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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
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RESOUND CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
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[ ] Fee paid previously with preliminary materials:
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[ ] 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.
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LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1997
To The Shareholders of ReSound Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of ReSound
Corporation (the "Company"), a California corporation, will be held at the Hotel
Sofitel, 223 Twin Dolphin Drive, Redwood City, California, on Thursday, May 22,
1997 at 9:00 a.m. local time, for the following purposes:
1. To elect the following directors to serve for the ensuing year and
until their successors are elected: Richard L. Goode, M.D., Donald M.
Kendall, Eugene Kleiner, Rodney Perkins, M.D., Peter Riepenhausen, Philip
S. Schlein and Robert C. Wilson.
2. To authorize the adoption of the Company's 1997 Stock Plan and the
reservation of up to a maximum of 650,000 shares of the Company's Common
Stock for issuance thereunder.
3. To ratify the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on Monday, April 7,
1997 will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. If you decide to attend
the meeting you may vote in person even if you returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CRAIG W. JOHNSON
Secretary
Redwood City, California
April 21, 1997
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENVELOPE PROVIDED.
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LOGO
PROXY STATEMENT FOR
1997 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
ReSound Corporation (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held May 22, 1997 at 9:00 a.m., local time,
or at any adjournment or postponement thereof, for the purposes set forth in
this Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Hotel Sofitel, 223 Twin
Dolphin Drive, Redwood City, California 94065.
The Company's principal executive offices are located at 220 Saginaw Drive,
Seaport Centre, Redwood City, California 94063. The Company's telephone number
at that location is (415) 780-7800.
These proxy solicitation materials were mailed on or about April 22, 1997
to all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
David Muhlitner, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder, or distribute the shareholder's votes on the same principle among
as many candidates as the shareholder thinks fit, provided that votes cannot be
cast for more than seven candidates. However, no shareholder shall be entitled
to cumulate votes for a candidate unless such candidate's name has been placed
in nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting prior to the voting of the intention to cumulate
the shareholder's votes. On all other matters, each share has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. Except with respect to the election of directors where cumulative
voting is invoked and except in certain other specific circumstances, the
affirmative vote of a majority of shares represented and voting on a particular
matter at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
required under California law for approval of that matter. In general,
California law also provides that a quorum consists of a majority of the shares
entitled to vote, represented either in person or by proxy. The Inspector of
Elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as not voting for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. Any proxy which is returned using the form of proxy enclosed and
which is not marked as to a particular item will be voted for the election of
directors, for approval of the adoption of the Company's 1997 Stock Plan, for
ratification of the appointment of the designated independent auditors and as
the proxy holders
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deem advisable on other matters that may come before the meeting, as the case
may be, with respect to the item not marked. If a broker indicates on the
enclosed proxy or its substitute that it does not have discretionary authority
as to certain shares to vote on a particular matter ("broker non-votes"), those
shares will not be considered as voting with respect to that matter. While there
is no definitive specific statutory or case law authority in California
concerning the proper treatment of abstentions and broker non-votes, the Company
believes that the tabulation procedures to be followed by the Inspector of
Elections are consistent with the general statutory requirements in California
concerning voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Skinner & Co. to aid in the solicitation of proxies
from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $3,000 for its
services and will reimburse Skinner & Co. for certain out-of-pocket expenses
that are usual and proper. In addition, the Company will reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners. Proxies
may be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone, fax or
telegram.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on April 7, 1997 are
entitled to notice of and to vote at the meeting. As of April 7, 1997,
19,428,760 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws currently provide for seven directors. At the Annual
Meeting seven directors are to be elected to serve until the next annual meeting
of shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's seven nominees named below, all of
whom are presently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. Assuming a quorum is
present, the nominees for director receiving the greatest number of votes cast
at the Annual Meeting will be elected, up to the number of directors authorized
by the Company's Bylaws. The term of office of each person elected as a director
will continue until the next annual meeting of shareholders or until his or her
successor has been elected and qualified.
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The nominees' names, ages as of December 31, 1996, and certain information
about them are set forth below:
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
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Richard L. Goode, M.D................. 61 Professor of Otolaryngology at 1984
Stanford University School of
Medicine.
Donald M. Kendall..................... 76 Consultant to PepsiCo, Inc.; Chairman 1996
of the Institute for EastWest Studies.
