1
SCHEDULE 14A
(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 Section 240.14a-12
Giga-tronics, Inc.
(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)(1) and
0-11.
1) Title of each class of securities to which transaction applies.
2) Aggregate number of securities to which transaction 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:
2
{GIGA-TRONICS LOGO]
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
July 14, 2000
To Our Shareholders:
I cordially invite you to attend the annual meeting of Giga-tronics
Incorporated shareholders to be held at 9:30 a.m. on Wednesday, August 30, 2000,
at the Giga-tronics executive offices, 4650 Norris Canyon Road, San Ramon,
California.
At the meeting, you will be asked to elect four directors, approve a new
stock option plan and ratify the appointment of independent certified public
accountants. Information about these matters is set forth in the attached Notice
and Proxy Statement.
Giga-tronics counts on your continued interest, and I hope you will be
able to attend the meeting. However, regardless of whether you plan to attend in
person, it is important that your vote be counted. I urge you to vote your
shares by signing and returning the accompanying proxy card.
Sincerely,
George H. Bruns, Jr.
Chairman and Chief Executive Officer
3
{GIGA-TRONICS LOGO]
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The Annual Meeting of Shareholders of Giga-tronics Incorporated will be
held at 9:30 a.m., local time, on Wednesday, August 30, 2000, at the
Giga-tronics executive offices, at 4650 Norris Canyon Road, San Ramon,
California, for the following purposes:
1. Elect four directors for the ensuing year;
2. Adopt the 2000 Stock Option Plan;
3. Ratify the appointment of independent certified public
accountants;
4. Transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on July 14, 2000, will be
entitled to vote at this meeting, or any adjournment of this meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
REGARDLESS OF THE NUMBER YOU HOLD. PLEASE DATE, SIGN, VOTE AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED, PREPAID ENVELOPE.
By Order of the Board of Directors,
Mark H. Cosmez, II
Secretary
San Ramon, California
July 14, 2000
4
[GIGA-TRONICS LOGO]
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 30, 2000
This proxy statement is submitted by the board of directors of
Giga-tronics Incorporated ("Giga-tronics" or the "Company"), a California
corporation, in connection with the solicitation of proxies for use at the
Annual Meeting of Shareholders (the "Annual Meeting")to be held on August 30,
2000, in accordance with the notice to shareholders, and at any adjournment
thereof.
Our board of directors has fixed July 14, 2000 as the record date for
the meeting. Only shareholders of record on the record date are entitled to
notice of and to vote at the meeting. A majority of the shares of common stock
will constitute a quorum for the transaction of business at the Annual Meeting.
On the record date, there were 4,455,871 shares of Giga-tronics common stock
issued and outstanding. Each share outstanding on the record date is entitled to
one vote as to each matter to be acted on at the meeting. However, each
shareholder will be entitled to cumulate his votes in the election of directors
provided that notice of an intention to cumulate votes is given at the meeting
before voting for the election of directors. Under cumulative voting, a
shareholder is allowed one vote per share multiplied by the number of directors
to be elected and may use the total number of votes for one nominee or may
distribute the total number of votes among as many nominees as the shareholder
chooses. Four directors will be elected at this meeting.
Shares represented by properly executed proxies received by Giga-tronics
will be voted at the meeting according to with the instructions on the proxies.
It is intended that shares represented by proxies received by Giga-tronics which
are not limited to the contrary will be voted FOR all proposals included in the
notice of meeting.
Any person giving a proxy in the form accompanying this proxy statement
has the power to revoke it at any time before its exercise. A shareholder giving
a proxy may revoke it before its exercise by filing with the Secretary of
Giga-tronics either an instrument revoking the proxy or a duly executed proxy
bearing a later date. A proxy will be revoked automatically if the shareholder
who executed it is present at the meeting and votes in person. Attendance at the
meeting will not, in and of itself, constitute the revocation of a proxy. The
granting of a proxy will give the proxy holder authority to cumulate votes if
cumulative voting is elected.
Giga-tronics knows of no business to be transacted at the meeting other
than the proposals included in the Notice of Annual Meeting of Shareholders, and
we do not anticipate that other matters will be brought before the meeting. If,
however, other matters should be brought before the meeting, we intend that the
proxy holders may vote or act in accordance with their judgment on such matters.
Approval of a majority of the shares present or represented and entitled
to vote at the meeting is required for all items submitted to the shareholders
for their consideration. An automated system
1
5
administered by Giga-tronics' transfer agent tabulates shareholder votes. With
regard to the election of directors, votes may be cast in favor or withheld;
votes that are withheld will be excluded entirely from the vote and will have no
effect. Abstentions may be specified on proposals other than the election of
directors and will be counted as present for purposes of the item on which the
abstention is noted, and therefore counted in the tabulation of the votes cast
on a proposal with the effect of a negative vote. Broker non-votes are shares
which are represented at the Annual Meeting which a broker or nominee has
indicated it does not have discretionary authority to vote on with respect to a
particular matter. A broker non-vote will not be counted for purposes of
determining the election of directors or ratifying the selection of
Giga-tronics' independent accountants but for other proposals generally have the
effect of a negative vote.
The Annual Report of Giga-tronics for its fiscal year ended March 25,
2000 is being mailed with this mailing of the Notice of Annual Meeting and Proxy
Statement to all shareholders entitled to notice of and to vote at the Annual
Meeting.
The costs of solicitation of proxies, including the printing, handling
and mailing of the proxy material, will be paid by Giga-tronics. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to be forwarded to beneficial owners of shares held in their names,
and Giga-tronics will reimburse them for their expenses. The solicitation of
proxies though this proxy statement may be supplemented by telephone, telegram
or personal solicitation by directors, officers or other regular employees of
Giga-tronics and by Corporate Investor Communications. Giga-tronics has retained
Corporate Investor Communications to solicit proxies for a fee of approximately
$4,000, plus a reasonable amount to cover expenses. No additional compensation
will be paid to directors, officers or other employees for such services.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will be sent to Giga-tronics shareholders is July 20, 2000.
The executive offices of Giga-tronics are located at 4650 Norris Canyon
Road, San Ramon, California 94583, and the telephone number at that location is
(925) 328-4650.
2
6
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, four directors are to be elected to serve until
the next annual meeting and until their successors are elected and qualified.
The nominees of the board of directors for election as directors are listed
below. There are no family relationships among the nominees or between any
nominee and any executive officer of Giga-tronics.
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE AGE
----------------------------- -------- ---
George H. Bruns, Jr. 1980 81
Chief Executive Officer since January, 1995, Chairman of
the Board and a director of Giga-tronics. One of the
founders of Giga-tronics in 1980 and has been a director
since inception. Mr. Bruns is General Partner of The
Bruns Company, a private venture investment and
management consulting firm. Mr. Bruns is Director of
Testronics Inc. of McKinney, Texas.
James A. Cole 1994 58
General Partner of Windward Ventures, General Partner of
Spectra Enterprise Associates and a Partner of New
Enterprise Associates. Founder and President of
Amplica, Inc. and presently a director of Vitesse
Semiconductor Corp., Spectrian Corp., and several
private companies.
William E. Wilson 1998 60
President and Chief Executive Officer of Microwave
Technology, Inc. from May 1989 through present.
Robert C. Wilson 1991 80
Chairman of Wilson & Chambers, a private investment
firm. Mr. Wilson is currently a director of Storage
Technology Corporation, SyQuest Technology, Inc.,
Southwall Technologies Inc., ReSound Corp., Andros Inc.,
and Carco Electronics.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED.
3
7
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
MEETINGS
There were five regularly scheduled meetings of the board of directors
during the last fiscal year.
COMMITTEES
Giga-tronics' board of directors has an Audit Committee and a
Compensation Committee.
During fiscal 2000, the Audit Committee consisted of independent
non-employee directors James A. Cole, William E. Wilson and Robert C. Wilson.
The Audit Committee serves to monitor the effectiveness of the independent
audit, as well as the Company's accounting, financial controls and financial
reports. The Audit Committee held five meetings during the past fiscal year.
During fiscal 2000, the Compensation Committee consisted of independent
non-employee directors James A. Cole, William E. Wilson and Robert C. Wilson.
The committee formulates recommendations to the board of directors regarding
levels of compensation for management. In addition, in order to recognize the
expected future contributions of key employees and provide an additional
incentive for them to remain with Giga-tronics over the long-term, the Committee
awards options to purchase shares of our common Giga-tronics' stock. The
Compensation Committee reviews and approves all stock options and executive
compensation as part of the board of director meetings.
Giga-tronics does not have a nominating committee or any committee
performing such functions. All of the directors attended all the regularly
scheduled meetings of the board of directors and all the committees on which
they sat.
COMPENSATION OF DIRECTORS
Each of the directors who is not employed by Giga-tronics receives an
annual director's fee of $6,000 and $750 for attendance at each board of
directors meeting. Outside directors serving on committees of the board of
directors receive $500 for attendance at each committee meeting.
From time to time, Giga-tronics makes discretionary grants of options to
purchase shares of its common stock to directors in consideration for services
as members of the Board they provide to Giga-tronics.
