SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LINEAR TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] 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 transactions applies:
_____________________________
(2) Aggregate number of securities to which transactions applies:
_____________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
_____________________________
(4) Proposed maximum aggregate value of transaction: ________________
(5) Total fee paid: _________________________________________________
[ ] Fee paid previously with preliminary materials. ______________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: _________________________________________
(2) Form, Schedule or Registration Statement No.: ___________________
(3) Filing party: ___________________________________________________
(4) Date filed: _____________________________________________________
LINEAR TECHNOLOGY CORPORATION
---------------------
Notice of Annual Meeting of Shareholders
To Be Held on November 4, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Linear Technology Corporation, a California corporation (the
"Company"), will be held on November 4, 1998 at 3:00 p.m., local time, at the
Company's principal executive offices, located at 1630 McCarthy Boulevard,
Milpitas, California 95035, for the following purposes:
1. To elect five directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected.
2. To approve an amendment to the Company's 1996 Incentive Stock Option
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder by 4,000,000 shares.
3. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending June 27, 1999.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record of the Company's Common Stock at the close of
business on September 8, 1998, the record date, are entitled to notice of and to
vote at the Annual Meeting and any adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if such shareholder has
returned a proxy.
FOR THE BOARD OF DIRECTORS
Arthur F. Schneiderman
Secretary
Milpitas, California
September 25, 1998
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WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
LINEAR TECHNOLOGY CORPORATION
---------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Linear Technology Corporation, a California corporation (the "Company"), for use
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held November
4, 1998, at 3:00 p.m., local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Company's principal
executive offices, located at 1630 McCarthy Boulevard, Milpitas, California
95035. The telephone number at that location is (408) 432-1900.
These proxy solicitation materials and the Company's Annual Report to
Shareholders for the year ended June 28, 1998, including financial statements,
were mailed on or about September 25, 1998 to all shareholders entitled to vote
at the Annual Meeting.
Proxies; Revocability of Proxies
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting, and not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated on those proxies.
If no instructions are indicated on a properly executed proxy, the shares
represented by that proxy will be voted as recommended by the Board of
Directors. If any other matters are properly presented for consideration at the
Annual Meeting, the persons named in the enclosed proxy and acting thereunder
will have discretion to vote on those matters in accordance with their best
judgment. The Company does not currently anticipate that any other matters will
be raised at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Paul Coghlan, Vice President of Finance and Chief Financial Officer) a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
Voting Rights and Solicitation of Proxies
On all matters other than the election of directors, each share has one
vote. Each shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (which number is currently set at five) multiplied by
the number of shares held by such shareholder, or may distribute such
shareholder's votes on the same principle among as many candidates as the
shareholder may select. However, no shareholder will be entitled to cumulate
votes unless the candidate's name has been placed in nomination prior to the
voting, and the shareholder, or any other shareholder, has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate votes. If
any shareholder gives such notice, all shareholders may cumulate their votes for
the candidates in nomination. In the event that cumulative voting is invoked,
the proxy holders will have the discretionary authority to vote all proxies
received by them in such a manner as to ensure the election of as many of the
Board of Directors' nominees as possible. See "Proposal One--Election of
Directors."
The Company will bear the cost of soliciting proxies. In addition, the
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by one or
more telephone, telegram, facsimile, e-mail or personal solicitations by
directors, officers or regular employees of the Company. No additional
compensation will be paid to such persons for such services.
1
Quorum; Abstentions; Broker Non-Votes
Under California law, all proposals submitted at the Annual Meeting require
for their approval both the affirmative vote of a majority of the shares
"represented and voting" at the Annual Meeting and the affirmative vote of a
majority of the quorum required for the transaction of business. A quorum is
established by the presence at the Annual Meeting, either in person or by proxy,
of the holders of a majority of the outstanding shares of Common Stock "entitled
to vote" at the Annual Meeting, including those shares as to which no votes are
cast at the Annual Meeting. Accordingly, abstentions and broker non-votes will
be counted as "entitled to vote" and thus represented for purposes of
establishing a quorum, but will not be counted for purposes of determining the
number of shares which are "represented and voting" with respect to a given
proposal.
Deadline for Receipt of Shareholder Proposals; Discretionary Authority to Vote
on Shareholder Proposals
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1999 Annual Meeting ("Shareholder
Proposals") must be received by the Company no later than May 28, 1999 in order
that they may be included in the proxy statement and form of proxy relating to
that meeting.
The Company may use its discretionary voting authority on all Shareholder
Proposals not received by the Company on or prior to August 11, 1999.
Record Date and Voting Securities
Shareholders of record at the close of business on September 8, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 76,969,585 shares of the Company's Common Stock, no par
value (the "Common Stock"), were issued and outstanding. No shares of the
Company's Preferred Stock are outstanding. Based on the last reported sale on
the Nasdaq National Market on September 8, 1998, the market value of one share
of Common Stock was $56.09375. For information regarding security ownership by
management and by the beneficial owners of more than five percent of the Common
Stock, see "Beneficial Security Ownership of Directors, Officers and Certain
Other Beneficial Owners."
