company. Approximately
156 of the Company's approximately 173 employees and consultants are eligible to
participate in the 1987 Plan.
ADMINISTRATION
The 1987 Plan is administered by the Board. The Board has the power to
construe and interpret the 1987 Plan and, subject to the provisions of the 1987
Plan, to determine the persons to whom and the dates on which options will be
granted, the number of shares to be subject to each option, the time or times
during the term of each option within which all or a portion of such option may
be exercised, the exercise price, the type of consideration and other terms of
the option. The Board is authorized to delegate administration of the 1987 Plan
to a committee composed of not fewer than two members of the Board. The Board
has delegated administration of the 1987 Plan to the Compensation Committee. As
used herein with respect to the 1987 Plan, the "Board" refers to the
Compensation Committee as well as to the Board itself.
The proposed regulations under Section 162(m) of the Code require that the
directors who serve as members of the Compensation Committee must be "outside
directors." The 1987 Plan provides that, in the Board of Director's discretion,
directors serving on the Committee will also be "outside directors" within the
meaning of Section 162(m). This limitation excludes from the Compensation
Committee (a) current employees of the Company, (b) former employees of the
Company receiving compensation for past services (other than benefits under a
tax-qualified pension plan), (c) current and former officers of the Company, (d)
directors currently receiving direct or indirect remuneration from the Company
in any capacity (other than as a director), unless any such person is otherwise
considered an "outside director" for purposes of Section 162(m). The Company
currently intends to monitor the proposed regulations and will determine at the
appropriate time whether to make any change to the composition of its
Compensation Committee if any would be required by the final regulations.
ELIGIBILITY
Incentive stock options may be granted under the 1987 Plan only to selected
key employees (including officers) of the Company and its affiliates. Selected
key employees (including officers) and consultants are eligible to receive
nonstatutory stock options under the 1987 Plan. Directors who are not salaried
employees of or consultants to the Company or to any affiliate of the Company
are not eligible to participate in the 1987 Plan.
No incentive stock option may be granted under the 1987 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock options granted under the 1987 Plan, the aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which such options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
The 1987 Plan also contains a per-employee, per-calendar year limitation
equal to 150,000 shares of Common Stock. The purpose of adding this limitation
is generally to permit the Company to continue to be able to deduct for tax
purposes the compensation attributable to the exercise of options
5
granted under the 1987 Plan. Prior to the addition of this provision in 1994,
the Board or the Compensation Committee determined in its discretion the number
of shares subject to an option for any employee and no such formal limitation
was placed on the number of shares available for an option to an employee. To
date, the Company has not granted to any employee in any calendar year options
to purchase a number of shares equal to or in excess of the limitation.
STOCK SUBJECT TO THE 1987 PLAN
If options granted under the 1987 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such options again
becomes available for issuance under the 1987 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1987 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1987 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1987 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal Income
Tax Information." At February 26, 1996, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market was $ per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Company has not provided that opportunity to employees
in the past. To the extent required by Section 162(m), an option repriced under
the 1987 Plan is deemed to be canceled and a new option granted. Both the option
deemed to be canceled and the new option deemed to be granted will be counted
against the 150,000-share limitation.
The exercise price of options granted under the 1987 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (1) by delivery of other Common Stock of the Company,
(2) pursuant to a deferred payment arrangement or (3) in any other form of legal
consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the 1987 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1987 Plan typically vest at the rate of
25% per year during the optionee's employment or services as a consultant.
Shares covered by options granted in the future under the 1987 Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the 1987 Plan may permit exercise prior to vesting, but in such event the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at their
exercise price should the optionee leave the employ of the Company before
vesting. To the extent provided by the terms of an option, an optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
TERM. The maximum term of options under the 1987 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1987 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's
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permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time within
one year of such termination; (b) the optionee dies while employed by or serving
as a consultant or director of the Company or any affiliate of the Company, or
within three months after termination of such relationship, in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within eighteen
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual options by their
terms may provide for exercise within a longer period of time following
termination of employment or the consulting relationship. The option term may
also be extended in the event that exercise of the option within these periods
is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1987 Plan or subject to
any option granted under the 1987 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1987 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1987 Plan provides that, in the event of a dissolution or liquidation of
the Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume options outstanding under the 1987 Plan or substitute similar options for
those outstanding under such plan, or such outstanding options will continue in
full force and effect. In the event that any surviving corporation declines to
assume or continue options outstanding under the 1987 Plan, or to substitute
similar options, then the time during which such options may be exercised will
be accelerated and the options terminated if not exercised during such time. The
acceleration of an option in the event of an acquisition or similar corporate
event may be viewed as an antitakeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1987 Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1987 Plan will terminate on January 17, 2006.
The Board may also amend the 1987 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the shareholders of
the Company within 12 months before or after its adoption by the Board if the
amendment would: (a) modify the requirements as to eligibility for participation
(to the extent such modification requires shareholder approval in order for the
Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 ("Rule
16b-3") adopted under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires shareholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1987 Plan for shareholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
RESTRICTIONS ON TRANSFER
Under the 1987 Plan, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an option may be exercised
7
only by the optionee. In any case, the optionee may designate in writing a third
party who may exercise the option in the event of the optionee's death. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer which the
Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1987 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code. There generally are no federal income
tax consequences to the optionee or the Company by reason of the grant or
exercise of an incentive stock option. However, the exercise of an incentive
stock option may increase the optionee's alternative minimum tax liability, if
any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, and
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. There are no tax consequences to the optionee
or the Company by reason of the grant of a nonstatutory stock option. Upon
exercise of a nonstatutory stock option, the optionee normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value on
the date of exercise over the option exercise price. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long or short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
8
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (a) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the shareholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (b) the option is granted (or
exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by shareholders.
The following table presents certain information with respect to options
granted under the 1987 Plan, subject to the approval of the amendment of the
1987 Plan by the shareholders, to (a) the executive officers named in the
Summary Compensation Table below employed by the Company in that capacity on
October 31, 1995; (b) all executive officers as a group; and (c) all
non-executive officer employees as a group. No non-employee directors have been
authorized to receive grants under the 1987 Plan.