Giga-tronics has entered into indemnification agreements with all of its
officers and directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act requires our directors, executive officers, and holders of more
than 10% of Giga-tronics' common stock to file reports of ownership and changes
in ownership with the Securities and Exchange Commission, or SEC. Officers,
directors, and greater than 10% shareholders are required by SEC regulations to
furnish Giga-tronics with copies of all Section 16(a) forms they file.
4
8
Based solely on a review of the copies of such forms received by
Giga-tronics, or written representations from certain reporting persons, we
believe that during the fiscal year ended March 25, 2000 its officers, directors
and greater than 10% shareholders complied with all applicable filing
requirements.
5
9
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below includes information as of July 14, 2000, concerning the
beneficial ownership of Giga-tronics' common stock for: each person known by
Giga-tronics to own beneficially more than 5% of Giga-tronics' outstanding
common stock; each director; each executive officer named in the Summary
Compensation Table below; and all directors and officers of Giga-tronics during
fiscal 2000 as a group:
PERCENTAGE OF TOTAL
AMOUNT AND NATURE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
------------------------ -------------------- -------------------
George H. Bruns, Jr. 443,303(1) 9.9%
4650 Norris Canyon Road
San Ramon, California 94583
James A. Cole 24,664(2) 0.6
4491 Valley Spring Drive
Westlake Village, California 91362
Mark H. Cosmez II 46,090(3) 1.0
4650 Norris Canyon Road
San Ramon, California 94583
James R. Koehn 15,800(4) 0.4
4650 Norris Canyon Road
San Ramon, California 94583
Jeffery T. Lum 58,364(5) 1.3
4384 Enterprise Pl.
Fremont, California 94538
Robert A. Smith 14,215(6) 0.3
1269 Corporate Center Parkway
Santa Rosa, California 95407
Robert C. Wilson 47,750(7) 1.1
274 Catalpa Drive
Atherton, California 94027
William E. Wilson 1,875(8) *
145 Sugar Creek Lane
Alamo, California 94507
All officers and directors as a group 694,400 15.3%
(9 persons, including those above)
* Less than 0.1%
(1) Includes 227,650 shares owned by the Bruns Trust, 170,000 registered in the
names of Mr. Bruns' son and daughter, 22,163 shares owned by The Bruns
Company, 19,740 shares owned directly and 3,750 shares issuable upon
exercise of currently exercisable options.
(2) Includes 3,750 shares issuable upon exercise of currently exercisable
options.
(3) Includes 10,000 shares issuable upon exercise of currently exercisable
options.
(4) Includes 12,500 shares issuable upon exercise of currently exercisable
options.
(5) Includes 5,000 shares issuable upon exercise of currently exercisable
options.
(6) Includes 12,500 shares issuable upon exercise of currently exercisable
options.
(7) Includes 27,750 shares issuable upon exercise of currently exercisable
options.
(8) All 1,875 shares represent shares issuable upon exercise of currently
exercisable options.
6
10
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table provides information concerning compensation paid or
accrued by the Company, to or on behalf of Giga-tronics' chief executive officer
and each of the four other most highly compensated executive officers during the
last fiscal year, for the fiscal years ended March 25, 2000, March 27, 1999, and
March 28, 1998:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NUMBER OF
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPEN-
NAME AND FISCAL COMPEN- OPTIONS/ SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS SATION SARS(#)(1) ($)(2)
- ------------------------------ --------- ----------- ----------- ----------- ------------- ------------
George H. Bruns, Jr. 2000 $120,000 -- -- -- $1,731
Chairman and 1999 $124,062 $20,300 -- -- --
Chief Executive Officer 1998 $148,000 $17,664 $7,200(3) -- --
Mark H. Cosmez II 2000 $105,000 -- -- 10,000 $2,625
Vice President, Finance 1999 $105,000 $6,867 -- -- $808
CFO & Secretary 1998 $51,692 -- -- 30,000 --
James R. Koehn 2000 $150,000 -- $6,600(4) -- $2,560
President, Giga-tronics 1999 $131,392 -- $55,716(5) 50,000 $1,505
Instruments Division
Jeffrey T. Lum 2000 $124,519 $1,633 $891(6) -- $2,000
President, 1999 $113,430 $1,633 $869(6) -- $2,007
ASCOR, Inc. 1998 $104,262 -- $522(6) -- $1,918
Robert A. Smith 2000 $150,000 $878 $7,202(7) 20,000 --
President, 1999 $66,197 -- $3,047(7) 30,000 --
Microsource, Inc.
(1) Stock options granted under Giga-tronics' 1990 Stock Option Plan.
(2) Represents contributions made by Giga-tronics' to its 401(k) Plan which
match in part the pre-tax elective deferral contributions included under
Salary made to the 401(k) plan by the executive officers.
(3) Other compensation in 1998 for Mr. George H. Bruns, Jr . represents a car
allowance.
(4) Mr. Koehn joined Giga-tronics in May 1998. Other compensation in 2000 for
Mr. James R. Koehn represents a car allowance.
(5) Other compensation in 1999 for Mr. James R. Koehn represents a car
allowance of $6,600 and relocation reimbursements of $49,116.
(6) Other compensation for Mr. Jeffrey T. Lum represents the use of a company
automobile.
(7) Mr. Smith joined Giga-tronics in October 1998. Other compensation in 1999
and 2000 for Mr. Robert A. Smith represents a car allowance.
7
11
STOCK OPTIONS
The following table sets forth stock options granted in fiscal 2000 to
each of Giga-tronics' executive officers named in the Summary Compensation
Table. No stock appreciation rights were granted during the 2000 fiscal year.
All option exercise prices would have been based on market price on the date of
grant. The table also sets forth the hypothetical gains that would exist for the
options at the end of their five year terms, assuming compound annual rates of
stock appreciation of 5% and 10%. These numbers are calculations based on the
requirements promulgated by the SEC and do not reflect Giga-tronics' estimate of
future stock price growth. The actual future value of all options will depend on
the market value of Giga-tronics' common stock.
OPTION GRANTS IN FISCAL 2000
PERCENTAGE POTENTIAL
OF TOTAL REALIZATION VALUE
NO. OF OPTIONS AT ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
DATE OF OPTIONS IN FISCAL PRICE OPTION TERM
NAME GRANT GRANTED(#) 2000 ($/SH) EXP. DATE
- ---------------- ------- ------------- --------- -------- --------- ---------------------
5%($) 10%($)
--------- ---------
Mark H. Cosmez II 5/25/1999 10,000 8.7% $2.125 5/25/2004 $6,000 $13,000
Robert A. Smith 4/06/1999 20,000 17.3% $2.250 4/06/2004 $12,500 $27,500
8
12
OPTIONS EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The table below provides information for the executive officers named in
the Summary Compensation Table, concerning the exercise of options during fiscal
2000 and unexercised options held as of the end of the fiscal year. No stock
appreciation rights were exercised by these individuals during fiscal 2000. No
stock appreciation rights were outstanding at the end of fiscal 2000.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN
UNDERLYING UNEXERCISED THE MONEY OPTIONS AT
OPTIONS AT MARCH 25, 2000(#) MARCH 25, 2000(1)
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------ ------------ -------------
George H. Bruns, Jr -- -- 18,750 56,250 $223,241 $669,724
Chairman and Chief
Executive Officer
Mark H. Cosmez II -- -- 10,000 30,000 $118,984 $356,952
Vice President,
Finance CFO &
Secretary
James R. Koehn -- -- 12,500 37,500 $148,828 $446,483
President,
Giga-tronics Instruments
Jeffery T. Lum -- -- 5,000 15,000 $ 59,531 $178,593
President, ASCOR, Inc.
Robert A. Smith -- -- 12,500 37,500 $148,047 $444,140
President,
Microsource, Inc.
(1) Equal to the fair market value of the option shares on March 25, 2000 which
was $14.00 per share, less the aggregate option price payable for the
shares. Options are in-the-money if the market value of the shares is
greater than the option exercise price.
9
13
LONG-TERM INCENTIVE PLAN (LTIP) AWARDS TABLE
There were no long-term incentive plan awards made during the 2000 fiscal
year to Giga-tronics' executive officers.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
CHANGE-IN-CONTROL ARRANGEMENTS
All outstanding options will automatically accelerate and become
exercisable for fully vested shares upon a change in control of Giga-tronics,
whether effected through merger, sale of substantially all of the Giga-tronics'
assets, the successful completion of a hostile tender offer for 30% or more of
Giga-tronics' outstanding common stock, or a change in the majority of the board
of directors as a result of one or more contested elections for board of
directors membership.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the 2000 fiscal year, the Compensation Committee was comprised of
Messrs. James A. Cole, William E. Wilson and Robert C.Wilson.
No executive officer of Giga-tronics serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of Giga-tronics board of directors or
Compensation Committee.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION POLICY
Giga-tronics' executive compensation philosophy rests on two fundamental
principles. First, the program is intended to provide fully competitive levels
of compensation - at expected levels of performance - in order to attract,
motivate and retain talented executives. Secondly, the program is intended to
create an alignment of interest between Giga-tronics' executives and its
shareholders such that a significant portion of each executive's compensation is
linked directly to the creation of shareholder value.