2
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
The Company's Bylaws currently provide for a board of five directors.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's five nominees named below, all of whom are currently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any substitute nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any
nominee listed below will be unable or will decline to serve as a director. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. In any event, the proxy
holders cannot vote for more than five persons. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Shareholders or until his successor has been elected and qualified.
The names of the nominees, and certain information about them, are set
forth below.
Name of Nominee Age(1) Principal Occupation Director Since
--------------- ------ -------------------- --------------
Robert H. Swanson, Jr. ..... 60 President and Chief Executive Officer 1981
of the Company
David S. Lee ............... 61 Chairman, Cortelco Systems Holding 1988
Corporation
Leo T. McCarthy ............ 68 President, The Daniel Group 1994
Richard M. Moley ........... 59 Former President and Chief Executive 1994
Officer, StrataCom, Inc.
Thomas S. Volpe ............ 47 General Partner, Volpe Brown Whelan & 1984
Company, LLC
<FN>
- -----------------
(1) As of September 8, 1998.
</FN>
There are no family relationships among the Company's directors and
executive officers.
Mr. Swanson, a founder of the Company, has served as President, Chief
Executive Officer and a director of the Company since its incorporation in
September 1981. From August 1968 to July 1981, he was employed in various
positions at National Semiconductor Corporation, a manufacturer of integrated
circuits, including Vice President and General Manager of the Linear Integrated
Circuit Operation and Managing Director in Europe.
Mr. Lee is Chairman of the Board of CMC Industries, Inc., Cortelco Systems
Holding Corporation and Photonics Corporation (formerly Qume Corporation). Mr.
Lee is also a Regent of the University of California. Currently, Mr. Lee is a
member of the Board of Directors of Award Software International, Inc.,
Centigram Communications Corporation, Pacific International Center for High
Technology Research ("PICHTR") and the California Chamber of Commerce and is
President of Asian Cultural Teachings.
Mr. McCarthy has served since January 1995 as President of The Daniel
Group, a partnership engaged in international trade in Asia and other investment
opportunities. Mr. McCarthy retired from elective office in 1994 after twelve
years as Lieutenant Governor of the State of California. His primary
responsibility as Lieutenant Governor was to help businesses start and grow
through his role as chair of the California Commission for Economic Development.
He also serves on the Board of Directors of two mutual funds: the Parnassus
Fund, a socially responsible fund with a $300 million investment portfolio in
domestic equities and bonds, and Forward Funds, Inc., a mutual fund with a $100
million investment portfolio in domestic and foreign equities and bonds. In
December 1996, Mr. McCarthy was appointed by the United States Senate Leadership
to the nine member National Gambling Impact Study Commission (the "NGISC"). The
NGISC has undertaken a two year study of the economic benefits and/or detriments
of all forms of legal gambling in the United States and will make its report to
Congress and the President in June 1999.
3
Mr. Moley served as Chairman, President and Chief Executive Officer of
StrataCom, Inc., a network systems company, from June 1986 until its acquisition
by Cisco Systems, Inc. ("Cisco"), a provider of computer internetworking
solutions, in July 1996. Mr. Moley served as a board member and as Senior Vice
President of Cisco until August 1997, when he became a consultant and private
investor. Mr. Moley served in various executive positions at ROLM Corporation
("ROLM"), a telecommunications company, from 1973 to 1986. Prior to joining
ROLM, he held management positions in software development and marketing at
Hewlett-Packard Company. Mr. Moley also serves on the Board of Directors of
CIDCO Incorporated, CMC Industries, Inc. and Echelon Corporation.
Mr. Volpe is Chief Executive Officer of Volpe Brown Whelan & Company, LLC,
a private investment banking and risk capital firm. Until April 1986, he was
President and Chief Executive Officer of Hambrecht & Quist Incorporated, an
investment banking firm with which he had been affiliated since 1981. From 1978
to 1981, Mr. Volpe was Vice President and Director of the Science and Technology
Group for Blyth Eastman Paine Webber, Inc., an investment banking firm. Mr.
Volpe also serves on the Board of Directors of a number of privately-held
companies.
Vote Required and Recommendation of Board of Directors
The five nominees receiving the highest number of affirmative votes of the
shares entitled to be voted shall be elected as directors. Votes withheld will
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business at the meeting, but will not be counted as votes
cast in the election of directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
4
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE COMPANY'S
1996 INCENTIVE STOCK OPTION PLAN
General
The Company's 1996 Incentive Stock Option Plan (the "Plan") was adopted by
the Board of Directors in July 1996 and was approved by the Company's
shareholders in November 1996. The Plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and for the granting to employees
and consultants of non-statutory stock options. Unless terminated sooner, the
Plan will terminate automatically in July 2006.