NEW PLAN BENEFITS
NUMBER OF SHARES
SUBJECT TO
NAME AND POSITION DOLLAR VALUE (1) OPTIONS GRANTED
- ------------------------------------------------------------------------- ----------------- -------------------
Mr. William B. Heye, Jr.................................................. $ 195,000 15,000
President and Chief Executive Officer
Mr. William R. Gage...................................................... $ 107,250 7,500
Chairman of the Board
Mr. Belton E. Allen...................................................... $ 65,000 5,000
Vice President, Sales
Mr. Eugene K. Buechele................................................... $ 195,000 15,000
Vice President, Engineering
Mr. Anthony J. Spielman.................................................. $ 65,000 5,000
Vice President, Network Systems Marketing
All Executive Officers as a Group (7 persons)............................ $ 809,250 61,500
All Non-Executive Officer Employees as a Group
(166 persons)........................................................... $ 117,000 9,000
- ------------------------------
(1) Exercise price multiplied by the number of shares underlying the option(s).
PROPOSAL 3
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF
COMMON AND PREFERRED STOCK
GENERAL
The Board has voted, subject to shareholder approval, to amend and restate
the Company's Articles of Incorporation to (a) increase the authorized number of
shares of Common Stock from 6,000,000 shares to 10,000,000 shares; and (b)
increase the authorized number of shares of Preferred Stock from 50,000 shares
to 2,000,000 shares. The principal purpose of the proposed increase in
authorized shares is to permit the issuance of Series A Convertible Preferred
Stock described in Proposal 4 below.
DESCRIPTION OF CAPITAL STOCK
The additional Common Stock to be authorized by adoption of this proposal
would have rights identical to the currently outstanding common Stock of the
Company, and the additional Preferred
9
Stock to be authorized would have rights, restrictions, preferences and
privileges designated by the Board pursuant to the Company's Amended and
Restated Articles of Incorporation. Adoption of the proposed amendment and
restatement would not affect the rights of the holders of currently outstanding
shares of Common Stock of the Company. However, the issuance of Preferred Stock
could affect the rights of the Common Stock. See "Proposal 4 -- Approval of
Private Placement of Common Stock -- Effects of Private Placement on Existing
Security Holders." If the amendment and restatement is approved, it will become
effective upon filing of Amended and Restated Articles of Incorporation with the
Secretary of State of the State of California. In addition to the shares
of Common Stock outstanding at February 26, 1996, the Board had reserved
shares for issuance upon exercise of options and rights granted under the
Company's stock option and stock purchase plans and outstanding as of such date.
EFFECTS OF INCREASING AUTHORIZED SHARES ON EXISTING SECURITY HOLDERS
The principal purpose of the proposed increase in authorized shares is to
permit the issuance of Series A Convertible Preferred Stock described in
Proposal 4 below. The additional shares may be issued, however, without further
shareholder approval for various purposes including, without limitation, raising
capital, providing equity incentives to employees, officers, directors or
consultants, establishing strategic relationships with other companies and
expanding the Company's business or product lines through the acquisition of
other businesses or products. The preferred stock not issued in the private
placement discussed below may have rights, preferences and privileges senior to
the Common Stock or the Series A Convertible Preferred Stock. The Company has no
present intent to issue Common Stock or Preferred Stock for these purposes other
than as described in Proposal 4 below.
The additional shares of Common Stock and Preferred Stock that would become
available for issuance if the proposal were adopted could also be used by the
Company to oppose a hostile takeover attempt or delay or prevent changes in
control or management of the Company. For example, without further shareholder
approval, the Board could adopt a "poison pill" that would, under certain
circumstances related to an acquisition of shares not approved by the Board,
give certain holders the right to acquire additional shares of Common Stock or
Preferred Stock at a low price, or the Board could strategically sell shares of
Common Stock or Preferred Stock in a private transaction to purchasers who would
oppose a takeover or favor the current Board. Although this proposal to increase
the authorized Common Stock and Preferred Stock has been prompted by business
and financial considerations and not by the threat of any hostile takeover
attempt, the approval of this proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the shareholders might otherwise receive a premium for
their shares over then current market prices. The Company has no present intent
to issue Common Stock or Preferred Stock for this purpose.
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to
pages 12 through 17 and 27 through 42 of the Company's Annual Report on Form
10-K for fiscal 1995.
Shareholders are requested to approve this Proposal 3. The affirmative vote
of the holders of a majority of outstanding shares of Common Stock is required
to approve such proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
10
PROPOSAL 4
APPROVAL OF PRIVATE PLACEMENT OF PREFERRED STOCK
The Board has voted, subject to shareholder approval, to issue and sell in a
private placement up to 1,500,000 shares of a new series of the Company's
Preferred Stock, designated "Series A Convertible Preferred Stock."
REASONS FOR PRIVATE PLACEMENT
For the last decade, the Company has specialized in the development of
computer board data communications products and industrial computer equipment.
In the early 1990's, the Company determined that a large opportunity existed in
the emerging remote local area network (LAN) market for low-end remote access
products. To seize that opportunity, the Company has invested significant
resources in developing netXpand, its new line of standalone remote LAN access
server/router products. In addition, the Company began and is continuing to
restructure its existing sales and marketing channels and add new sales channels
to access customers for its netXpand products. The Company has also added
certain key management personnel to better serve this emerging market.
Primarily, as a result of this investment and decreased sales of computer board
communications products attributable to a decline in sales to Cisco Systems, the
Company incurred substantial operating losses in fiscal 1995. The Board recently
determined that the Company must obtain between $8,000,000 and $12,000,000 of
additional equity capital to gain additional market penetration for its netXpand
products, to develop enhancements to its netXpand products and traditional
product lines, to complete the restructuring of its sales and marketing channels
and for other working capital purposes.