The Executive Compensation Program is intended to place heavy emphasis
on the variable pay, which is pay that varies with performance, and less focus
on fixed base salary. The incentive pay programs are intended to reward
performance that is directly relevant to the Company's short term and long term
success. The three primary components of the program include base salary, annual
incentive, which is performance based bonus, and long term incentives such as
stock options.
10
14
FACTORS
The process involved and the factors considered in the executive
compensation determination for fiscal year 2000 are summarized below. It is
expected that this process will remain the same in fiscal year 2001. However,
the Committee may, at its discretion, apply a different set of factors in
setting executive compensation in the future in order to further enhance the
basic concept of "pay-for-performance."
BASE SALARY
Base salaries are based primarily on individual performance, and each
individual's role in Giga-tronics. Employees with higher levels of sustained
performance over time and/or those assuming greater responsibilities will be
paid correspondingly higher salaries.
On the basis of its knowledge of the industry, this Committee believes
that the base salary levels in effect for Giga-tronics' executive officers are
competitive with the companies within and without the industry with which
Giga-tronics' competes for executive talent. However, the Committee did not,
through one or more external salary surveys for the industry, independently
confirm the specific percentiles at which the base salary levels in effect for
Giga-tronics' executive officers stood in relation to other companies in the
industry.
Salaries are reviewed annually based on individual performance, overall
financial results and the general level of increases in the marketplace. Salary
increases are granted within a pay-for-performance framework.
ANNUAL PERFORMANCE (NON-STOCK) BASED INCENTIVE COMPENSATION
Giga-tronics' annual incentive bonus plan is intended to:
- reward key employees based upon company and individual performance,
- motivate, and
- provide competitive cash compensation opportunities.
Incentive awards are paid annually based upon achievement of individual
performance objectives for the most recently completed fiscal year.
Bonus payments totaling approximately $36,633 were earned in fiscal
2000.
LONG-TERM (STOCK BASED) INCENTIVE COMPENSATION
Giga-tronics has always believed that stock ownership or stock option
participation was the most effective way of aligning its management and
shareholder interests. Options are generally issued at 100% of market value, for
five year terms, exercisable for 25% of the total grant per year after the first
year. The right to exercise options expires 60 days after termination of
employment, except in case of death when an optionee's estate would have six
months to exercise.
Options outstanding in fiscal year 1998 were 9.0% of total shares
outstanding, options outstanding at the end of fiscal year 1999 were 14.7% of
total shares outstanding, and options outstanding at the end of fiscal year 2000
were 12.5% of total shares then outstanding.
CEO COMPENSATION
11
15
The CEO compensation is based on the same considerations as any other
senior executive. Base rates are determined by market factors. Other
compensation factors, including salary increases, incentive bonus, option
participation, are performance-based and long-term incentive compensation.
Mr. Bruns' compensation for 2000 was $120,000.
Mr. Bruns holds 60,000 options and owns, directly and through family,
439,553 shares equaling approximately of 9.9% of Giga-tronics outstanding common
stock.
Based upon Giga-tronics' performance, Mr. Bruns elected to reduce his
salary. The Compensation Committee reviewed and approved this election.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Effective January 1, 1994, Section 162(m) of the Internal Revenue Code
limits federal income tax deductions for compensation paid to the chief
executive officer and the four other most highly compensated officers of a
public company to $1 million per individual per year, but contains an exception
for performance-based compensation that satisfies certain conditions.
The 1990 Stock Option Plan was amended in 1994 to restrict the maximum
number of shares of common stock for which any one participant may be granted
stock options and stock appreciation rights to 200,000 shares, and the
stockholders approved this amendment at the 1994 Annual Meeting. As a result,
stock options granted to Giga-tronics' executive officers with an exercise price
not less than the fair market value of the underlying shares on the grant date
will generally qualify as performance-based compensation which is not subject to
the $1 million limitation.
This Compensation Committee Report on Executive Compensation will not be
deemed to be incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, except to the extent that
Giga-tronics specifically incorporates this information by reference, and will
not otherwise be deemed filed under such Acts.
BY THE COMPENSATION COMMITTEE:
James A. Cole
Robert C. Wilson
William E. Wilson
12
16
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG GIGA-TRONICS INCORPORATED, THE S&P 500 INDEX
AND THE NASDAQ TELECOMMUNICATIONS STOCKS
S&P 500 Nasdaq
Date GIGA Index Telecom
- ---- ---- ------- -------
3/25/95 100 100 100
3/30/96 140 129 134
3/29/97 160 154 127
3/28/98 131 219 237
3/27/99 50 256 377
3/25/00 280 305 715
*$100 INVESTED ON 3/25/95 OR INDEX, INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL
YEAR ENDING 3/25/00.
This Section is not soliciting material, is not deemed filed with the SEC and is
not to be incorporated by reference in any filing of Giga-tronics under the
Securities Act of 1933 or the Securities Exchange Act of 1934 whether made
before or after the date of this proxy statements and irrespective of any
general incorporation language in any such filing.
13
17
PROPOSAL 2
ADOPTION OF 2000 STOCK OPTION PLAN
At the meeting, shareholders will be asked to approve Giga-tronics' 2000
Stock Option Plan, referred to as the 2000 Plan, which was adopted by the Board
of Directors on June 6, 2000, subject to approval by Giga-tronics' shareholders.
The approval of a majority of Giga-tronics' outstanding voting stock
present or represented by proxy at the 2000 Annual Meeting and entitled to vote
on this proposal is required for approval of the adoption of the 2000 Plan.
WHY ARE WE SEEKING APPROVAL OF A NEW OPTION PLAN?
Giga-tronics believes that the ability to offer long term participation
in the growth of the Company is, in today's environment, essential to the hiring
and the retention of talented people.
Giga-tronics existing option plan expired on June 30, 2000. Also, other
than the Options assumed at the time of the Giga-tronics' acquisition of
Ultracision, Inc., no additional Options have or will be granted under the
Ultracision plan.
Giga-tronics' expired 1990 Stock Option Plan and the assumed option plan
for its Ultracision, Inc. subsidiary made available for issuance an aggregate of
632,364 shares of its common stock, of which options for 560,035 shares were
issued and are currently outstanding. Of that number, 120,061 shares are
currently vested. The existing plans cover approximately 14% of Giga-tronics'
outstanding stock.
Accordingly, Giga-tronics is proposing the adoption of the new 2000
Plan, which provides the Board the opportunity to provide stock-based incentives
to employees and non-employees directors. The new plan is intended to permit the
Company to encourage new and existing employees to acquire a proprietary or
increase existing interest in Giga-tronics while rendering service to the
Company. Giga-tronics believes that the new 2000 Plan will provide significant
benefits to Giga-tronics and its shareholders without causing significant
increased dilution, since no new options will be granted under the 1990 Plan or
the assumed Ultracision option plans.
SUMMARY OF THE 2000 PLAN
GENERAL INFORMATION
The following is a summary of the principal features of the 2000 Plan.
The summary is not intended to be a complete description of all the terms of the
2000 Plan. A copy of the 2000 Plan is attached to this proxy statement as
Appendix A and will be furnished by Giga-tronics to any shareholder upon written
request to the Corporate Secretary.
The purpose of the 2000 Plan is to enable Giga-tronics to attract,
retain and motivate its employees and non-employee directors and further align
their interests with those of Giga-tronics' shareholders by providing for or
increasing the proprietary interest of such optionees in Giga-tronics.
14
18
Any person who is an employee of Giga-tronics or any of its
subsidiaries, including any director whether or not such director is an
employee, is eligible to be considered for the grant of awards under the 2000
Plan. As of July 15, 2000, all 700,000 shares of the common stock authorized
under the 2000 Plan were available for issuance. The awards granted under the
2000 Plan will be stock options which are generally not transferable except in
limited circumstances, although awards granted to individuals subject to Section
16 of the Exchange Act automatically include a stock appreciation right as
discussed further below.
The 2000 Plan includes no mandatory option grant program but consists of
the discretionary option grant program under which employees and non-employee
directors may be granted stock options to purchase shares of common stock.
Awards granted to individuals subject to Section 16 of the Exchange Act
automatically include a stock appreciation right as discussed further below.
2000 PLAN ADMINISTRATION. The 2000 Plan is administered by a committee
appointed by the Board of at least two of its members or a subcommittee or
subcommittees thereof. In establishing the composition of the committee the
Board will consider, but is not bound by compliance with Rule 16b-3 issued under
the Securities Exchange Act of 1934, as amended, referred to as the Exchange
Act, and Section 162(m) of the Internal Revenue Code of 1986, as amended,
referred to as the Code. As the 2000 Plan administrator, the committee has
complete discretion to select the eligible individuals who are to receive grants
under the discretionary option grant program, the number of shares subject to
each grant and the remaining terms and conditions of that grant, including
without limitation, the option's status as an incentive stock option, the term
and vesting of the option. The committee may change the terms and conditions of
any outstanding option grant, provided that the optionee consents to any changes
which negatively affect the optionee's rights or obligations under the 2000 Plan
or the option grant. The committee is also responsible for the interpretation,
construction and making of other determinations necessary or advisable in the
administration of the 2000 Plan.