Proposal
In July 1998, the Board of Directors approved an amendment to the Plan to
increase the number of shares reserved for issuance thereunder by an additional
4,000,000 shares of Common Stock, for an aggregate of 8,000,000 shares reserved
for issuance thereunder.
Required Vote
The affirmative vote of the holders of a majority of the Common Stock
represented and voting at the Annual Meeting is required to approve and ratify
the amendment to the Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT TO THE PLAN.
Summary of the Plan
The essential provisions of the Plan are outlined below.
Administration. The Plan is administered by the Board or a committee
appointed by the Board (as applicable, the "Administrator"). Such a committee
may consist of (i) two or more "non-employee" directors in order to grant
options to officers and directors in compliance with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") or (ii) two or
more "outside" directors in order to grant options intended to qualify as
"performance-based compensation" under the tax laws.
Eligibility; Limits on Grants. Non-statutory options may be granted to
employees, including officers, directors and consultants of the Company, its
parent or subsidiaries. Incentive stock options may be granted only to
employees, including employee directors and officers. The Administrator approves
the participants, the time or times at which options are granted and the number
of shares subject to each such grant.
Limitations. Section 162(m) of the Code places limits on the deductibility
for federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options granted to such persons, the
Plan provides that no employee, director or consultant may be granted, in any
fiscal year of the Company, options to purchase more than 500,000 shares of
Common Stock. Notwithstanding this limit, however, in connection with an
individual's initial employment with the Company, he or she may be granted
options to purchase up to an additional 500,000 shares of Common Stock.
Terms of Options. The terms of options granted under the Plan are
determined by the Administrator. Each option is evidenced by a written agreement
between the Company and the optionee to whom such option is granted and is
subject to the following additional terms and conditions:
(a) Exercise of the Option: The Administrator determines when an option
becomes exercisable and may accelerate the vesting of any outstanding
option. The purchase price of the shares to be purchased upon exercise of
an option may be paid, at the discretion of the Administrator, in cash,
5
check, cashless exercise, or other shares of Common Stock (with some
restrictions), or, if specified in the optionee's option agreement, other
legally permitted consideration at the discretion of the Administrator.
(b) Exercise Price: The exercise price of an option is determined by
the Administrator at the time the option is granted, provided that,
generally in the case of an incentive stock option, the exercise price may
not be less than 100% of the fair market value of the Common Stock on the
date the option is granted, and provided further that, in the case of an
incentive stock option granted to an employee who, at the time of such
grant, owns stock representing more than ten percent of the voting power of
all classes of stock of the Company or any parent or subsidiary of the
Company, the exercise price may be no less than 110% of the fair market
value of the Common Stock on the date the option is granted.
(c) Termination of Employment: If an optionee's status as an employee
or consultant terminates for any reason other than death or disability, an
option under the Plan may be exercised for such period of time as is
specified in the option agreement (generally ninety days) after such
termination (but in no event later than the date of expiration of the term
of the option) and may be exercised only to the extent such option was
exercisable and vested on the date of termination. The option agreement may
provide for a longer period of time for the option to be exercised after
the optionee's death or disability. To the extent the option is exercisable
at the time of such termination, the optionee (or the optionee's estate or
the person who acquires the right to exercise the option by bequest or
inheritance) may exercise all or part of the option at any time during such
time periods.
(d) Expiration of Options: Options granted under the Plan expire as
determined by the Administrator, but in no event later than ten years from
the date of grant. However, in the case of an incentive stock option
granted to an employee who, at the time of such grant, owns stock
representing more than ten percent of the voting power of all classes of
stock of the Company or any parent or subsidiary of the Company, the term
of the option may not be greater than five years. Under the form of option
agreement currently used by the Company, options generally expire ten years
from the date of grant.
(e) Non-transferability of Options: Unless otherwise specified by the
Administrator, options are non-transferable by the optionee other than by
will or by the laws of descent or distribution and are exercisable during
the optionee's lifetime only by the optionee.
(f) Other Provisions: The option agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan,
as determined by the Administrator.
Changes in Capitalization. In the event a change, such as a stock split or
stock dividend payable in Common Stock, is made in the Company's capitalization
which results in an exchange of Common Stock for a greater or lesser number of
shares without receipt of consideration by the Company, appropriate adjustment
will be made in the number of shares reserved for issuance under the Plan and in
the number of shares subject to each outstanding option under the Plan, as well
as in the price per share of Common Stock covered by such option. Such
adjustment will be made by the Board of Directors, the determination of which is
final, binding and conclusive. In the event of the proposed dissolution or
liquidation of the Company, options outstanding under the Plan will terminate
immediately prior to such action. The Administrator may, in its discretion
provide that each optionee will have the right to exercise all of the optionee's
options, including those not otherwise exercisable, until the date ten days
prior to the consummation of the liquidation or dissolution. In connection with
the proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company into another corporation, each outstanding option may
be assumed or an equivalent option substituted by the successor corporation. If
the successor corporation refuses to assume the options or to substitute
substantially equivalent options, the optionee will have the right to exercise
the option as to all underlying stock, including shares not otherwise
exercisable. In such event, the Administrator will notify the optionee that the
option is fully exercisable for fifteen days from the date of such notice and
that the option will terminate upon expiration of such period.