The Company cannot consummate the Private Placement without shareholder
approval (as described below). If shareholder approval is not obtained or the
Company is otherwise unable to complete the Private Placement, the Company will
initially scale back its efforts to gain additional market penetration for its
netXpand products. The Company will also be forced to seek alternative sources
of financing, including debt. There can be no assurance that the Company will be
able to complete the Private Placement or obtain any alternative financing.
PROPOSED TERMS OF PRIVATE PLACEMENT
The terms of the proposed private placement, including the rights,
preferences and privileges of the Series A Convertible Preferred Stock, will be
determined by negotiation between the Company and the investors participating in
such financing. The terms of the Series A Convertible Preferred Stock, after
approval by the Board, will be embodied in a Certificate of Designation filed
with the Secretary of State of California. Such Certificate of Designation will
constitute an amendment to the Company's Amended and Restated Articles of
Incorporation.
No investor has as yet agreed to participate, so negotiations with investors
have not yet begun. Therefore, the terms of the proposed private placement
cannot be described with any degree of precision. However, the Board expects the
following matters to be topics of discussion:
VOTING RIGHTS
The Board expects that each holder of Series A Convertible Preferred Stock
will be entitled to one vote for each share of Common Stock into which the
Series A Convertible Preferred Stock will be convertible on all matters to be
voted upon by the shareholders. With respect to the election of directors, the
holders of Series A Convertible Preferred Stock would be entitled to exercise
cumulative voting rights in the same manner as holders of Common Stock.
CONVERSION RIGHTS
The Board expects that each share of Series A Convertible Preferred Stock
will initially be convertible, at the option of the shareholder, into one or
more shares of Common Stock. The rate at which each share of Series A
Convertible Preferred Stock converts into Common Stock may be subject to change,
based on factors such as certain future stock issuances by the Company at prices
below the conversion price then in effect.
11
REGISTRATION RIGHTS
The Board expects that the holders of Series A Convertible Preferred Stock
will be entitled to have the Company register such stock with the Securities and
Exchange Commission and applicable state securities authorities for public
resale under certain circumstances.
DIVIDENDS
The holders of Series A Convertible Preferred Stock may be entitled to fixed
dividends, subject to restrictions on dividend payment imposed by applicable
law.
LIQUIDATION PREFERENCE
The holders of Series A Convertible Preferred Stock may be entitled to
receive a portion of the proceeds from liquidation of the Company prior to the
holders of Common Stock.
OTHER PREFERENTIAL RIGHTS; PRICE PER SHARE
The holders of Series A Convertible Preferred Stock may seek certain other
preferential rights over the Common Stock, including the right to Board
representation and the right to redemption of the Series A Convertible Preferred
Stock under certain circumstances. In addition, the Company's investors may seek
to impose certain restrictive covenants on the Company. The price per share of
the Series A Convertible Preferred Stock will be based in part on these
preferential rights and the market price of the Company's Common Stock on the
date of sale. Because these preferential rights and the price of the Company's
Common Stock will be based in large part upon market conditions and the
Company's financial condition at the time of sale, it is impossible to estimate
such terms at this time.
EFFECTS OF PRIVATE PLACEMENT ON EXISTING SECURITY HOLDERS
The issuance of the Series A Convertible Preferred Stock, and the issuance
of Common Stock upon conversion of the Series A Convertible Preferred Stock,
will not affect the rights of holders of currently-outstanding Common Stock,
except for effects incidental to increasing the number of shares of capital
stock outstanding, such as dilution of the earnings per share and voting rights
of current holders of Common Stock. In the event the holders of Series A
Convertible Preferred Stock are entitled to a liquidation preference, the
proceeds payable to holders of Common Stock upon any liquidation of the Company
would be decreased by the amount of such preference.
Rules promulgated by the National Association of Securities Dealers, Inc.
for issuers listed on the Nasdaq Stock Market, such as the Company, generally
require an issuer to obtain its shareholders' approval prior to the sale or
issuance of common stock (or securities convertible into common stock) equal to
20% or more of the voting power of the issuer prior to such issuance for a price
per share less than the greater of book or market value of the common stock.
Because the Company cannot predict the pricing of the Series A Convertible
Preferred Stock and the Private Placement would result in greater than 20% of
the Company's voting power being issued, shareholder approval for this Proposal
4 is requested. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting at the Annual Meeting is
required to approve such proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
12
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Coopers & Lybrand LLP as the Company's independent
auditors for the fiscal year ending October 31, 1996 and has further directed
that management submit the selection of independent auditors for ratification by
the shareholders at the Annual Meeting. Coopers & Lybrand LLP has audited the
Company's financial statements since 1974. Representatives of Coopers & Lybrand
LLP are expected to be present at the Annual Meeting, will have an opportunity
to make a statement if they so desire and will be available to respond to
appropriate questions.
Shareholder ratification of the selection of Coopers & Lybrand LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
LLP to the shareholders for ratification as a matter of good corporate practice.
If the shareholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the Annual Meeting will be required
to ratify the selection of Coopers & Lybrand LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1995 by (a) all those
known by the Company to be beneficial owners of more than 5% of its Common
Stock; (b) each nominee for director; (c) each of the executive officers named
in the Summary Compensation Table employed by the Company in that capacity on
October 31, 1995; and (d) all executive officers and directors of the Company as
a group.
BENEFICIAL OWNERSHIP (1)
----------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL (2)
- ---------------------------------------------------------------------------------- ----------- ---------------
236,171 11.3%
Mr. William R. Gage...............................................................
4550 Norris Canyon Road
San Ramon, CA 94583
136,100 6.5%
FMR Corp. (3).....................................................................
82 Devonshire Street
Boston, MA 02109
133,995 6.4%
Mr. Franklin P. Johnson...........................................................
2275 E. Bayshore Road, Suite 150
Palo Alto, CA 94301
125,783 6.0%
Mr. John W. Gage (4)..............................................................