During service with the committee, no member may participate in the 2000
Plan or any other stock option or purchase plan of Giga-tronics.
ELIGIBILITY. Eligibility for discretionary option grants is limited to
employees and non-employee directors, including officers and directors of
Giga-tronics or one or more parent or subsidiary corporations, whether now
existing or subsequently established. As of July 15, 2000, all Giga-tronics
employees, including all six executive officers and all four of the members of
the Board of Directors, were eligible to receive option grants under the 2000
Plan.
SECURITIES SUBJECT TO THE 2000 PLAN. The total number of shares of
Giga-tronics common stock issuable over the term of the 2000 Plan may not exceed
700,000 shares, and no participant in the 2000 Plan may be granted stock options
or stock appreciation rights for more than a total of 200,000 shares in any one
calendar year. All of the total number of shares available under the 2000 Plan
are available to be issued upon exercise of incentive stock options as that term
is defined in the Code. The anti-dilution provisions of the 2000 Plan generally
provide for adjustments to the number of shares issued subject to options and
the option exercise prices if the outstanding securities subject to the 2000
Plan increase or decrease as a result of certain events including
recapitalization, merger, consolidation, restructuring, reclassification,
dividend or other distribution.
If an option terminates or expires for any reason prior to exercise or
surrender in full, the shares subject to the portion of the option not so
exercised or surrendered will be available for subsequent issuance under the
2000 Plan. However, shares subject to any option surrendered in accordance with
15
19
the stock appreciation right provisions summarized below or option exercises
will not be available for subsequent issuance.
As of the date of this proxy statement, no shares of common stock have
been issued under the 2000 Plan, and all 700,000 shares remained available for
future grant, assuming shareholder approval of this proposal.
NO SHAREHOLDER RIGHTS AND EMPLOYMENT RIGHTS
An optionee will have no shareholder rights with respect to common stock subject
to outstanding granted options until common stock is purchased in accordance
with the provisions of the 2000 Plan. Nothing in the 2000 Plan confers upon any
optionee or other participant in the 2000 Plan any right to continue employment
with Giga-tronics.
DISCRETIONARY OPTION GRANTS
The principal features of option grants under the 2000 Plan are:
PRICE, TERM AND EXERCISABILITY. Generally, the option price per share
may not be less than 85% of the fair market value per share of common stock on
the date of grant, and certain options which are "performance-based
compensation" will not have an option price less than 100% of the fair market
value. Granted options may not have a term in excess of ten years nor be
exercisable within the first six months after the grant date of the option.
The option price may be paid in cash or check or in shares of common
stock held for the requisite period necessary to avoid a charge to Giga-tronics'
earnings for financial reporting purposes, or any combination of these items.
Options may also be exercised through a same-day sale procedure, in which the
optionee authorizes a designated stock broker to effect an immediate sale of the
shares purchased under the option and to pay to Giga-tronics, out of the sale
proceeds, sufficient funds to cover the option price and any withholding taxes
incurred as a result of the transaction. The 2000 Plan administrator may also
assist any optionee, including an officer or director, in the exercise of one or
more outstanding options by
- authorizing a loan from Giga-tronics or
- permitting the optionee to pay the option price in installments over
a period of years or
- authorizing a guarantee by Giga-tronics of a loan from a third party
to an optionee.
The terms and conditions of any such loan or installment payment will be
established by the 2000 Plan administrator in its sole discretion, but in no
event may the maximum credit extended to the optionee exceed the aggregate
option price payable for the purchased shares plus any Federal or state income
or employment taxes incurred in connection with the purchase.
For federal income tax purposes, the maximum compensation payable to
employees pursuant to the 2000 Plan, during the term of the 2000 Plan and awards
granted thereunder, is equal to the number of shares of common stock with
respect to which awards may be issued thereunder, multiplied by the value of
such shares on the date such compensation is measured (which, in the case of
nonqualified options, will generally be the date of exercise of the options).
16
20
FAIR MARKET VALUE. The fair market value per share of common stock on
any relevant date under the 2000 Plan will be the closing selling price per
share on that date on the Nasdaq National Market, or the closing price is not
available, the mean between the highest bid and lowest asked prices. If there
are no reported sales for such date, then the closing selling price, or mean of
highest bid and lowest asked prices, for the last previous date for which such
quotation exists will determine fair market value. On June 6, 2000, the date on
which the board of directors approved the 2000 Plan, the closing selling price
per share was $8.875. On July 14, 2000 the closing selling price per share was
$8.25.
TERMINATION OF SERVICE. If the optionee ceases to remain in
Giga-tronics' service for reasons other than "cause," while holding one or more
outstanding options, then the optionee will have a limited period following the
employee's ceasing his or her services to exercise each his or her options for
the number of shares for which the option is otherwise exercisable at the time
of ceasing service as specified in the option agreement for the option grant,
which generally will not exceed 12 months for any non-statutory option or 90
days for an incentive stock option.
If the optionee is terminated for cause, including such things as
intentional misconduct, gross neglect of duties, unauthorized use of
confidential information or unlawful acts directed toward Giga-tronics and other
similar acts, the options will terminate immediately upon the employee's
termination.
The 2000 Plan administrator will have the discretionary authority under
the 2000 Plan to extend the period following the optionee's cessation of service
during which outstanding options are to remain exercisable and/or to accelerate
the exercisability or vesting of such options in whole or in part. This
discretion may be exercised either at the time the options are granted or at any
time while the option is outstanding.
For purposes of the 2000 Plan, an individual will be deemed to continue
in service for so long as he or she remains in employed by Giga-tronics or any
parent or subsidiary corporation or serves as an employee member of
Giga-tronics' board of directors.
CANCELLATION/REGRANT PROGRAMS. The 2000 Plan administrator has the
authority to effect, at any time and from time to time, with the consent of the
affected optionees, the cancellation of any or all options outstanding under the
2000 Plan and to grant in substitution new options covering the same or
different numbers of shares of common stock but with an option price per share
not less than 85% of the fair market value of common stock on the new grant
date, or 100% of the fair market value if the option is intended to be an
incentive stock option.
STOCK APPRECIATION RIGHTS. Each person who is at the time of the option
grant an officer or director of Giga-tronics subject to Section 16(b) of the
Exchange Act, referred to as a Section 16(b) Insider, may be granted a limited
stock appreciation right with respect to that option. The limited stock
appreciation right will entitle the Section 16(b) Insider to surrender the
option upon the change in control of Giga-tronics, provided the option has been
outstanding for at least six months and is not exercisable for any vested
shares. In return for the surrendered option, the Section 16(b) Insider will
generally receive a cash payment from Giga-tronics in an amount equal to the
greater of
- the fair market value of the vested shares for which the option is
exercisable on the date of the option surrender or
- the highest reported price per share paid in connection with the
change in control of Giga-tronics' outstanding common stock,
17
21
less the aggregate option price payable for the shares.
For purposes of the 2000 Plan, a change in control will occur in the
event:
- a person or group of related persons, other than Giga-tronics or any
person under common control with Giga-tronics, acquires beneficial
ownership, as determined by the provisions of Rule 13d-3 under the
Exchange Act, of securities of Giga-tronics representing 30% or more
of the voting power of Giga-tronics' then outstanding securities in a
transaction or transactions not approved by the Board; or
- within any 12 consecutive months or less, any change in the
composition of the Board occurs resulting in a majority of the Board,
no longer includes individuals who either have been members of the
Board continuously since the beginning of the 12 month period or have
been elected or nominated for election as Board members by at least a
majority of the Board members who were members of the Board at the
beginning of the 12 month period who were still in office at the time
such election or nomination was approved by the Board.
ACCELERATION OF OPTIONS. In the event of a change in control or an
acquisition of Giga-tronics by merger or asset sale which is approved by
Giga-tronics' shareholders, each option outstanding will automatically become
exercisable for all of the option shares and may be exercised for any or all of
such shares immediately before the effective date of the change in control or
acquisition. However, the option agreement for an option may provide that an
outstanding option will not accelerate in connection with an acquisition if that
option is either to be assumed by the successor corporation or its parent or
replaced by a comparable option to purchase shares of the capital stock of the
successor corporation or its parent, and certain outstanding options may not, by
their express terms, accelerate upon a change in control at all. The 2000 Plan
administrator will have the discretion to provide for the subsequent
acceleration of any option which does not accelerate at the time of such
acquisition or change in control if optionee's service terminate within a
designated period following that transaction. Immediately after the completion
of a change in control transaction or other acquisition, all outstanding options
not assumed or exercised will terminate.
The 2000 Plan administrator will also have the discretionary authority
to provide for the automatic vesting of the shares of common stock subject to
one or more outstanding options upon an acquisition, whether or not those
options are to be assumed or replaced in connection with such acquisition.
The acceleration of options in a change in control or an acquisition of
Giga-tronics may be seen as an anti-takeover provision and may have the effect
of discouraging a proposal for merger, a takeover attempt or other efforts to
gain control of Giga-tronics.