6
Amendment and Termination of the Plan. The Board of Directors may amend the
Plan at any time, or may terminate the Plan, without approval of the
shareholders; provided, however, that shareholder approval is required for any
amendment to the Plan for which shareholder approval would be required under the
Code or other applicable rules, and no action by the Board of Directors or
shareholders may unilaterally impair any option previously granted under the
Plan. In any event, the Plan will terminate in July 2006. Any options
outstanding under the Plan at the time of its termination will remain
outstanding until they expire by their terms.
Federal Income Tax Consequences of the Plan
The following is a summary of the effect of federal income taxation with
respect to the grant and exercise of options under the Plan. It does not purport
to be complete and does not discuss the tax consequences of the optionee's death
or the income tax laws of any municipality, state or foreign country in which a
participant may reside.
Incentive Stock Options. An optionee who is granted an incentive stock
option will not recognize taxable income either at the time the option is
granted or upon its exercise, although the exercise is an adjustment item for
alternative minimum tax purposes and may subject the optionee to the alternative
minimum tax. Upon the sale or exchange of shares acquired upon exercise of the
option more than two years after grant of the option and one year after
exercise, any gain or loss will be treated as long-term capital gain or loss.
Net capital gains on shares held for more than 12 months may be taxed at a
maximum federal rate of 20%. Capital losses are allowed in full against capital
gains and up to $3,000 of other income. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss, depending
on the holding period. A different rule for measuring ordinary income upon such
a premature disposition may apply if the optionee is an officer, director, or
ten percent shareholder of the Company. Unless limited by Section 162(m) of the
Code, the Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Non-statutory Stock Options. An optionee will not recognize any taxable
income at the time he or she is granted a non-statutory stock option. However,
upon the option's exercise, the optionee will recognize taxable income,
generally measured as the excess of the then fair market value of the shares
purchased over the exercise price. Any taxable income recognized in connection
with an option exercised by an optionee who is also an employee of the Company
will be subject to tax withholding by the Company. Unless limited by Section
162(m) of the Code, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee. Upon resale of such
shares by the optionee, any difference between the sales price and the exercise
price, to the extent not recognized as taxable income as described above, will
be treated as capital gain or loss, depending on the holding period. Net capital
gains on shares held for more than 12 months may be taxed at a maximum federal
rate of 20%. Capital losses are allowed in full against capital gains and up to
$3,000 of other income.
Participation in the Plan
The grant of options under the Plan to eligible employees and consultants,
including the officers listed in the Summary Compensation Table below, is
subject to the discretion of the Administrator. As of the Record Date, options
to purchase 2,555,575 shares of Common Stock have been granted pursuant to the
Plan, no options have been exercised and 1,455,925 shares remain available for
future grants.
7
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending June 27, 1999, and recommends that the shareholders vote for ratification
of such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection. Ernst & Young LLP has audited
the Company's financial statements since the fiscal year ended June 30, 1982.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement and are expected to be
available to respond to appropriate questions from shareholders.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 27, 1999.
8
BENEFICIAL SECURITY OWNERSHIP OF DIRECTORS,
OFFICERS AND CERTAIN OTHER BENEFICIAL OWNERS
Security Ownership
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of the
Record Date, by (a) each beneficial owner of more than 5% of the Company's
Common Stock, (b) the Company's Chief Executive Officer and the Com-pany's four
other most highly compensated executive officers during fiscal 1998
(collectively, the "Named Executive Officers"), (c) each director of the Company
and (d) all directors and executive officers of the Company as a group. Except
as otherwise indicated, each person has sole voting and investment power with
respect to all shares shown as beneficially owned, subject to community property
laws where applicable.
Shares Beneficially Percentage
Beneficial Owner Owned Beneficially Owned
---------------- ----- ------------------
Janus Capital Corporation(1) ........... 9,429,840 12.2%
100 Fillmore Street
Denver, CO 80206-4923
FMR Corp.(2) ........................... 8,104,630 10.5%
82 Devonshire Street
Boston, MA 02109
Putnam Investments, Inc.(3) ............ 6,640,224 8.6%
One Post Office Square
Boston, MA 02109
Robert H. Swanson, Jr.(4) .............. 323,200 *
Robert C. Dobkin(5) .................... 364,658 *
Clive B. Davies(6) ..................... 395,564 *
Paul Coghlan(7) ........................ 236,112 *
Hans J. Zapf(8) ........................ 144,500 *
Thomas S. Volpe(9) ..................... 48,000 *
David S. Lee(10) ....................... 18,000 *
Leo T. McCarthy(11) .................... 37,000 *
Richard M. Moley(9) .................... 48,000 *
All directors and executive officers as a
group (14 persons)(4)(5)(6)(12) ...... 1,753,534 2.2%
- -----------------
* Less than one percent of the outstanding Common Stock.