606 The Alameda
Berkeley, CA 94707
Mr. William B. Heye, Jr. (5)...................................................... 112,769 5.1%
Mr. Belton E. Allen (5)........................................................... 32,694 1.6%
Mr. Raimon L. Conlisk (5)......................................................... 7,500 *
Mr. George E. Grega (5)........................................................... 7,500 *
Mr. Edward H. Laird (5)........................................................... 6,000 *
Mr. Eugene K. Buechele (5)........................................................ 12,550 *
Mr. Harold T. Hahn (5)............................................................ 3,750 *
Mr. Anthony J. Spielman (5)....................................................... 5,100 *
All executive officers and directors as a group (11 persons) (6).................. 436,620 19.3%
- ------------------------------
* Less than one percent.
(1) This table is based on information supplied by officers, directors and
principal shareholders of the Company and on any Schedules 13D or 13G filed
with the Securities and Exchange Commission. Unless otherwise indicated in
the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the shareholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(2) Applicable percentages are based on 2,087,576 shares outstanding on December
31, 1995, adjusted as required by rules promulgated by the Securities and
Exchange Commission.
(3) Shares are owned by Fidelity Low-Priced Stock Fund (the "Fund"), an
investment company, and are also beneficially owned by Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., as a
result of acting as investment adviser to the Fund. Mr. Edward C. Johnson
3d, and certain members of his family, form a controlling group with respect
to FMR Corp., and FMR Corp., through its control of Fidelity, and the Fund
each has sole investment power with respect to the shares indicated. Sole
voting power with respect to the shares indicated resides with the Fund's
Board of Trustees, and Fidelity carries out the voting of the shares
indicated under written guidelines established by the Fund's Board of
Trustees.
(4) Includes 518 shares held by Nikki Gage, Mr. Gage's wife, as to which Mr.
Gage disclaims beneficial ownership.
(5) Includes 6,250, 110,320, 10,000, 7,500, 7,500, 3,500, 12,550, 3,750 and
5,000 shares that Messrs. William R. Gage, Heye, Allen, Conlisk, Grega,
Laird, Buechele, Hahn and Spielman, respectively, have the right to acquire
within 60 days of December 31, 1995 under the Company's option plans.
(6) Includes shares described in the footnotes above and 12,000 shares that
executive officers of the Company not named in the table above have the
right to acquire within 60 days of the Record Date under the Company's
option plans.
14
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During fiscal 1995, non-employee directors received for their services as
directors an annual retainer of $3,000 plus fees of $1,000 for each Board and
Committee meeting attended and a fee of $500 for each telephone conference Board
or Committee meeting in which such director participated. During fiscal 1995,
the two non-employee directors who are members of the Company's Corporate
Strategy Committee (Messrs. Conlisk and Grega) received an additional $3,000
each fiscal quarter as directors' fees in connection with their services on the
Corporate Strategy Committee. In fiscal 1995, the total compensation paid to
non-employee directors as directors' fees was $70,500. The members of the Board
are also eligible for reimbursement for their expenses in connection with
attendance at Board meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1991 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Code.
Option grants under the Directors' Plan are non-discretionary. On April 1 of
each year (or the next business day should such date be a legal holiday), each
member of the Company's Board who is not an employee of the Company is
automatically granted under the Directors' Plan, without further action by
either the Company, the Board or the shareholders, an option to purchase 5,000
shares of Common Stock of the Company. No other options may be granted at any
time under the Directors' Plan. The exercise price of options granted under the
Directors' Plan is 100% of the fair market value of the Common Stock subject to
the option on the date of the option grant. Options granted under the Directors'
Plan vest in four equal installments commencing on the date one year after the
grant of the option, provided that the optionee has, during the entire year
prior to each such vesting date, provided one year of continuous service to the
Company as a non-employee director or as an employee of the Company or an
affiliate of the Company. The term of options granted under the Directors' Plan
is five years. In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or other change-in-control
transaction involving the Company, the vesting of each option will accelerate
and the option will terminate if not exercised prior to the consummation of the
transaction unless any surviving corporation assumes such options or substitutes
similar options for such options.
During fiscal 1995, the Company granted options covering 5,000 shares to
each non-employee director of the Company at an exercise price per share of
$9.50, the fair market value of such Common Stock on the date of grant (based on
the closing sales price as reported on the Nasdaq National Market System on the
date of grant). As of January 31, 1996, 13,500 options had been exercised under
the Directors' Plan.
15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended October 31, 1995, 1994
and 1993, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at October 31, 1995 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION NUMBER OF
SHARES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OPTIONS COMPENSATION (2)
- ------------------------------------------ --------- ----------- --------- --------------- -------------------
Mr. William B. Heye, Jr................... 1995 $ 210,060 $ 0 0 $ 6,865
President and 1994 $ 200,052 $ 16,658 0 $ 8,253
Chief Executive Officer 1993 $ 192,372 $ 91,698 0 $ 6,415
Mr. William R. Gage....................... 1995 $ 159,012 $ 0 25,000 $ 2,787
Chairman of the Board 1994 $ 151,440 $ 7,566 0 $ 5,563
1993 $ 145,644 $ 41,655 0 $ 3,777
Mr. Belton E. Allen....................... 1995 $ 135,510 $ 0 0 $ 4,059
Vice President, Sales 1994 $ 129,900 $ 5,351 0 $ 4,401
1993 $ 119,100 $ 28,162 20,000 $ 2,468
Mr. Eugene K. Buechele (3)................ 1995 $ 137,808 $ 0 5,000 $ 2,389
Vice President, Engineering 1994 $ 117,757 $ 10,066 20,000 $ 3,937
Mr. Anthony J. Spielman (3)............... 1995 $ 132,504 $ 0 5,000 $ 1,095
Vice President, 1994 $ 63,464 $ 20,126 15,000 $ 0
Network Systems Marketing
- ------------------------
(1) Includes amounts earned but deferred at the election of the Named Executive
Officer pursuant to the Company's Savings and Investment Plan and Trust.