PROVISIONS APPLICABLE ONLY TO INCENTIVE STOCK OPTIONS. Options that are
granted as incentive stock options will have an exercise price no less than 100%
of the fair market value of the common stock on the date of grant and will have
a term of no more than ten years. If the optionee holds 10% of more of the
voting power of Giga-tronics, the exercise price will not be less than 110% of
the fair market value of the common stock on the grant date and the maximum term
will not exceed five years. The total fair market value, as of the grant date,
of incentive stock options that may first be exercisable in any calendar year
will be limited to $100,000. No incentive stock options may be granted to
non-employee directors of Giga-tronics.
18
22
SPECIAL TAX ELECTION. The 2000 Plan administrator may provide one or
more holders of non-statutory options under the 2000 Plan with the right to have
Giga-tronics withhold a portion of the shares of common stock otherwise issuable
to such individuals in satisfaction of the Federal and state income and
employment tax liability incurred by such individuals in connection with the
exercise of those options. Alternatively, the 2000 Plan administrator may allow
such individuals to deliver previously acquired shares of common stock in
payment of such tax liability.
GENERAL PROVISIONS
AMENDMENT OF 2000 PLAN. The board of directors may amend, suspend or
discontinue the 2000 Plan at any time. Without shareholder approval, the board
of directors may not make any other change with respect to which the board of
directors determines that shareholder approval is required by applicable law or
regulatory standards. To the extent not inconsistent with the 2000 Plan, the
committee may modify or waive the terms of any outstanding award.
EFFECTIVENESS; DURATION OF 2000 PLAN. The 2000 Plan becomes effective as
of August 30, 2000 if approved by the shareholders at the 2000 Annual Meeting.
Grants of options under the 2000 Plan may not be made after August 29, 2010,
although shares of common stock subject to options may be issuable under grants
of options on or before that date. No shares will be issued under the 2000 Plan
after August 29, 2020.
ERISA. The 2000 Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended, and is not required to be
qualified under Section 401(a) of the Code.
OPTION AGREEMENTS. Each grant shall also be subject to the terms and
conditions of the agreement with respect to the relevant grant.
FEDERAL INCOME TAX CONSEQUENCES
The following briefly describes the federal income tax treatment that
will generally apply to options issued under the 2000 Plan, based on federal
income tax laws currently in effect. Recipients of options should not rely on
this discussion for individual tax advice, as each recipient's situation will
vary depending upon the specific facts and circumstances involved. Each
recipient is advised to consult with his or her own tax advisor for particular
federal, as well as state and local, income and any other tax advice.
Awards granted under the 2000 Plan may be either options intended to
qualify as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, referred to as the Code, or options not
intended to qualify as incentive stock options, referred to as non-statutory
options.
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee
at the time an incentive stock option is granted or exercised. However, an
optionee's "alternative minimum taxable income" for the year of exercise will be
increased by the excess of the fair market value of the shares acquired upon the
exercise of an incentive stock option over the exercise price, and thus exercise
of an incentive stock option may subject an optionee to the "alternative minimum
tax" in the year of exercise.
The optionee will recognize taxable income or loss in the year in which
the optionee disposes of the purchased shares. For federal income tax purposes,
dispositions of shares acquired upon the
19
23
exercise of incentive stock options are divided into two categories, qualifying
dispositions and disqualifying dispositions. The optionee will make a qualifying
disposition of the purchased shares if the disposition of such shares is made
after the optionee has held the shares for more than two years after the grant
date of the option and more than one year after the exercise date. Any
disposition that fails to satisfy either of these two minimum holding periods is
referred to as a disqualifying disposition.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain or loss in an amount equal to the difference between
- the amount realized upon the sale or other disposition of the
purchased shares and
- the option price paid for those shares.
If there is a disqualifying disposition of the shares, then at such
time
- the optionee will recognize capital gain (long-term or short-term,
depending on the holding period for the shares) equal to the excess,
if any, of the sales price over the fair market value of the
incentive stock option shares on the date of exercise,
- the optionee will recognize ordinary income equal to the excess, if
any, of the lesser of the sales price or the fair market value of the
incentive stock option shares on the date of exercise, over the
exercise price of such option, and
- the optionee will recognize capital loss (long-term or short-term,
depending on the holding period for the shares) equal to the excess,
if any, of the exercise price of such incentive stock option over the
sales price of the incentive stock option shares.
NON-STATUTORY STOCK OPTIONS. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the option price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
Such ordinary income will be added to the basis in the shares, and subsequent
gain or loss will be capital gain or loss (long-term or short-term, depending on
the holding period for the shares).
STOCK APPRECIATION RIGHTS. A Section 16(b) Insider who exercises a stock
appreciation right will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution.
SPECIAL RULES FOR AWARDS GRANTED TO SECTION 16(b) INSIDERS. If a
participant is a Section 16(b) Insider, the timing of the recognition of any
ordinary income and the date used to determine the fair market value of the
underlying stock may be deferred. Section 16(b) Insiders should consult their
tax advisors to determine the tax consequences to them of exercising options
granted to them under the 2000 Plan.
WITHHOLDING. Generally, Giga-tronics will be required to make
arrangements for withholding applicable taxes with respect to ordinary income
recognized by a participant in connection with awards made under the 2000 Plan
other than upon the disqualifying disposition of stock acquired upon the
exercise of an incentive stock option. Participants generally will be required
to pay such taxes as a
20
24
condition to the exercise of an option, although Giga-tronics may make other
arrangements to satisfy its withholding obligation.
EFFECT OF ACCELERATED VESTING. The 2000 Plan provides for accelerated
vesting of the options in connection with a change of control, as defined in the
2000 Plan. Accelerated vesting of these grants could, depending on the
circumstances surrounding the change in control and the individual circumstances
of the optionee, result in significant amounts being treated as "excess
parachute payments" under the "golden parachute" provisions of the Code,
subjecting the participant to a 20% excise tax on any "excess parachute
payments" and Giga-tronics will be denied any deduction with respect to such
payments.
GIGA-TRONICS DEDUCTION. Giga-tronics generally obtains a deduction equal
to the ordinary income recognized by a participant. However, Giga-tronics'
deduction for such amounts may be limited to $1,000,000 per person annually. The
2000 Plan has been structured in order to enable Giga-tronics to issue awards
that give rise to deductions that are treated as "performance-based
compensation" not subject to this $1,000,000 limit.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to Giga-tronics' earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by Giga-tronics over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances at 100% of fair market value will not result in any charge to
Giga-tronics' earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining Giga-tronics' earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to
Giga-tronics' earnings.
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" requires Giga-tronics to disclose, in footnotes to Giga-tronics'
financial statements, the impact that options and other awards granted under the
2000 Plan would have had on Giga-tronics' reported earnings were the fair value
of those awards treated as compensation expense.
SHAREHOLDER APPROVAL
The approval of a majority of the outstanding voting shares of
Giga-tronics represented and entitled to vote at the 2000 Annual Meeting is
required for approval of the amendment to the 2000 Plan. If such approval is
obtained, then all outstanding options under the Option Plan will remain
outstanding and become exercisable in accordance with their terms. If
shareholder approval is not obtained, then any option grants made under the
Option Plan will immediately terminate, and no further option grants will be
made under the Option Plan.
21
25
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSED 2000 STOCK OPTION PLAN.
PROPOSAL 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has re-appointed the firm of KPMG LLP as
Giga-tronics' independent accountants for the fiscal year ending March 31, 2001
and to perform other appropriate services. We are seeking ratification by the
shareholders for this appointment.
Representatives of KPMG LLP are expected to be present at Giga-tronics'
Annual Meeting with the opportunity to make a statement, if they desire to do
so, and they are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
KPMG LLP.
SHAREHOLDERS' PROPOSALS
To be considered for presentation to the Annual Meeting of Shareholders
to be held in 2001, a shareholder proposal must be received by Giga-tronics' no
later than February 28, 2001. Proposals should be addressed to the Corporate
Secretary, Giga-tronics Incorporated, 4650 Norris Canyon Road, San Ramon, CA
94583.
The Annual Report of Giga-tronics' for the fiscal year ended March 25,
2000 is being mailed with this mailing of the Notice of Annual Meeting and Proxy
Statement to all shareholders entitled to notice of and to vote at the Annual
Meeting. Giga-tronics will mail Annual Report on Form 10-K to any shareholder
who requests a copy. Requests should be sent to the Corporate Secretary as noted
above for proposals.
OTHER MATTERS
The board of directors knows of no other business which will be
presented at the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form will
be voted in respect thereof in accordance with the judgments of the persons
voting the proxies. Regardless of whether you intend to be present at the Annual
Meeting, you are urged to complete, date, sign and return your proxy promptly.
By order of the Board of Directors,
George H. Bruns, Jr.
Chairman and
Chief Executive Officer
San Ramon, California
July 14, 2000
22
26
GIGA-TRONICS INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George H. Bruns, Jr. and Mark H. Cosmez II, or either of them are hereby
constituted and appointed the lawful attorneys and proxies of the undersigned,
each with full power of substitution, to vote and act as proxy with respect to
all shares of common stock of Giga-tronics Incorporated standing in the name of
the undersigned on the books of Giga-tronics at the close of business on July
14, 2000, at the Annual Meeting of Shareholders to be held at 9:30 A.M., on
August 30, 2000, at Giga-tronics' principal executive offices at 4650 Norris
Canyon Road, San Ramon, CA 94583, or at any adjournment or postponement thereof.