(1) As reported by Janus Capital Corporation ("Janus") as of July 10, 1998.
Includes 7,677,715 shares beneficially owned by Janus Fund. Janus and Janus
Fund have shared voting power and shared dispositive power with respect to
the shares beneficially owned by Janus and Janus Fund.
(2) As reported by FMR Corp. ("FMR") as of February 14, 1998. Consists of
6,815,540 shares beneficially owned by Fidelity Management & Research
Company ("FMRC"), 1,250,540 shares beneficially owned by Fidelity
Management Trust Company ("FMTC"), 34,600 shares beneficially owned by
Fidelity International Limited ("FIL") and 24,500 shares beneficially owned
directly by Edward C. Johnson 3d. FMR has sole voting power with respect to
959,240 shares and has sole dispositive power with respect to the 8,092,980
shares beneficially owned by FMRC and FMTC. FIL has sole voting and
dispositive power with respect to all the shares it beneficially owns.
Edward C. Johnson has sole voting and dispositive control with respect to
13,500 shares and shared voting and dispositive power with respect to
11,000 shares.
9
(3) As reported by Putnam Investments, Inc. ("PI") as of September 17, 1998.
Consists of 6,500,647 shares held by Putnam Investment Management, Inc.
("PIM") and 139,577 shares held by The Putnam Advisory Company, Inc.
("PAC"), each a registered investment advisor under the Investment Advisers
Act of 1940. PIM and PAC are deemed to be beneficial owners of the shares
held by their respective investment advisory clients. PI, a wholly owned
subsidiary of Marsh & McLennan Companies, Inc. ("MMC"), is the sole owner
of PIM and PAC. PI and MMC disclaim the power to vote or dispose of, or to
direct the voting or disposition of, any of the securities owned by PIM and
PAC.
(4) Includes 163,200 shares issued in the name of Robert H. Swanson, Jr. and
Sheila L. Swanson, Trustees of the Robert H. Swanson, Jr. and Sheila L.
Swanson Trust U/D/T dated May 27, 1976. Also includes 160,000 shares
issuable pursuant to options exercisable within 60 days of September 8,
1998.
(5) Includes 200,158 shares issued in the name of Robert C. Dobkin and Kathleen
C. Dobkin Trustees of the Dobkin Family Trust W/D/T 9/16/91. Also includes
164,500 shares issuable pursuant to options exercisable within 60 days of
September 8, 1998.
(6) Includes 159,064 shares issued in the name of Clive B. Davies and Carol B.
Davies Trustees of the Davies Living Trust 9/9/94. Also includes 236,500
shares issuable pursuant to options exercisable within 60 days of September
8, 1998.
(7) Includes 217,500 shares issuable pursuant to options exercisable within 60
days of September 8, 1998.
(8) Includes 132,000 shares issuable pursuant to options exercisable within 60
days of September 8, 1998.
(9) Consists of 48,000 shares issuable pursuant to options exercisable within
60 days of September 8, 1998.
(10) Consists of 18,000 shares issuable pursuant to options exercisable within
60 days of September 8, 1998.
(11) Consists of 37,000 shares issuable pursuant to options exercisable within
60 days of September 8, 1998.
(12) Includes 1,200,000 shares issuable pursuant to options exercisable within
60 days of September 8, 1998.
Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the fiscal year ended June 28, 1998. No director attended fewer than 75% of the
meetings of the Board of Directors and its committees upon which such director
served. The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors has no nominating committee or any committee
performing similar functions.
The Audit Committee of the Board of Directors currently consists of
directors Lee, McCarthy, Moley and Volpe, and held a total of four meetings
during the last fiscal year. The Audit Committee recommends engagement of the
Company's independent auditors, and is primarily responsible for approving the
services performed by the Company's independent auditors and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation Committee of the Board of Directors currently consists of
directors Lee, McCarthy, Moley and Volpe, and held a total of four meetings
during the last fiscal year. The Compensation Committee reviews and approves the
Company's executive compensation policy, including the salaries and target
bonuses of the Company's executive officers, and administers the Company's
employee stock plans.
Director Compensation
The Company currently pays each non-employee director an annual retainer of
$20,000 and a fee of $1,500 for each meeting of the Board of Directors attended.