(2) Includes $1,995, $907, $455, $450 and $432 attributable in fiscal 1995,
$2,251, $1,020, $504, $404 and $79 attributable in fiscal 1994, and $3,915,
$1,494, $577, $0 and $0 attributable in fiscal 1993 to Messrs. Heye, Gage,
Allen, Buechele and Spielman, respectively, to premiums paid by the Company
for group term life insurance. The remaining sum for each Named Executive
Officer was paid by the Company as matching contributions to the Company's
Savings and Investment Plan and Trust.
(3) Mr. Buechele has served as Vice President, Engineering since December 1993,
when he first became employed by the Company. Mr. Spielman has served as
Vice President, Network Systems Marketing since May 1994, when he first
became employed by the Company.
16
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1987 Plan. As
of October 31, 1995, options to purchase a total of 532,788 shares had been
granted and were outstanding under the 1987 Plan and options to purchase 94,928
shares remained available for grant thereunder.
The following tables show for fiscal 1995 certain information regarding
options granted to held at fiscal year end by the Named Executive Officers. No
Named Executive Officer exercised any options during fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
----------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE (2) DATE 5% 10%
- ---------------------- ----------------- --------------- --------------- ------------ --------- -----------
Mr. Heye.............. -- -- -- -- -- --
Mr. Gage.............. 25,000 8.45% $ 8.75 01/19/02 $ 89,053 $ 207,532
Mr. Allen............. -- -- -- -- -- --
Mr. Buechele.......... 5,000 1.69% $ 9.00 12/06/01 $ 18,320 $ 42,692
Mr. Spielman.......... 5,000 1.69% $ 9.00 12/06/01 $ 18,320 $ 42,692
- ------------------------
(1) Generally, options granted vest annually in equal increments over a period
of four years and have a term of seven years. The Board may reprice the
options granted.
(2) Exercise price is the closing sales price of the Company's Common Stock as
reported on the Nasdaq National Market on the date of grant.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Mr. Heye......................................... 81,240 58,160 $ 649,920 $ 465,280
Mr. Gage......................................... -- 25,000 -- $ 87,500
Mr. Allen (2).................................... 10,000 10,000 -- --
Mr. Buechele..................................... 8,400 16,600 $ 25,200 $ 51,050
Mr. Spielman..................................... 3,750 16,250 $ 13,575 $ 56,975
- ------------------------------
(1) Value based on the difference between the exercise price of the options and
the closing sales price of $12.25 of the Company's Common Stock as reported
on the Nasdaq National Market System on October 31, 1995 multiplied by the
number of shares underlying unexercised in-the-money options.
(2) The exercise price of Mr. Allen's options exceeded the closing sales price
of the Company's Common Stock on October 31, 1995 (I.E., were not
"in-the-money" on October 31, 1995).
17
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board is responsible for the
administration of the compensation programs in effect for the Company's
executive officers. These programs have been designed to ensure that the
compensation paid to the executive officers is substantially linked to both
Company and individual performance. Accordingly, a significant portion of the
compensation paid to each executive officer is comprised of variable components
based upon individual achievement and Company performance measures.
EXECUTIVE COMPENSATION PRINCIPLES
The design and implementation of the Company's executive compensation
programs are based on a series of general principles. These principles may be
summarized as follows:
- Align the interests of management and shareholders to build shareholder
value by the encouragement of consistent, long-term Company growth.
- Attract and retain key executive officers essential to the long-term
success of the Company.
- Reward executive officers for long-term corporate success by facilitating
their ability to acquire an ownership interest in the Company.
- Provide direct linkage between the compensation payable to executive
officers and the Company's attainment of annual and long-term financial
goals and targets.
- Emphasize reward for performance at the individual and corporate level.
COMPONENTS OF EXECUTIVE COMPENSATION
The components of the Company's executive compensation programs may be
listed as follows, with a detailed summary provided below:
- Base Salary
- Cash Bonus
- Long-Term Incentives
- Benefits and Perquisites
Each component is calibrated to a competitive market position, with market
information provided by compensation surveys prepared by independent consulting
firms and information collected from companies selected by the Company's
Compensation Committee as appropriate comparators of compensation practices. The
companies selected by the Compensation Committee as appropriate comparators are
generally represented in the Nasdaq Computer Manufacturing Index, whose
performance over the past five years is compared to that of the Company in the
chart appearing under the heading Performance Measurement Comparison.
BASE SALARY
The base salary for each executive officer is determined on the basis of
individual performance, the functions performed by the executive officer and the
scope of the executive officer's ongoing responsibilities, and the salary levels
in effect for comparable positions based on information provided by the
compensation surveys referenced above and comparator company information. The
weight given to each of these factors varies from individual to individual. In
general, base salary is designed primarily to be competitive within the relevant
industry and geographic market. The average increase in executive officer base
salary in fiscal 1995 was approximately 5.0%.
Each executive officer's base salary is reviewed annually to ensure
appropriateness, and increases to base salary are made to reflect competitive
market increases and individual factors. Company performance does not play a
significant role in the determination of base salary.
CASH BONUS
The Company's Management Incentive Plan provides for the funding of a bonus
pool based upon the Company's year-to-year rate of revenue growth and profit
before tax. No funding of the bonus pool occurs if profit before tax does not
exceed a threshold determined by comparing the cost of capital to
18
the return on assets employed. The Company did not realize before-tax profits in
fiscal 1995; therefore, the bonus pool was not funded and no cash bonuses were
paid to executive officers for such fiscal year.
LONG-TERM INCENTIVES
Long-term incentives are provided through stock option grants. These option
grants are intended to motivate the executive officers to manage the business to
improve long-term Company performance. Customarily, option grants are made with
exercise prices equal to the market price of the shares on the date of grant and
will be of no value unless the market price of the Company's outstanding common
shares appreciates, thereby aligning a substantial part of the executive
officer's compensation package with the return realized by the shareholders.
The size of each option grant is designed to create a meaningful opportunity
for stock ownership and is based upon several factors, including relevant
information contained in the compensation surveys described above, an assessment
of the option grants of comparator companies and the individual performance of
each executive officer.