Eugene Kleiner........................ 73 Private investor and consultant. 1985
Rodney Perkins, M.D................... 60 Chairman of the Board of Directors of 1984
the Company; a practicing otologic
surgeon; President of the California
Ear Institute at Stanford, a clinic
specializing in the diagnosis and
treatment of hearing disorders; and
President of Project HEAR, a
non-profit research organization.
Peter Riepenhausen.................... 60 President and Chief Executive Officer 1992
of the Company.
Philip S. Schlein..................... 62 General Partner of BHMS Partners L.P., 1988
general partner of U.S. Venture
Partners, a venture capital firm.
Robert C. Wilson...................... 77 Chairman of Wilson & Chambers, a 1987
venture capital and consulting firm.
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director or executive officer
of the Company.
Dr. Goode is a founder of the Company and has served as a director since
February 1984. Dr. Goode is Professor of Otolaryngology -- Head and Neck Surgery
at Stanford University School of Medicine and is the past president of the
American Academy of Otolaryngology. Dr. Goode was formerly President of the
American Academy of Facial Plastic and Reconstructive Surgery as well as
Chairman of the FDA's Device Panel for Otolaryngology. Dr. Goode has conducted
extensive medical research on electromagnetic transduction and biosurgical
devices since the early 1970s. Dr. Goode received his M.D. from the University
of Southern California and his B.A. from the University of California at Santa
Barbara.
Mr. Kendall has served as a director of the Company since June 1996. Mr.
Kendall is a consultant to PepsiCo, Inc., the Chairman of the Institute for
EastWest Studies and also a director and founder of the U.S.-Russia Business
Council. Mr. Kendall was a co-founder of PepsiCo, Inc. and was its Chief
Executive Officer for more than two decades before his retirement in 1986. He
served on the PepsiCo, Inc. Board of Directors as Chairman of the Executive
Committee until May 1991. Mr. Kendall serves on the Board of Directors of Orvis
and the Nature Conservancy of Wyoming. Mr. Kendall was formerly a member of the
Boards of Directors of Atlantic Richfield Company, Investors Diversified
Services Mutual Fund Group and Pan American Airways.
Mr. Kleiner is a founder of the Company and has served as a director since
January 1985. Mr. Kleiner is a private investor and consultant. Mr. Kleiner is
also a member of the advisory board of Paine Webber R&D Development Corporation.
Mr. Kleiner was a founder of Fairchild Semiconductor Corporation, Tandem
Computers Inc. (where he also served previously as a director), Genentech Inc.
and Kleiner Perkins Caufield & Byers. He holds an M.I.E. from New York
University and a B.M.E. and an honorary doctorate in engineering from the
Polytechnic University.
Dr. Perkins is a founder of the Company and has been the Chairman of the
Board of Directors since the Company's inception in 1984. Dr. Perkins also
served as the President and Chief Executive Officer of the Company from 1984 to
July 1988. Dr. Perkins, a specialist in otologic surgery, is President of the
California Ear Institute at Stanford and has been in private practice since
1968. He is Professor of Surgery at Stanford University School of Medicine, and
is the founder and President of Project HEAR, a nonprofit medical
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institute for ear research and education. He is also a founder of Collagen
Corporation, a biomaterials company, and a founder of Laserscope, a surgical
systems company. Dr. Perkins was formerly Chairman of the Board of Laserscope
and remains a director of Laserscope and a director of Collagen Corporation. Dr.
Perkins received his M.D. from Indiana University School of Medicine and his
undergraduate degree from Indiana University.
Mr. Riepenhausen has served as the President and Chief Executive Officer of
the Company since May 1994 and as a director of the Company since July 1992. He
also served as Chairman of the Company's German subsidiary from its
establishment in November 1992 until April 1994. From January 1990 until
December 1992, Mr. Riepenhausen was an independent management consultant. From
January 1993 until August 1994, Mr. Riepenhausen was President International of
Chiron Vision Corporation, a manufacturer and distributor of ophthalmic devices,
on a part-time basis. Mr. Riepenhausen is currently a director of Chiron Vision
Corporation. From 1984 to December 1989, Mr. Riepenhausen served as Executive
Vice President and Vice Chairman of the Board of Directors of The Cooper
Companies, Inc., a healthcare products company, and was responsible for its
worldwide pharmaceutical business. Prior to 1984, Mr. Riepenhausen was President
and Chief Executive Officer of Blendax Werke R. Schneider GmbH & Co., a European
healthcare products company. Prior to that, he was Senior Vice President with
overall management responsibility for the Eastern hemisphere for PepsiCo, Inc.