10
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee currently consists of directors Lee,
McCarthy, Moley and Volpe. No executive officer of the Company served on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions during the last
fiscal year.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's executive officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership on Form 3 and amendments thereto and
changes in ownership on Forms 4 or 5 with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. Such
executive officers, directors and ten percent shareholders are also required by
SEC rules to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon its review of copies of such forms and amendments, if
any, received by the Company, or written representations from certain reporting
persons that no Forms 5 were required for such persons, the Company believes
that it has complied with all Section 16(a) filing requirements applicable to
its executive officers and directors during the year ended June 28, 1998.
Executive Officer Compensation
The following table sets forth all compensation received for services
rendered to the Company in all capacities, for the last three fiscal years ended
June 28, 1998, by the Named Executive Officers:
Summary Compensation Table
Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options Compensation(2)
- --------------------------- ---- ------ -------- ------- ---------------
Robert H. Swanson, Jr .......................... 1998 $ 268,258 $1,273,804 125,000 $ 23,790
President and Chief 1997 262,260 827,910 200,000 22,139
Executive Officer 1996 234,135 958,361 -- 32,936
Clive B. Davies ................................ 1998 $ 241,662 $ 979,622 65,000 $ 22,620
Vice President and 1997 224,315 641,303 100,000 21,083
Chief Operating Officer 1996 218,621 774,366 -- 28,470
Robert C. Dobkin ............................... 1998 $ 237,717 $ 908,210 95,000 $ 22,172
Vice President, Engineering 1997 220,683 610,080 150,000 20,372
1996 215,214 733,649 -- 27,933
Paul Coghlan ................................... 1998 $ 232,833 $ 861,497 45,000 $ 21,820
Vice President, Finance and 1997 215,620 573,807 70,000 20,379
Chief Financial Officer 1996 209,733 697,141 -- 26,836
Hans J. Zapf ................................... 1998 $ 218,827(3) $ 486,689 40,000 $ 22,258
Vice President, International Sales 1997 231,284(3) 359,278 70,000 20,352
1996 210,191(3) 407,883 -- 27,298
<FN>
- -----------------
(1) Includes cash profit sharing and cash bonuses earned for the fiscal year,
whether accrued or paid.
(2) Includes insurance premiums paid by the Company under its life insurance
program. Also includes 401(k) profit sharing distributions earned by the
officer during the fiscal year.
(3) Includes sales commissions earned by Mr. Zapf for the fiscal year.
</FN>
11
Option Grants in Last Fiscal Year
The following table shows, as to the Named Officers, information concerning
stock options granted during the year ended June 28, 1998.
Individual Grants
-----------------------------------------------------------------
Potential Realizable Value
at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to for Option Term(3)
Options Employees in Exercise Price Expiration ----------------------------
Name Granted Fiscal Year(1) Per Share Date(2) 5% 10%
- ------------------------------ ------------ ---------------- ---------------- ------------ ------------ -------------
Robert H. Swanson, Jr. ....... 125,000 4.3% $ 51.875 01/12/08 $4,077,989 $10,334,425
Clive B. Davies .............. 65,000 2.3 51.875 01/12/08 2,120,554 5,373,901
Robert C. Dobkin ............. 95,000 3.3 51.875 01/12/08 3,099,271 7,854,163
Paul Coghlan ................. 45,000 1.6 51.875 01/12/08 1,468,076 3,720,393
Hans J. Zapf ................. 40,000 1.4 51.875 01/12/08 1,304,956 3,307,016
<FN>
- -----------------
(1) The Company granted to employees options to purchase 2,875,575 shares of
Common Stock in fiscal 1998.
(2) Options may terminate before their expiration upon the termination of
optionee's status as an employee, director or consultant, the optionee's
death or disability or an acquisition of the Company.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual
rate specified (5% and 10%). Annual compounding results in total
appreciation of approximately 63% (at 5% per year) and 159% (at 10% per
year). If the price per share of the Company's Common Stock were to
increase at such rates from the price at the date of the above
grants--$51.875 per share--over the next 10 years, the resulting stock
price at 5% and 10% appreciation would be approximately $84.50 per share
and approximately $134.55 per share, respectively. The 5% and 10% assumed
annual rates of compounded stock price appreciation are mandated by rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future stock price growth.
</FN>
Option Exercises and Holdings
The following table provides information with respect to option exercises
in fiscal 1998 by the Named Executive Officers and the value of such officers'
unexercised options at June 28, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares Fiscal Year-end Fiscal Year-end(2)
Acquired Value ----------------------------- -----------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------- ------------- ------------- ------------- --------------- ------------- ---------------
Robert H. Swanson, Jr. ........ 75,000 $4,353,125 120,000 285,000 $4,815,000 $7,003,750
Clive B. Davies ............... 40,000 2,660,000 210,000 145,000 9,815,625 3,523,750
Robert C. Dobkin .............. 50,000 2,786,875 125,000 215,000 5,164,375 5,263,750
Paul Coghlan .................. 45,000 3,093,918 199,000 101,000 9,888,216 2,462,250
Hans J. Zapf .................. 27,000 1,735,500 117,000 93,000 5,782,125 2,285,375
<FN>
- -----------------
(1) Market value of underlying securities on the exercise date, minus the
exercise price.