THE POWERS HEREBY GRANTED MAY BE EXERCISED BY BOTH OF SAID ATTORNEYS OR PROXIES
OR THEIR SUBSTITUTES PRESENT AND ACTING AT THE ANNUAL MEETING OF SHAREHOLDERS OR
ANY ADJOURNMENT OR POSTPONEMENT THEREOF OR, IF ONLY ONE BE PRESENT AND ACTING,
THEN BY THAT ONE. THE UNDERSIGNED HEREBY REVOKES ANY AND ALL PROXIES HERETOFORE
GIVEN BY THE UNDERSIGNED TO VOTE AT SAID MEETING.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
- FOLD AND DETACH HERE -
FOR ALL NOMINEES LISTED (EXCEPT AS WITHHELD IN ONE SPACE BELOW).
WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED.
1. Elect four Directors for the ensuing year.
Nominees: George H. Bruns, Jr., James A. Cole, Robert C. Wilson,
William E. Wilson.
INSTRUCTION: To withhold authority to vote for one or more individual nominees,
(write such name or names in the space provided below.)
- -------------------------------------------------------------------------------
2. Adopt the Giga-tronics Incorporated 2000 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratify the appointment of independent certified public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Signature(s) Dated: , 2000
------------------------------- ------------
Please sign exactly as the name appears printed hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by annual authorized officer. If
a partnership, please sign in full partnership name by authorized person.
Receipt is acknowledged of the Proxy Statement for the meeting.
- FOLD AND DETACH HERE -
27
APPENDIX A
28
GIGA-TRONICS INCORPORATED
2000 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF THE PLAN
A. This 2000 Stock Option Plan (the "Plan") is intended to promote the
interests of Giga-tronics Incorporated, a California corporation (the
"Company"), by providing a method whereby the Company's employees and
non-employee directors are to be offered equity incentives intended to encourage
such individuals to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company and to continue to render services to the
Company or its parent or subsidiary corporations.
B. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: The Company's Board of Directors.
CODE: The Internal Revenue Code of 1986, as amended.
COMMON STOCK: The Common Stock issuable under the Plan shall be
shares of the Company's common stock, no par value.
DISABILITY: The permanent incapacity of an individual, by reason
of physical or mental illness, to perform his/her usual duties for the Company.
Disability shall be determined by the Board or Committee after consideration of
such medical evidence as it may require.
EMPLOYEE: An individual shall be considered to be an Employee for
so long as such individual remains in the employ of the Company or one or more
of its parent or subsidiary corporations.
FAIR MARKET VALUE: The Fair Market Value per share of Common
Stock on any relevant date under the Plan shall be the mean between the highest
bid and lowest asked prices (or, if such information is available, the closing
selling price) per share of Common Stock on such date in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers on the Nasdaq National Market (or any successor system) . Should the
Common Stock become traded on a national securities exchange, then the Fair
Market Value per share shall be the closing selling price on such exchange on
the date in question, as such price is quoted on the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
the over-the-counter market (or national securities
29
exchange) on the date in question, then the Fair Market Value shall be the mean
between the highest bid and lowest asked prices (or closing selling price) on
the last preceding date for which such quotations exist. Notwithstanding the
foregoing, in each case, the Fair Market Value will be determined in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
LISTING DATE: The Listing Date means the first date upon which
any security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange, or designated (or approved for designation)
upon notice of issuance as a national market security on an interdealer
quotation system if such securities exchange or interdealer quotation system has
been certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
PARENT: A corporation shall be deemed to be a parent of the
Company if it is a corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each such corporation in the
unbroken chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
SECTION 16(B) INSIDER: An individual shall be considered to be a
Section 16(b) Insider on any relevant date under the Plan if such individual is
at the time subject to the short-swing profit restrictions of Section 16(b) of
the Securities Exchange Act of 1934 by reason of his or her affiliation with the
Company.
SERVICE: An individual shall be deemed to be in the Service of
the Company for so long as such individual (i) renders service on a periodic
basis to the Company or one or more of its parent or subsidiary corporations as
an Employee or (ii) serves as a non-employee member of the Board.
SUBSIDIARY: A corporation shall be deemed to be a subsidiary of
the Company if it is one of the corporations (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each such
corporation (other than the last corporation in the unbroken chain) owns, at the
time of determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain. For purposes of all non-statutory option grants under Article Two
and all Corporate Transaction provisions of the Plan, the term "subsidiary"
shall also include any partnership, joint venture or other business entity of
which the Company owns, directly or indirectly through another subsidiary
corporation, more than a fifty percent (50%) interest in voting power, capital
or profits.
C. Stock option grants made to any individual under the Plan shall not
in any way affect, limit or restrict such individual's eligibility to
participate in any other stock plan or other compensation or benefit plan,
arrangement or practice now or hereafter maintained by the Company or any parent
or subsidiary corporation.
2
30
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by a committee (the "Committee") of
two (2) or more Board members who are either employee-directors and/or
nonemployee directors appointed by the Board. The Board shall have the authority
to fill any and all vacancies on the Committee, however caused. With respect to
the participation of Employees who are Section 16 Insiders under the Securities
Exchange Act of 1934 (the "Exchange Act"), the Board may designate a
subcommittee which shall be composed solely of two or more members of the Board
who qualify as "nonemployee directors" as defined in Rule 16b-3 under the
Exchange Act. With respect to the participation of Employees who may at the time
of grant or at a future date be considered "covered employees" under Section
162(m) of the Code, the Board may designate a subcommittee which shall be
composed solely of two or more members of the Board who qualify as "outside
directors" as defined by Section 162(m). If the Committee members meet both such
qualifications, then one Committee may administer the Plan with respect to
Employees who are subject to Section 16 Insiders or who are considered to be
"covered employees" under Section 162(m) of the Code.
B. Subject to the express provisions of the Plan, the Committee shall
have plenary authority:
(i) to make discretionary option grants to Employees and non-employee
members of the Board set forth in Article Two;
(ii) to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, and to make all other determinations deemed
necessary or advisable in administering the Plan; and
(iii) to change the terms and conditions of any outstanding option
grant, provided such action does not, without the consent of the holder,
adversely affect the rights and obligations such individual may have
under the Plan or the outstanding grant.
C. Determinations of the Committee on all matters relating to the Plan
and any option grants or stock issuances made hereunder shall be final, binding
and conclusive on all persons having any interest in the Plan or any options
granted or shares issued under the Plan.
III. PLAN STRUCTURE AND ELIGIBILITY
A. The individuals eligible to participate in the Plan ("Optionees")
shall be limited to Employees (including officers and directors) and
non-employee members of the Board of the Company or its Parent or Subsidiary
corporations.
B. Members of the Committee shall not, during their period of Committee
service, participate in the Plan or in any other stock option, stock bonus,
stock purchase or stock plan of the Company or its Parent or Subsidiary
corporations.
3
31
IV. STOCK SUBJECT TO THE PLAN
A. The Common Stock issuable under the Plan shall be made available
either from authorized but unissued shares of Common Stock or from shares of
Common Stock reacquired by the Company on the open market. The aggregate number
of shares of Common Stock issuable over the term of this Plan shall not exceed
700,000 shares (subject to adjustment from time to time in accordance with
Paragraph C below). Notwithstanding the foregoing, the aggregate number of
shares of Common Stock that may be issued pursuant to the exercise of Incentive
Options (as defined in Article Two) granted under this Plan shall not exceed
700,000 shares (subject to adjustment from time to time in accordance with
Paragraph C below); provided, however, that adjustments pursuant to Paragraph C
below with respect to Incentive Options issued or issuable under this Plan,
shall be limited to those that will not adversely affect the status of options
as Incentive Options.
B. Should an option expire or terminate for any reason prior to exercise
or surrender in full (including options cancelled in accordance with the
cancellation-regrant provisions of Article Two below), the shares subject to the
portion of the option not so exercised or surrendered shall be available for
subsequent option grants under the Plan. Shares subject to any stock
appreciation rights exercised in accordance with the Stock Appreciation Right
provisions of Article Two and all share issuances under the Plan shall reduce on
a share-for-share basis the number of shares of Common Stock available for
subsequent option grants under this Plan. If the exercise price of an
outstanding option under the Plan is paid with shares of Common Stock or if
shares of Common Stock otherwise issuable under the Plan are withheld by the
Company in satisfaction of the withholding taxes incurred in connection with the
exercise of an outstanding option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number of
shares of Common Stock actually issued.
C. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock dividend, stock split, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without receipt of consideration, then appropriate adjustments shall be
made to (i) the maximum number and/or class of shares issuable under this Plan,
to reflect the effect of such change upon the Company's capital structure, (ii)
the class and/or maximum number of securities for which stock options and
separately exercisable stock appreciation rights may be granted under this Plan
to any one participant in the aggregate and (iii) the number and/or class of
shares and the exercise price per share of the stock subject to each outstanding
option in order to preclude the dilution or enlargement of benefits thereunder.