Each option grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (customarily the market price
on the grant date) over a specified period of time (customarily four years). The
option generally vests in equal installments over a period of four years,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only
if the executive officer remains employed by the Company and the market price of
the underlying shares appreciates over the option term.
In fiscal 1995, the Committee granted stock options to its executive
officers as set forth in the table entitled "Option Grants in Last Fiscal Year"
contained elsewhere in this proxy statement. In addition, in November 1995, the
Committee granted incentive stock options to its executive officers as set forth
in the table entitled "New Plan Benefits" contained elsewhere in this proxy
statement. All of such November 1995 grants are subject to shareholder approval
of Proposal 2, above. The Committee believes that stock options, particularly
incentive stock options, encourage long-term Company stock ownership, and
therefore that such grants are in the best interests of the Company and its
shareholders.
BENEFITS AND PERQUISITES
The benefits and perquisites component of executive compensation is
generally similar to that which is offered to all of the Company's domestic
employees.
CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
In setting the compensation payable to the Chief Executive Officer, William
B. Heye, Jr., the goal is to provide compensation competitive with other
companies in the industry while at the same time making a significant percentage
of Mr. Heye's earnings subject to consistent, positive, long-term Company
performance. In general, the factors utilized in determining Mr. Heye's
compensation were similar to those applied to the other executive officers in
the manner described in the preceding paragraphs.
Mr. Heye received a 5.0% base salary increase effective November 1, 1994. As
a result of the Company's performance during fiscal 1995, the Committee did not
grant Mr. Heye any cash bonus. During fiscal 1995, Mr. Heye purchased 78 shares
of Common Stock at a weighted average price of $7.65 under the Company's 1992
Employee Stock Purchase Plan. While the Committee did not grant Mr. Heye any
stock options during fiscal 1995, in November 1995 it granted Mr. Heye an
incentive stock option to purchase 15,000 shares at an exercise price of $13.00
per share (the closing price on the date of grant). This option grant was made
for the reasons described in the preceding paragraphs.
COMPENSATION COMMITTEE MEMBERS:
Raimon L. Conlisk, Chairman
George E. Grega
19
PERFORMANCE MEASUREMENT COMPARISON
The following chart shows the value of an investment of $100 on October 31,
1990 in cash of (a) the Company's Common Stock, (b) the Nasdaq Computer
Manufacturing Index ("Nasdaq Computers") and (c) the CRSP Total Return Index for
the Nasdaq Stock Market (United States companies) ("Nasdaq Total Return"). All
values assume reinvestment of the full amount of all dividends and are
calculated as of October 31 of each year.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN ON INVESTMENT
OCT. 90 OCT. 91 OCT. 92 OCT. 93 OCT. 94 OCT. 95
--------- --------- --------- --------- --------- ---------
SBE, Inc....................... 100.000 101.526 332.267 252.277 190.746 301.501
Nasdaq Computers............... 100.000 166.010 201.667 205.322 232.491 392.100
Nasdaq Total Return............ 100.000 100.000 169.202 190.790 245.837 247.201
20
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings to which he is or may be made a party
by reason of his position as a director, officer or other agent of the Company,
and otherwise to the full extent permitted under California law and the
Company's Restated Articles of Incorporation and Bylaws.
OTHER BUSINESS
The Board knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the meeting, however, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
By Order of the Board of Directors
[facsimile signature]
William R. Gage
CHAIRMAN OF THE BOARD
March 4, 1996
THE INFORMATION CONTAINED IN THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 IS
INCORPORATED HEREIN BY REFERENCE, AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN
REQUEST TO: INVESTOR RELATIONS, SBE, INC., 4550 NORRIS CANYON ROAD, SAN RAMON,
CALIFORNIA 94583 (TELEPHONE NO. (800) 825-2666).
21
SBE, INC.
1987 STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS JULY 21, 1987,
AMENDED MARCH 23, 1993, AUGUST 23, 1994 AND JANUARY 17, 1995
APPROVED BY SHAREHOLDERS MARCH 9, 1989 AND MARCH 21, 1995
AMENDED AND RESTATED JANUARY 18, 1996
APPROVED BY THE SHAREHOLDERS ON , 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in the
discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means SBE, Inc., a California corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
1
(j) "DISINTERESTED PERSON" means a Director who either (i) was not during
the one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
affiliate entitling the participants therein to acquire equity securities of the
Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or (ii) is
otherwise considered to be a "disinterested person" in accordance with Rule
16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of
the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange or a
national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common
stock shall be the closing sales price for such stock (or the closing bid,
if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last
market trading day prior to the day of determination, as reported in the
Wall Street Journal or such other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not on the
National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a share of common stock shall be the mean between the bid and asked
prices for the common stock on the last market trading day prior to the day
of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(s) "OPTIONEE" means a person who holds an outstanding Option.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(u) "PLAN" means this SBE, Inc. 1987 Stock Option Plan.
2
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised
in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options granted under it, and
to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan or in any Option Agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Notwithstanding
anything in this Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more persons the authority to grant Options to
eligible persons who (1) are not then subject to Section 16 of the Exchange Act
and/or (2) are either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such
Option, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate one million one hundred thirty thousand (1,130,000)
shares of the Company's common stock. If any Option shall for any reason expire
or otherwise terminate, in whole or in part, without having been exercised in
full, the stock not purchased under such Option shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
3
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Nonstatutory
Stock Options may be granted only to Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Options may be granted, or in the determination of the number of
shares which may be covered by Options granted to the Director: (i) the Board
has delegated its discretionary authority over the Plan to a Committee which
consists solely of Disinterested Persons; or (ii) the Plan otherwise complies
with the requirements of Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3. This subsection 5(b) shall not apply if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(d) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than one hundred fifty thousand (150,000) shares of the Company's common
stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom
4
the Incentive Stock Option is granted only by such person. A Nonstatutory Stock
Option shall not be transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order satisfying the
requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person or any transferee pursuant to a QDRO. The person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may require the Optionee to provide such other representations, written
assurances or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws as
a condition of granting an Option to such Optionee or permitting the Optionee to
exercise such Option. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant, or such longer or shorter period specified in the Option
Agreement, or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise
5
his or her Option (to the extent that the Optionee was entitled to exercise it
as of the date of termination), but only within such period of time ending on
the earlier of (i) the date twelve (12) months following such termination (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at all
times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; PROVIDED, HOWEVER,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute general
funds of the Company.