(2) Value is based on the last reported sale price of the Common Stock on the
Nasdaq National Market of $60.625 per share on June 26, 1998 (the last
trading day for fiscal 1998), minus the exercise price.
</FN>
12
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
shareholder return, calculated on a dividend reinvested basis, for Linear
Technology Corporation ("LLTC"), the Nasdaq National Market ("Nasdaq") and the
Semiconductor Subgroup of the S&P Electronics Index (the "Semiconductor Index").
The graph assumes that $100 was invested in the Company's Common Stock, in
Nasdaq and in the Semiconductor Index on the last trading day of the Company's
1993 fiscal year. Note that historic stock price performance is not necessarily
indicative of future stock price performance.
[The following descriptive data supplied in accordance with Rule 304(d) of
Regulation S-T]
Year LLTC Nasdaq Semiconductor Index
---- ---- ------ -------------------
June 1993 ...... 100 100 100
June 1994 ...... 153 100 106
June 1995 ...... 231 133 198
June 1996 ...... 211 168 181
June 1997 ...... 366 205 337
June 1998 ...... 428 269 341
13
COMPENSATION COMMITTEE REPORT
Introduction
The Compensation Committee of the Board of Directors (the "Committee") is
composed only of non-employee directors. It is responsible for reviewing and
recommending for approval by the Board of Directors the Company's compensation
practices, executive salary levels and variable compensation programs, both
cash-based and equity-based. The Committee generally determines base salary
levels for executive officers of the Company at or about the start of each
fiscal year and determines actual bonuses at the end of each six-month fiscal
period based upon Company and individual performance.
Compensation Philosophy
The Committee has adopted an executive pay-for-performance philosophy
covering all executive officers, including the Chief Executive Officer. This
philosophy emphasizes variable compensation in order to align executive
compensation with the Company's business objectives and performance and to
attract, retain and reward executives who contribute both to the short-term and
long-term success of the Company. Pay is sufficiently variable that
above-average performance results in above-average total compensation, and
below-average performance for the Company or the individual results in
below-average below-average performance for the Company or the individual
results in below-average total compensation. The focus is on corporate
performance and individual contributions toward that performance.
Compensation Program
The Company has a comprehensive compensation program which consists of cash
compensation, both fixed and variable, and equity-based compensation. The
program has four principal components, which are intended to attract, retain,
motivate and reward executives who are expected to manage both the short-term
and long-term success of the Company. These components are:
Cash-Based Compensation
Base Salary--Base salary is predicated on industry and peer group
comparisons and on performance judgments as to the past and expected future
contribution of the individual executive officer. In general, salary
increases are made based on median increases in salaries for similar
executives of similar-size companies in the high technology industry.
Profit Sharing--Profit sharing payments are distributed semi-annually
to all employees, including executives, from a profit sharing pool. The
amount of the pool is largely determined by the magnitude of sales and
operating income for the six-month period. This pool is distributed to all
eligible employees based on the ratio of their individual salary to total
salaries for all employees. A portion of this profit sharing is paid
directly into a 401(k) retirement plan for all employees.
Bonuses--The Company has a discretionary key employee incentive pool
pursuant to which executive officers and a limited number of key employees
may receive semi-annual cash bonuses. Targets for sales growth and
operating income as a percentage of sales influence the size of the pool.
Individual payments are made based on the Company's achievement of these
targets and upon the individual's personal and departmental performance.
In 1996, the Company adopted a senior executive bonus plan to facilitate,
under Section 162(m) of the Internal Revenue Code, the federal income tax
deductibility of compensation paid to the Company's most highly compensated
executive officers. In fiscal 1998, the participants were Messrs. Swanson,
Davies, Dobkin and Coghlan. In fiscal 1999, the plan will include the Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers.
14
Equity-Based Compensation
Stock Options--Stock options are granted periodically to provide
additional incentive to executives and other key employees to work to
maximize long-term total return to shareholders. The options vest over a
five-year period to encourage option holders to continue in the employ of
the Company. Over 35% of worldwide employees have received stock options.
In granting options, the Compensation Committee takes into account the
number of shares and outstanding options already held by the individual.
Chief Executive Officer Compensation
The Committee uses the same factors and criteria described above for
compensation decisions regarding the Chief Executive Officer.
Compensation Limitations for Tax Purposes
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code adopted under the federal Revenue Reconciliation Act of
1993. Section 162(m) generally disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1 million in any taxable year
for any of the Named Executive Officers, unless compensation is
performance-based. The Company's policy is to qualify, to the extent reasonable,
its executive officers' compensation for deductibility under applicable tax
laws. In fiscal 1997, the Company implemented the Senior Executive Bonus Plan in
order to qualify certain bonus payments to the Named Executive Officers as
performance-based compensation under Section 162(m). The Committee believes that
the implementation of the Senior Executive Bonus Plan enables the Company to
compensate its executive officers in accordance with its pay-for-performance
philosophy while maximizing the deductibility of such compensation. However, the
Committee recognizes that the loss of a tax deduction may be necessary in some
circumstances.