The adjustments determined by the Committee shall be final, binding and
conclusive.
D. In the event that (i) the Company is the surviving entity in any
Corporate Transaction which does not result in the termination of outstanding
options pursuant to the Corporate Transaction provisions of the Plan or (ii) the
outstanding options under the Plan are to be assumed in connection with such
Corporate Transaction, then each such continuing or assumed option shall,
immediately after such Corporate Transaction, be appropriately adjusted to apply
and pertain to the number and class of securities which would be issuable, on
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction.
4
32
Appropriate adjustments shall also be made to the exercise price payable per
share, provided the aggregate option price shall remain the same, and to the
number and class of securities which remain issuable under this Plan.
E. In no event may any one individual participating in the Plan be
granted stock options and separately exercisable stock appreciation rights for
more than 200,000 shares in the aggregate in any one calendar year during the
remaining term of the Plan, subject to adjustment from time to time in
accordance with Paragraph C. above.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
A. The Committee shall have plenary authority (subject to the express
provisions of the Plan) to determine which Employees are to be granted options
under this Plan, the number of shares to be covered by each such option, the
status of the granted option as either an incentive stock option which meets the
requirements of Section 422 of the Code ("Incentive Option") or a non-statutory
option ("Non-Statutory Option") not intended to meet such requirements, the time
or times at which such option is to become exercisable and the maximum term for
which the option is to remain outstanding. Notwithstanding the foregoing, only
grants of Non-Statutory Options will be made, if any, to non-employee members of
the Board.
B. The granted options shall be evidenced by instruments in such form as
the Committee shall from time to time approve; provided, however, that each such
instrument shall comply with and incorporate the terms and conditions specified
below.
1. Option Price.
a. The Non-Statutory Option price per share shall be fixed by the
Committee, but in no event shall such Non-Statutory Option price per share be
less than eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the date of the option grant. Notwithstanding the foregoing, an option
(whether an Incentive Option or a Non-Statutory Option) may be granted with a
price lower than set forth in the preceding sentence or in Paragraph IV 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.
Notwithstanding any of the foregoing, unless the Committee expressly determines
otherwise, in the case of a Non-Statutory Option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the price per share shall be no less than one hundred percent (100%) of
the Fair Market Value per share on the date of grant.
b. The option price shall become immediately due upon exercise of
the option and shall, subject to the loan provisions of this Article Two, be
payable in one of the alternative forms specified below:
(A) full payment in cash or check made payable to the Company's
order; or
5
33
(B) full payment in shares of Common Stock held by the Optionee
for the requisite period necessary to avoid a charge to the Company's
reported earnings and valued at Fair Market Value on the Exercise Date
(as such term is defined below); or
(C) full payment in a combination of shares of Common Stock held
by the Optionee for the requisite period necessary to avoid a charge to
the Company's reported earnings and valued at Fair Market Value on the
Exercise Date and cash or check made payable to the Company's order; or
(D) full payment through a sale and remittance procedure pursuant
to which the Optionee (i) shall provide irrevocable written instructions
to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Company by reason of such purchase and (ii) shall
concurrently provide written directives to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
c. For purposes of subparagraph B. above, the Exercise Date shall
be the date on which written notice of the option exercise is delivered to the
Company. Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the option price for the
purchased shares must accompany the exercise notice.
2. Term and Exercise of Options.
a. Each option granted under this Plan shall be exercisable in
one or more installments over the Optionee's period of Service as shall be
determined by the Committee and shall be set forth in the instrument evidencing
such option; provided, however, that (i) no such option shall become exercisable
in whole or in part within the first six (6) months after the grant date, except
as otherwise provided in Section III of this Article Two and (ii) no such option
shall have a term in excess of ten (10) years from the grant date.
b. During the lifetime of the Optionee, the option, together with
any stock appreciation rights pertaining to such option, shall be exercisable
only by the Optionee and shall not be assignable or transferable by the Optionee
other than a transfer of the option effected by will or by the laws of descent
and distribution following the Optionee's death.
3. Termination of Service.
a. Should an Optionee cease to continue in Service for any reason
(other than termination set forth in subparagraph c. below) while the holder of
one or more outstanding Non-Statutory Options, then such Non-Statutory Options
shall not be exercisable at any time after the earlier of (i) the specified
expiration date of the option term or (ii) the expiration of the limited period
of time (not to exceed twelve (12) months after the Optionee's cessation of
Service) specified by the Committee in the option agreement. Should an Optionee
cease to continue in Service for any reason other than Disability while the
holder of one or more outstanding Incentive Options under this Plan, then such
Incentive Options shall not be exercisable at any
6
34
time after the earlier of (i) the specified expiration date of the option term
or (ii) the expiration of the limited period of time (not to exceed ninety (90)
days after the Optionee's cessation of Service) specified by the Committee in
the option agreement. Each such option shall, during the applicable period
following cessation of Service, be exercisable only to the extent of the number
of shares (if any) in which the Optionee is vested on the date of such cessation
of Service.
b. Any Non-Statutory Option or Incentive Option granted to an
Optionee under this Plan and outstanding in whole or in part on the date of the
Optionee's death may be subsequently exercised but only to the extent of the
number of shares (if any) in which the Optionee is vested on the date of his/her
cessation of Service (less any shares subsequently purchased by the Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Any
such exercise must occur prior to the earlier of (i) the expiration date of the
option term or (ii) the expiration of the limited period of time (not to exceed
twelve (12) months following the Optionee's cessation of Service) specified by
the Committee in the option agreement.
c. If the Optionee's Service is terminated for any of the
following reasons, then all outstanding options granted the Optionee under this
Plan shall immediately terminate and cease to be exercisable immediately upon
such termination of Service:
(1) Optionee's intentional misconduct or continuing gross
neglect of duties which materially and adversely affects the business
and operations of the Company or any Parent or Subsidiary employing
Optionee;
(2) Optionee's unauthorized use or disclosure (or attempt
thereat) of confidential information or trade secrets of the Company or
any Parent or Subsidiary; or
(3) Optionee's commission of an act involving embezzlement,
theft, fraud, falsification of records, destruction of property or
commission of a crime or other offense involving money or other property
of the Company or any Parent or Subsidiary employing Optionee.
The reasons for termination of Optionee's Service set forth in this subparagraph
c. are not intended to be, and are not inclusive of, all acts or omissions which
the Company may deem to constitute misconduct or other grounds for terminating
the Optionee's (or any other individual's) Service.
d. The Committee shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to establish as a provision applicable to the exercise of one or
more options granted under this Plan that during the limited period of
exercisability following cessation of Service, the option may be exercised not
only with respect to the number of shares in which the Optionee is vested at the
time of such cessation of Service but also with respect to one or more
subsequent installments of purchasable shares in which the Optionee would
otherwise have vested had the Optionee continued in Service. In addition, the
Committee shall have similar discretion to extend the period of time
7
35
during which the option is to remain exercisable following the Optionee's
cessation of Service, but in no event shall such period extend beyond the
specified expiration date of the option term.
4. Shareholder Rights. An option holder shall have none of the rights
of a shareholder with respect to any shares covered by the option until such
individual shall have exercised the option, paid the option price and satisfied
all other conditions precedent to the issuance of certificates for the purchased
shares.
II. STOCK APPRECIATION RIGHTS
A. Each Section 16(b) Insider shall have a limited stock appreciation
right ("Limited Right") in tandem with each option grant (whether an Incentive
Option or a Non-Statutory Option) made to such individual under this Plan. The
Limited Right shall entitle the Section 16(b) Insider to surrender the
underlying option in connection with a Change in Control (as defined below) for
an appreciation distribution from the Company in an amount equal to the excess
of (i) the Change in Control Price (as defined below) of the number of shares in
which the Section 16(b) Insider is at the time vested under the surrendered
option over (ii) the aggregate option price payable for such vested shares.
B. The terms and conditions applicable to each such Limited Right shall
be as follows:
1. The option may only be surrendered during the thirty (30) day
period following the Change in Control. However, the Section 16(b) Insider may
not surrender any option which (a) has not been outstanding for at least six (6)
months prior to the surrender date and (b) is not at the time exercisable for
any vested shares.
2. For purposes of calculating the appreciation distribution payable
by the Company on each surrendered option, the Change in Control Price per share
of the vested Common Stock subject to the surrendered option shall be deemed to
be equal to the greater of (a) the Fair Market Value per share on the option
surrender date or (b) the highest reported price per share paid in effecting the
Change in Control. However, if the option is an Incentive Option, then the
Change in Control Price of the vested shares subject to the surrendered option
shall not exceed the value per share determined under clause (a) above.
3. The appreciation distribution shall be made entirely in cash, and
neither the approval of the Committee nor the consent of the Board shall be
required in connection with such surrender and distribution. The shares of
Common Stock subject to each surrendered option shall not be available for
subsequent issuance under this Plan.