Mr. Riepenhausen is also a director of Advanced Polymer Systems Inc., a
manufacturer of controlled release delivery systems for dermatological products,
CaraDon Europe Limited, plc, a European manufacturer of heating and sanitary
products, and Weru AG, a German manufacturer of doors and windows. Mr.
Riepenhausen attended the Akademie fur Welthandel in Wiesbaden, Germany and
apprenticed as a Commercial Agent with diploma as "Industriekaufmann" at
Siemens-Schuckert in Bad Neustadt, Cologne and Erlangen, Germany.
Mr. Schlein has served as a director of the Company since January 1988. Mr.
Schlein has been a general partner of BHMS Partners, L.P., a general partner of
U.S. Venture Partners, a venture capital firm, since April 1985. Mr. Schlein
held various executive positions with R. H. Macy & Co., Inc. from September 1957
to December 1973 and was President and Chief Executive Officer of Macy's
California division from January 1974 to January 1985. Additionally, Mr. Schlein
has previously served as a director of Apple Computer, Inc. and currently serves
as a director of Ross Stores, Inc. Mr. Schlein received his B.S. from the
University of Pennsylvania.
Mr. Wilson has served as a director of the Company since August 1987. Mr.
Wilson has been Chairman of Wilson & Chambers, a venture capital and consulting
firm, since December 1982. Mr. Wilson was President, Chief Executive Officer and
Chairman of the Board at Memorex Corporation from 1974 until 1980. From 1971 to
1974, Mr. Wilson was President and Chief Executive Officer of Collins Radio
Company, a communications company. From 1969 to 1971, Mr. Wilson was employed by
Rockwell International, a diversified manufacturing company, first as President
of Commercial Products and later as Executive Vice President. He is currently a
director of Carco Electronics, Giga-Tronics Incorporated and Spectrian
Corporation. Mr. Wilson has previously served as a director of Chrysler
Corporation, GAF Corporation, Rockwell International and Western Digital
Corporation. Mr. Wilson holds a B.S. from the University of California at
Berkeley.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings during
the year ended December 31, 1996. The Board of Directors has an Audit Committee,
a Business Planning Committee, a Human Resources Committee and a Stock and
Option Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee. The Board of Directors
elects its committee members each year following the Annual Meeting of
Shareholders.
The Audit Committee currently consists of Richard Goode, Philip Schlein and
Robert Wilson. The Audit Committee held five meetings during 1996. The Audit
Committee recommends engagement of the Company's independent auditors, and is
primarily responsible for approving the services performed by the
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Company's independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
The Business Planning Committee currently consists of Donald M. Kendall,
Eugene Kleiner, Philip Schlein and Robert Wilson. The Business Planning
Committee held two meetings during 1996. The Business Planning Committee reviews
and evaluates the alternatives available to the Company with respect to its
business and technologies and makes recommendations in the same regard to the
Company's Board of Directors.
The Human Resources Committee of the Board of Directors currently consists
of Donald M. Kendall, Rodney Perkins and Philip Schlein. The Human Resources
Committee held five meetings during 1996. The Human Resources Committee
recommends salaries and other compensation for directors, officers and other
employees of the Company, administers (with the Stock and Option Committee and
the Board of Directors) the various incentive compensation and benefit plans of
the Company and recommends policies relating to such plans.
The Stock and Option Committee of the Board of Directors currently consists
of Donald M. Kendall and Philip Schlein. The Stock and Option Committee held one
meeting during 1996. The Stock and Option Committee has the exclusive authority
to grant stock options and otherwise administer the Company's 1988 Stock Option
Plan (and will have the same authority with respect to the Company's 1997 Stock
Plan, if approved by the shareholders) with respect to the Company's directors
and officers eligible to participate in the Plan.