Summary
The Committee believes that a fair and motivating compensation program has
played a critical role in the success of the Company. The Committee reviews this
program on an ongoing basis to evaluate its continued effectiveness.
Respectfully submitted by:
The Compensation Committee
David S. Lee
Leo T. McCarthy
Richard M. Moley
Thomas S. Volpe
15
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting or any
adjournment or postponement thereof, it is the intention of the persons named in
the enclosed form of Proxy to vote the shares they represent as the Board of
Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Dated: September 25, 1998
16
APPENDIX A
________________________________________________________________________________
PROXY LINEAR TECHNOLOGY CORPORATION PROXY
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Linear Technology Corporation, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated September 25, 1998, and hereby
appoints Robert H. Swanson, Jr. and Paul Coghlan, or either of them, as proxies
and attorneys-in-fact, each with full power to, on behalf and in the name of the
undersigned, represent the undersigned at the 1998 Annual Meeting of
Shareholders of Linear Technology Corporation to be held on November 4, 1998, at
3:00 p.m. local time, at the Company's principal executive offices, located at
1630 McCarthy Boulevard, Milpitas, California 95035, and at any postponement or
adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side, and, in their discretion, upon such
other matter or matters which may properly come before the meeting and any
adjournment thereof.
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted FOR the election of the specified nominees as
directors, FOR the approval of the amendment of the 1996 Incentive Stock Option
Plan, FOR the ratification of the appointment of Ernst & Young LLP as
independent auditors, and as said proxies deem advisable on such other matters
as may properly come before the meeting.
(Continued and to be signed on the other side)
________________________________________________________________________________
^ FOLD AND DETACH HERE ^
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO SHOW THE
TEXT POSITION ON THE FRONT OF THIS PROXY CARD
____________________________________________________________________________________________________________________________________
[X] Please mark
your votes
as in this
example
FOR WITHHELD
ALL FROM ALL
1. ELECTION OF DIRECTORS. NOMINEES NOMINEES 2. Proposal to approve amendment of the FOR AGAINST ABSTAIN
NOMINEES: 1996 Incentive Stock Option Plan. [ ] [ ] [ ]
Robert H. Swanson, Jr.; [ ] [ ]
David S. Lee; Leo T. McCarthy; 3. Proposal to ratify the appointment
Richard M. Moley; Thomas S. Volpe of Ernst & Young LLP as the [ ] [ ] [ ]
independent auditors of the Company.
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the In their discretion, upon such other
space provided below. matter or matters as which may properly
come before the meeting and/or any
postponement of adjournment thereof.
[ ] ______________________________________
For all nominees except
as noted above
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
FOR THE ELECTION OF THE SPECIFIED NOMINEES AS
DIRECTORS, FOR THE APPROVAL OF THE AMENDMENT OF
THE 1996 INCENTIVE STOCK OPTION PLAN, FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY COME BEFORE THIS MEETING.
In their discretion, upon such other matter or
matters which may properly come before the
meeting and/or any postponement or adjournment
thereof.
Signature(s) _____________________________________________________________________ Dated _________________________________
Signature(s) of Shareholder or Authorized Signatory
This Proxy should be marked, dated, signed by the shareholder(s) exactly as his or her name appears hereon, and returned promptly in
the enclosed envelope. Persons signing in a fiduciary capacity should so by signing and printing name and by printing title. If
shares are held by joint tenants or as community property, both should sign.
____________________________________________________________________________________________________________________________________
^ FOLD AND DETACH HERE ^
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO SHOW THE
TEXT POSITION ON THE BACK OF THIS PROXY CARD
APPENDIX B
LINEAR TECHNOLOGY CORPORATION
1996 INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Non-statutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Internal Revenue Code, any stock exchange
or quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Linear Technology Corporation, a California
corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Internal Revenue Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Non-statutory Stock Option.
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
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing bid price for such stock as quoted on
such exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock 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 high bid
and low 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 Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code and the regulations promulgated thereunder.
(o) "Non-statutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
-2-
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(q) "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.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code.
(x) "Plan" means this 1996 Incentive Stock Option Plan.
(y) "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.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or
Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 8,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
-3-
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option or Right, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the Plan shall be administered by a Committee of two or
more "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may
be granted hereunder;
(iii) to determine the number of shares of Common Stock
to be covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
-4-
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option (subject to Section
15(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionee to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
-5-
5. Eligibility. Non-statutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Non-statutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Non-statutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 500,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
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8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-statutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Non-statutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
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(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a
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dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to 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 the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
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(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or
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a Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall fully vest in and have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of thirty (30) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
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15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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