4. A "Change in Control" shall be deemed to occur in the event any of
the following transactions is effected:
(i) the acquisition by a person or group of related persons, other
than the Company or any person controlling, controlled by or under
common control with the Company, of beneficial ownership (as determined
pursuant to the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of securities of the Company representing
thirty percent (30%) or more of the combined voting power of the
8
36
Company's then outstanding securities pursuant to a transaction or
series of related transactions which the Board does not approve; or
(ii) the first date within any period of twelve (12) consecutive
months or less on which there is effected any change in the composition
of the Board such that the majority of the Board (determined by rounding
up to the next whole number) ceases to be comprised of individuals who
either (A) have been members of the Board continuously since the
beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Upon the occurrence of any of the following transactions (a
"Corporate Transaction") to which the Company is a party and for which the
approval of the Company's shareholders is obtained:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the State of the Company's incorporation, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company to any entity other than
a parent or subsidiary of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to such merger,
the exercisability of each option outstanding under this Plan (whether or not
such option has been outstanding for a period of six (6) months) shall be
automatically accelerated so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock
purchasable under such option and may be exercised for all or any portion of
such shares. However, the instrument evidencing an option grant under this Plan
may provide that such option shall not be so accelerated if and to the extent:
(i) such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof; or (ii) such option is to be replaced by a
comparable cash incentive program of the successor corporation based on the
value of the option at the time of the Corporate Transaction; or (iii) the
acceleration of such option is subject to other applicable limitations imposed
by the Committee at the time of grant. The determination of comparability under
clause (i) or (ii) above shall be made by the Committee, and its determination
shall be final, binding and conclusive. The Committee shall have the discretion,
exercisable either in advance of any actually-anticipated Corporate Transaction
or at the time of an actual Corporate Transaction, to provide (upon such terms
and conditions as it may deem appropriate) for either
9
37
the automatic acceleration of one or more assumed or replaced options which are
not otherwise to be accelerated in connection with the Corporate Transaction or
the automatic vesting of any cash incentive programs implemented in replacement
of such options, in the event the Optionee's employment should subsequently
terminate within a designated period following the effective date of such
Corporate Transaction.
B. Immediately following the consummation of the Corporate Transaction,
all outstanding options under this Plan shall, to the extent not previously
exercised or assumed by the successor corporation or its parent company,
terminate and cease to be outstanding.
C. Upon the occurrence of any Change of Control (as defined in Section
II.4. above), the exercisability of each option outstanding under this Plan
(whether or not such option has been outstanding for a period of six (6) months)
shall be automatically accelerated so that each such option shall become
exercisable, immediately prior to such Change in Control, for the full number of
shares purchasable under such option and may be exercised for all or any portion
of such shares at any time thereafter until the expiration or sooner termination
of the option term. However, an outstanding option under this Plan shall not be
so accelerated if and to the extent one or more limitations imposed by the
Committee at the time of grant preclude such acceleration upon a Change in
Control. The Committee shall have the discretion, exercisable either in advance
of any actually-anticipated Change in Control or at the time of an actual Change
in Control, to provide (upon such terms and conditions as it may deem
appropriate) for the automatic acceleration of one or more outstanding options
which are not otherwise to be accelerated upon a Change in Control, in the event
the Optionee's employment should subsequently terminate within a designated
period following the effective date of such Change in Control.
D. In the event a particular transaction qualifies as both a Corporate
Transaction and a Change in Control, the provisions of Section III.A. shall be
controlling.
E. The grant of options under this Plan shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. INCENTIVE OPTIONS
A. The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Plan. Options which are specifically
designated as Non-Statutory Options when issued under this Plan shall not be
subject to such terms and conditions.
1. Option Price. The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the grant
date.
2. Term. The term of an Incentive Option shall be ten (10) years
from the date of grant or such shorter term as may be provided in the option
agreement.
10
38
3. 10% Stockholder. If any individual to whom an Incentive Option
is to be granted pursuant to the provisions of this Plan is on the grant date
the owner of stock (as determined under Section 424(d) of the Code) possessing
ten percent (10%) or more of the total combined voting power of all classes of
stock of the Company or any one of its Parent or Subsidiaries (such person to be
herein referred to as a 10% Stockholder), then (i) the option price per share
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value per share of Common Stock on the grant date and (ii) the maximum term of
the option shall not exceed five (5) years from the grant date.
4. Dollar Limitation. The aggregate fair market value (determined
on the basis of the Fair Market Value in effect on the respective date or dates
of grant) of the Common Stock for which one or more options granted to any
Employee under this Plan (or any other option plan of the Company or any Parent
or Subsidiary) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability thereof as Incentive Stock
Options shall be applied on the basis of the order in which such options are
granted.
B. Except as modified by the preceding provisions of this Incentive
Options section, all the provisions of this Plan shall be applicable to the
Incentive Options granted hereunder.
V. CANCELLATION AND RE-GRANT OF OPTIONS
A. The Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under this Plan and to grant in
substitution therefor new options under this Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than (i) eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the new grant date, or (ii) one hundred percent (100%) of such Fair
Market Value if the new option is to be an Incentive Option, or (iii) one
hundred and ten percent (110%) of such Fair Market Value if the new option is to
be an Incentive Option subject to the provisions of Section IV.A.3.
VI. LOANS OR GUARANTEE OF LOANS
A. The Committee may assist any Employee (including any officer or
director) in the exercise of one or more outstanding options under this Plan by
(a) authorizing the extension of a loan to such Employee from the Company, (b)
permitting the Employee to pay the option price for the purchased Common Stock
in installments over a period of years or (c) authorizing a guarantee by the
Company of a third-party loan to the Employee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) shall be established by the Committee in its sole
discretion. Loans, installment payments and guarantees may be granted without
security or collateral, but the maximum credit available to the Optionee shall
not exceed the sum of (i) the aggregate option price of the purchased shares
plus (ii) any Federal and State income and employment tax liability incurred by
the Employee in connection with the exercise of the option.
11
39
ARTICLE THREE
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Company's obligation to deliver shares or cash upon the exercise
or surrender of stock options or stock appreciation rights granted under the
Plan shall be subject to the satisfaction by the recipient of all applicable
Federal, State and local income and employment tax withholding requirements.
B. The Committee may, in its discretion and upon such terms and
conditions as it may deem appropriate (including the applicable safe-harbor
provisions of SEC Rule 16b-3 or any successor rule or regulation) provide any or
all holders of outstanding option grants under the Plan with the election to
have the Company withhold, from the shares of Common Stock purchased or issued
pursuant to such options, a portion of those shares with an aggregate Fair
Market Value equal to the designated percentage (any multiple of five percent
(5%) specified by the Optionee) of the Federal and State income taxes ("Taxes")
incurred in connection with their acquisition. In lieu of such direct
withholding, one or more Optionees may also be granted the right to deliver
shares of Common Stock to the Company in satisfaction of such Taxes. The
withheld or delivered shares shall be valued at the Fair Market Value on the
applicable determination date for such Taxes or such other date required by the
applicable safe-harbor provisions of SEC Rule 16b-3.
II. AMENDMENT OF THE PLAN
A. Except to the extent otherwise provided in this Article Three, the
Board shall have the complete and exclusive authority to amend or modify the
Plan at any time. However, without the consent of the shareholders, the Board
may not make any other change with respect to which the Board determines that
shareholder approval is required by applicable law or regulatory standards.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective upon approval by the Company's
shareholders at the 2000 Annual Meeting. The Committee may grant stock options
under the Plan at any time prior to the date fixed herein for termination of the
Plan.
B. The Plan shall in all events terminate upon the earlier of (i) the
tenth (10th) anniversary of the date of its adoption by the Board, (ii) the date
on which all shares available for issuance under the Plan shall have been issued
or cancelled pursuant to the exercise or surrender of stock options and/or stock
appreciation rights under the Plan, (iii) the effective date designated by the
Board for the termination of the Plan. If the date of termination is determined
under clause (i) above, then any stock options and stock appreciation rights at
the time outstanding under the Plan shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants.
12
40
IV. MISCELLANEOUS PROVISIONS
A. Any cash proceeds received by the Company from the issuance of shares
hereunder shall be used for general corporate purposes.
B. The implementation of the Plan, the granting of any stock option, and
the issuance of Common Stock hereunder, shall be subject to the Company's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, and the stock options granted under it and
the Common Stock issued pursuant to it.
C. Neither the action of the Company in establishing the Plan, nor any
action taken by the Board or the Committee hereunder, nor any provision of the
Plan itself shall be construed so as to grant any individual the right to remain
in the employ or service of the Company or any of its parent or subsidiary
corporations for any period of specific duration, and the Company (or any parent
or subsidiary retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without cause.
D. Nothing contained in the Plan shall be construed to limit the
authority of the Company to exercise its corporate rights and powers, including
(without limitation) the right of the Company (a) to grant options for proper
corporate purposes otherwise than under this Plan to any Employee or other
person, firm or company or association or (b) to grant options to, or assume the
option of, any person in connection with the acquisition (by purchase, lease,
merger, consolidation or otherwise) of the business and assets (in whole or in
part) of any person, firm, company or association.
E. This Plan and any grants of any awards and agreements hereunder shall
be interpreted and construed in accordance with the laws of the State of
California and applicable federal law.
13