6
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an Option
may first be exercised or the time during which an Option or any part thereof
will vest pursuant to subsection 6(e), notwithstanding the provisions in the
Option stating the time at which it may first be exercised or the time during
which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's By-Laws and
the provisions of the General Corporation Law of the State of California, or to
terminate the relationship of any Consultant in accordance with the terms of
that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) (1) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of common stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of an Incentive Stock Option granted to a ten percent (10%) stockholder (as
defined in subsection 5(c)), not less than one hundred and ten percent (110%) of
the Fair Market Value) per share of common stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(f) shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(d) of the Plan. The repricing of an Option
under this subsection 9(f), resulting in a reduction of the exercise price,
shall be deemed to be a cancellation of the original Option and the grant of a
substitute Option; in the event of such repricing, both the original and the
substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(d) of the Plan. The provisions
of this subsection 9(f) shall be applicable only to the extent required by
Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Options will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Options. Such adjustments shall be made by the Board
or Committee, the determination
7
of which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction not
involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options (including an
option to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 10(b)) for those outstanding under the
Plan, or (ii) such Options shall continue in full force and effect. In the event
any surviving or acquiring corporation refuses to assume such Options, or to
substitute similar options for those outstanding under the Plan, then, with
respect to Options held by persons then performing services as Employees,
Directors or Consultants, the time during which such Options may be exercised
shall be accelerated prior to such event and the Options terminated if not
exercised after such acceleration and at or prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the Plan;
(2) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless (i) the Company
requests the consent of the person to whom the Option was granted and (ii) such
person consents in writing.
8
(e) The Board at any time, and from time to time, may amend the terms of any
one or more Options; PROVIDED, HOWEVER, that the rights and obligations under
any Option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Option was granted and (ii) such
person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on January 17, 2006 which shall be within
ten (10) years from the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
9
INCENTIVE STOCK OPTION
, Optionee:
SBE, Inc. (the "Company"), pursuant to its 1987 Stock Option Plan (the
"Plan"), has granted to you, the optionee named above, an option to purchase
shares of the common stock of the Company ("Common Stock"). This option is
intended to qualify as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is
( ).
2. VESTING. Subject to the limitations contained herein, of the
shares will vest (become exercisable) on , 19 and of the
shares will then vest each thereafter until either (i) you cease to
provide services to the Company for any reason, or (ii) this option becomes
fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
($ ) per share, being not less than the fair
market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is due in
full upon exercise of all or any part of each installment which has accrued to
you. You may elect, to the extent permitted by applicable statutes and
regulations, to make payment of the exercise price under one of the following
alternatives:
(i) Payment of the exercise price per share in cash (including check)
at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the
Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the
period required to avoid a charge to the Company's reported earnings, and
owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on
the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by
subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES; MINIMUM SHARES EXERCISABLE.
(a) This option may not be exercised for any number of shares which would
require the issuance of anything other than whole shares.
(b) The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100) shares, EXCEPT THAT (i) as to
that number of shares to which it is exercisable under the provisions of
paragraph 2 of this option, if fewer than one hundred (100) shares, the number
of such shares exercisable shall be the minimum number of shares that are vested
thereunder, and (ii) with respect to the final exercise of this option this
minimum shall not apply.
1
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
6. TERM. The term of this option commences on , 19 , the date
of grant, and expires on (the "Expiration Date," which date shall
be no more than ten (10) years from the date this option is granted), unless
this option expires sooner as set forth below or in the Plan. In no event may
this option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date as follows: three (3) months after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or t
Consultant is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code). This option will then expire on the earlier of
the Expiration Date set forth above or twelve (12) months following such
termination of Continuous Status as an Employee, Director or Consultant.
(b) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination of Continuous Status as an Employee, Director or
Consultant for any other reason. This option will then expire on the earlier of
the Expiration Date set forth above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you may not exercise
your option solely because of the condition set forth in paragraph 5 above, then
your option will not expire until the earlier of the Expiration Date set forth
above or until this option shall have been exercisable for an aggregate period
of three (3) months after your termination of Continuous Status as an Employee,
Director or Consultant.
(d) If your exercise of the option within three (3) months after termination
of your Continuous Status as an Employee, Director or Consultant with the
Company or with an Affiliate of the Company would result in liability under
section 16(b) of the Securities Exchange Act of 1934, then your option will
expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth
(10th) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 2 of
this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months after
the date your employment with the Company and all Affiliates of the Company
terminates.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection 6(f)
of the Plan.
2
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for
the payment by you to the Company of any tax withholding obligation of
the Company arising by reason of (1) the exercise of this option; (2) the
lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15) days
after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2)
years after the date of this option grant or within one (1) year after
such shares of Common Stock are transferred upon exercise of this option;
and
8. TRANSFERABILITY. This option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the day of , 19 .
Very truly yours,
--------------------------------------
By
--------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
SBE, Inc. 1987 Stock Option Plan
Notice of Exercise
3
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned optionee and the Company and
its Affiliates regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the options previously granted and delivered to the undersigned under stock
option plans of the Company, and (ii) the following agreements only:
NONE -----------------------------------------------
(Initial)
OTHER -----------------------------------------------
-----------------------------------------------
-----------------------------------------------
(c) Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the
California Code of Regulations.
--------------------------------------
OPTIONEE
Address:
-------------------------------------------------------------------------------
-------------------------------
4
NONSTATUTORY STOCK OPTION
, Optionee:
SBE, Inc. (the "Company"), pursuant to its 1987 Stock Option Plan (the
"Plan"), has granted to you, the optionee named above, an option to purchase
shares of the common stock of the Company ("Common Stock"). This option is not
intended to qualify and will not be treated as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ( ).