No incumbent director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and meetings of the committees of the Board
of Directors that he was eligible to attend.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors receive a quarterly fee of
$1,000, $750 for each meeting of the Board of Directors attended and $250 for
each committee meeting attended, with committee chairpersons receiving $375 for
each committee meeting attended. In addition, non-employee members of the Board
of Directors receive options to purchase shares of the Company's Common Stock
pursuant to its 1992 Directors' Stock Option Plan (the "Directors' Option
Plan"). The Directors' Option Plan provides for the grant of nonstatutory
options to non-employee directors of the Company at an exercise price not less
than the fair market value of the Company's Common Stock on the date of grant.
Under the Directors' Option Plan, persons who first become non-employee
directors after March 31, 1992 are granted an option (the "First Option") to
purchase 20,000 shares of the Company's Common Stock on the date he or she first
becomes a director. Thereafter, on the last day of each fiscal year, each
non-employee director (including directors who were not eligible for a First
Option) is granted an option to purchase 5,000 shares of Common Stock (an
"Annual Option") if, on such date, he or she has served on the Company's Board
of Directors for at least six months. The Directors' Option Plan provides that
the First Option becomes exercisable in installments of twenty-five percent of
the shares subject to the First Option on each of the first, second, third and
fourth anniversaries of the date of grant of the First Option, and that each
Annual Option becomes exercisable in full on the fourth anniversary of its date
of grant. In January 1991, Dr. Perkins and the Company entered into a Contract
Consulting Agreement pursuant to which Dr. Perkins was paid $5,833 per month for
marketing, product development and financial consulting services. The agreement
was for an initial term of one year, but the Board of Directors has ratified the
renewal of such agreement through December 31, 1997. The Company paid Dr.
Perkins an aggregate of approximately $81,246 in compensation for consulting
services in 1996. In addition, on October 31, 1996, the Company granted Dr.
Perkins an option to purchase 25,000 shares of Common Stock pursuant to the
Company's 1988 Stock Option Plan. The Company also made payments to Dr. Goode
for consulting services in 1996 in the amount of approximately $41,000. See
"Transactions with
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Management and Others" for additional information with respect to Dr. Perkins
and the California Ear Institute at Stanford.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2
ADOPTION OF THE 1997 STOCK PLAN
At the Annual Meeting, shareholders are being asked to approve the adoption
of the Company's 1997 Stock Plan (the "1997 Stock Plan") and the reservation for
issuance thereunder of up to a maximum of 650,000 shares of the Company's Common
Stock. The Company's Board of Directors voted to adopt the 1997 Stock Plan on
April 16, 1997. The exact number of shares reserved for issuance under the 1997
Stock Plan will be the number of shares remaining available for grant as of the
date of the Annual Meeting under the Company's 1988 Stock Option Plan (which
expires in April 1998), which shares will be transferred from the 1988 Stock
Option Plan and deposited into the 1997 Stock Plan. In no case, however, will
the number of shares reserved for issuance under the Company's 1997 Stock Plan
exceed 650,000 shares.
GENERAL
The Company's 1997 Stock Plan provides for the grant of options and stock
purchase rights to employees and consultants of the Company as well as employees
or consultants of any corporation in which the Company owns an equity interest
(an "Affiliate"). The 1997 Stock Plan will become effective upon its approval by
the shareholders of the Company and continue in effect for a term of ten years
unless sooner terminated. Options granted under the 1997 Stock Plan may be
either "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock
options at the discretion of the Board of Directors and as reflected in the
terms of the written option agreement. Stock purchase rights may also be granted
under the 1997 Stock Plan. The 1997 Stock Plan is not a qualified deferred
compensation plan under Section 401(a) of the Code, and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
PURPOSE
The purposes of the 1997 Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The 1997 Stock Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. If adopted, the 1997 Stock Plan will be
administered by the Board of Directors, the Human Resources Committee of the
Board of Directors and the Stock and Option Committee of the Board of Directors.
The Stock and Option Committee will have the exclusive authority to grant stock
options and stock purchase rights and otherwise administer the 1997 Stock Plan
with respect to the Company's directors and officers eligible to participate in
the 1997 Stock Plan. Members of the Board of Directors and its committees will
receive no additional compensation for their services in connection with the
administration of the 1997 Stock Plan. All questions of interpretation of the
1997 Stock Plan will be determined by the Board of Directors or its committees,
and its decisions are final and binding upon all participants.
ELIGIBILITY
The proposed 1997 Stock Plan provides that either incentive stock options
or nonstatutory stock options may be granted to employees (including officers
and directors who are also employees) of the Company, its
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subsidiaries or Affiliates. In addition, the proposed 1997 Stock Plan provides
that nonstatutory stock options may be granted to consultants of the Company,
its subsidiaries or Affiliates. Under the terms of the proposed 1997 Stock Plan,
outside directors of the Company are eligible to receive grants as consultants.
The Board of Directors or its committees selects the optionees and determines
the number of shares to be subject to each option. In making such determination,
there are taken into account the duties and responsibilities of the optionee,
the value of the optionee's services, the optionee's present and potential
contribution to the success of the Company and other relevant factors.
The proposed 1997 Stock Plan provides that the maximum number of shares of
Common Stock which may be granted under options to any one employee during any
fiscal year shall be 650,000 shares, subject to adjustment as provided in the
1997 Stock Plan. There is also a limit on the aggregate market value of shares
subject to all incentive stock options that may be granted to an optionee during
any calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option is subject to the following principal additional
terms and conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and by tendering of payment of the
purchase price. The purchase price of the shares purchased upon exercise of
an option shall be paid in consideration of such form as is determined by
the Board of Directors or its committee and specified in the option
agreement, and such form of consideration may vary for each option.
(b) Exercise Price. The exercise price under the 1997 Stock Plan is
determined by the Board of Directors or its committee and, in the case of
an incentive stock option, may not be less than 100% of the fair market
value of the Common Stock on the date the option is granted. In the case of
an incentive stock option granted to an optionee who owns more than 10% of
the combined voting power of all classes of stock of the Company, its
parent or subsidiaries, the exercise price must not be less than 110% of
the fair market value on the date of grant. The fair market value per share
is equal to the closing price on the Nasdaq National Market on the date of
grant. The 1997 Stock Plan gives the administrator the authority to set the
price of nonstatutory stock options; provided, however, that in the case of
a nonstatutory stock option granted to any individual who on the last day
of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer), the
exercise price may not be less than 100% of the fair market value of the
Common Stock on the date the option is granted.
(c) Termination of Employment. If the optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1997 Stock Plan may be exercised not later than 30
days (or such other period of time not exceeding three months in the case
of an incentive stock option or six months in the case of a nonstatutory
stock option as is determined by the Board of Directors or its committee)
after such termination and may be exercised only to the extent the option
was exercisable on the date of termination. In no event may an option be
exercised by any person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
or her total and permanent disability, options may be exercised within six
months (or such other period of time not exceeding twelve months as is
determined by the Board of Directors or its committee) of termination and
may be exercised only to the extent the option was exercisable on the date
of termination, but in no event may the option be exercised after its
termination date.
(e) Death. Under the 1997 Stock Plan, if an optionee should die while
employed or retained by the Company, and such optionee has been
continuously employed or retained by the Company since the date of grant of
the option, the option may be exercised within six months after the date of
death (or such
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other period of time, not exceeding twelve months, as is determined by the
Board of Directors or its committee) by the optionee's estate or by a
person who acquired the right to exercise the option by bequest or
inheritance to the extent the optionee would have been entitled to exercise
the option had the optionee continued living and remained employed or
retained by the Company for three months after the date of death, but in no
event may the option be exercised after its termination date.
If an optionee should die within 30 days (or such other period of time
not exceeding three months as is determined by the Board of Directors or
its committee) after the optionee has ceased to be continuously employed or
retained by the Company, the option may be exercised within six months
after the date of death by the optionee's estate or by a person who
acquired the right to exercise the option by bequest or inheritance to the
extent that the optionee was entitled to exercise the option at the date of
death, but in no event may the option be exercised after its termination
date.
(f) Extension of Exercise Period. Notwithstanding the limitations
described in subsections (c), (d) and (e) above, the Board of Directors or
its committee has authority to extend the period of time for which an
option is to remain exercisable following termination of an optionee's
employment or consulting relationship with the Company to such greater
extent as the Board of Directors or its committee may deem appropriate,
provided, that in no event may an option be exercisable after its
termination date.
(g) Term of Options. The 1997 Stock Plan provides that options
granted under the Plan have the term provided in the option agreement;
provided, however, that in the case of an incentive stock option, the term
shall be no more than ten years from the date of grant thereof or such
shorter term as may be provided in the option agreement. In the case of an
incentive stock option granted to an optionee who, at the time the option
is granted, owns stock representing more than ten percent of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary, the term of the option shall be five years from the date of
grant thereof or such shorter term as may be provided in the option
agreement.