2. VESTING. Subject to the limitations contained herein, of
the shares will vest (become exercisable) on , 19 and
of the shares will then vest each thereafter until
either (i) you cease to provide services to the Company for any reason, or (ii)
this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
($ ) per share, being not less than 85% of the
fair market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is due
in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of
the following alternatives:
(i) Payment of the exercise price per share in cash (including check)
at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the
Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the
period required to avoid a charge to the Company's reported earnings, and
owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on
the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by
subparagraph 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES; MINIMUM SHARES EXERCISABLE.
(a) This option may not be exercised for any number of shares which
would require the issuance of anything other than whole shares.
(b) The minimum number of shares with respect to which this option may
be exercised at any one time is one hundred (100) shares, except that (i) as
to that number of shares to which it is
1
exercisable under the provisions of paragraph 2 of this option, if fewer
than one hundred (100) shares, the number of such shares exercisable shall
be the minimum number of shares that are vested thereunder, and (ii) with
respect to the final exercise of this option this minimum shall not apply.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
6. TERM. The term of this option commences on , 19 , the
date of grant and expires on (the "Expiration Date," which date
shall be no more than ten (10) years from the date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no event
may this option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date as follows: three (3) months after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company for any reason or for no reason
unless:
(a) such termination of Continuous Status as an Employee, Director or
Consultant is due to your permanent and total disability (within the meaning
of Section 422(c)(6) of the Code), in which event the option shall expire on
the earlier of the Expiration Date set forth above or twelve (12) months
following such termination of Continuous Status as an Employee, Director or
Consultant; or
(b) such termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination for any other reason, in which event the option
shall expire on the earlier of the Expiration Date set forth above or
eighteen (18) months after your death; or
(c) during any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in paragraph 5 above,
in which event the option shall not expire until the earlier of the
Expiration Date set forth above or until it shall have been exercisable for
an aggregate period of three (3) months after the termination of Continuous
Status as an Employee, Director or Consultant; or
(d) exercise of the option within three (3) months after termination of
your Continuous Status as an Employee, Director or Consultant with the
Company or with an Affiliate of the Company would result in liability under
section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act), in
which case the option will expire on the earlier of (i) the Expiration Date
set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Status as an Employee,
Director or Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of paragraph 2 of
this option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to subsection 6(f) of the Plan.
2
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for
the cash payment by you to the Company of any tax withholding obligation
of the Company arising by reason of: (1) the exercise of this option; (2)
the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise. You also agree that any exercise of this
option has not been completed and that the Company is under no obligation
to issue any Common Stock to you until such an arrangement is established
or the Company's tax withholding obligations are satisfied, as determined
by the Company; and
8. TRANSFERABILITY. This option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you or pursuant to a qualified domestic relations order as satisfying the
requirements of Rule 16b-3 of the Exchange Act (a "QDRO"), and is exercisable
during your life only by you or a transferee pursuant to a QDRO. Notwithstanding
the foregoing, by delivering written notice to the Company, in a form
satisfactory to the Company, you may designate a third party who, in the event
of your death, shall thereafter be entitled to exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers, or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the day of , 19 .
Very truly yours,
--------------------------------------
By
--------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
SBE, Inc. 1987 Stock Option Plan
Notice of Exercise
3
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned optionee and the Company and
its Affiliates regarding the acquisition of stock in the Company and supersedes
all prior oral and written agreements on that subject with the exception of (i)
the options previously granted and delivered to the undersigned under stock
option plans of the Company, and (ii) the following agreements only:
NONE -----------------------------------------------
(Initial)
OTHER -----------------------------------------------
-----------------------------------------------
-----------------------------------------------
(c) Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the
California Code of Regulations.
--------------------------------------
OPTIONEE
Address:
-------------------------------------------------------------------------------
-------------------------------
4
SBE, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1996
The undersigned hereby appoints WILLIAM R. GAGE and WILLIAM B. HEYE,
JR., and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of SBE, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of SBE, Inc. to be held at 4550 Norris Canyon Road, San Ramon,
California, at 5:00 p.m. local time on April 16, 1996, and at any and
all continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly
come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors whether by cumulative voting or otherwise,
to hold office until the next Annual Meeting of Shareholders and
until their successors are elected.
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as to vote for all
written below) nominees below
NOMINEES: R.L. Conlisk, W.R. Gage, G.E. Grega, H.T. Hahn,
W.B. Heye, Jr.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH
NOMINEE(S)' NAME(S) BELOW:
________________________________________________________________
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the Company's 1987 Supplemental Stock Option Plan,
as amended and restated, to increase the aggregate number of
shares of Common Stock authorized for issuance under such
plan by 200,000 shares, to extend the term of such plan to
January 17, 2006 and to permit the issuance of incentive stock
options to employees of the Company.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to (a) increase the authorized number
of shares of Common Stock from 6,000,000 shares to 10,000,000
shares; and (b) increase the authorized number of shares of
Preferred Stock from 50,000 shares to 2,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: To approve the issuance and private sale of up to 1,500,000
shares of a new series of the Company's Preferred Stock,
designated "Series A Convertible Preferred Stock," on the terms
and subject to the conditions described in the Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 5: To ratify the selection of Coopers & Lybrand LLP as the Company's
independent auditors for the fiscal year ending October 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
Dated: __________________, 1996
____________________________________
____________________________________
Signature(s)
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. IF THE STOCK IS
REGISTERED IN THE NAMES OF TWO OR
MORE PERSONS, EACH SHOULD SIGN.
EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS AND ATTORNEYS-IN-FACT
SHOULD ADD THEIR TITLES. IF SIGNER
IS A CORPORATION, PLEASE GIVE FULL
CORPORATE NAME AND HAVE A DULY
AUTHORIZED OFFICER SIGN, STATING
TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.