(h) Option Not Transferable. An option is nontransferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime and in the
event of the optionee's death by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death. In
addition, the 1997 Stock Plan gives the administrator the discretion to
grant a nonstatutory stock option that has limited transferability rights
(to a charitable trust, to a living trust established by an optionee or to
an optionee's immediate family members).
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1997 Stock Plan
as may be determined by the Board of Directors or its committee, including
the issuance of stock withholding rights. Stock withholding rights allow an
optionee to satisfy withholding obligations in connection with an option or
stock purchase right (described below) through the surrender of other
shares of the Company's stock or the withholding of shares from the
exercise or purchase transaction itself.
STOCK PURCHASE RIGHTS
Under the terms of the proposed 1997 Stock Plan, in addition to granting
both incentive stock options and nonstatutory stock options, the Company may
also grant stock purchase rights. Such stock purchase rights may either be
issued alone, in addition to, or in tandem with, other awards granted under the
1997 Stock Plan. The 1997 Stock Plan gives the administrator the authority to
set the price for any stock purchase right issued pursuant to the 1997 Stock
Plan. Unless the Board (or its committee) determines otherwise, the restricted
stock purchase agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's employment with
the Company for any reason (including death or disability). The purchase price
for shares repurchased pursuant to the restricted stock purchase agreement shall
be the original purchase price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Board of Directors or its committee may
determine.
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ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the 1997 Stock Plan. Similar appropriate adjustments shall be
made with respect to each outstanding stock purchase right. In the event of the
proposed dissolution or liquidation of the Company, each option will terminate
unless otherwise provided by the Board of Directors or its committees.
CORPORATE TRANSACTIONS
In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
each option and stock purchase right shall be assumed or an equivalent option or
stock purchase right shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the optionee shall have the right to exercise
the option as to some or all of the optioned stock, including shares as to which
the option would not otherwise be exercisable. If the Board (or its committee)
makes an option exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the administrator shall notify the optionee that
the option shall be exercisable for a period of 15 days from the date of such
notice, and the option will terminate upon the expiration of such period. All
outstanding repurchase rights held by the Company at the time of a merger or
sale of assets shall be assigned to the successor corporation or a parent or
subsidiary of such successor corporation, unless the administrator determines,
in the exercise of its sole discretion and in lieu of such assignment, that such
repurchase rights shall terminate automatically prior to the consummation of the
transaction.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1997 Stock Plan at any time or from
time to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1997
Stock Plan that increases the number of shares that may be issued as incentive
stock options under the 1997 Stock Plan, modifies the standards of eligibility,
modifies the limitation on grants to employees described in the 1997 Stock Plan
or results in other changes which would require shareholder approval to qualify
options granted under the 1997 Stock Plan as performance-based compensation
under Section 162(m) of the Code. The 1997 Stock Plan will terminate in May
2007, provided that any options then outstanding under the 1997 Stock Plan shall
remain outstanding until they expire by their terms.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code, enacted as part of the Omnibus Budget
Reconciliation Act of 1993, provides that a publicly held corporation cannot
deduct compensation of a covered employee (the CEO and the four other most
highly compensated employees for the taxable year whose compensation is required
to be reported to shareholders under the Securities Exchange Act of 1934, as
amended) to the extent the compensation exceeds $1 million per tax year. There
is a statutory exception to this limitation for compensation based on the
attainment of performance goals. Income derived from stock options will qualify
for this exception and thus be treated as performance-based compensation if
granted in accordance with requirements set forth in Section 162(m). The Company
is seeking shareholder approval of the 1997 Stock Plan in order for options
granted under the 1997 Stock Plan to qualify as incentive stock options, to the
extent so designated by the Board (or its committee), and as performance-based
compensation under Section 162(m).
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FEDERAL INCOME TAX ASPECTS OF THE 1997 STOCK PLAN
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the 1997 Stock Plan based on federal income
tax laws in effect as of this date. This summary is not intended to be
exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax law of any state, municipality or non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law.
Options granted under the 1997 Stock Plan may be either incentive stock
options, as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1997 Stock Plan is an incentive stock
option, under current U.S. tax laws the optionee will recognize no income upon
grant of the incentive stock option and incur no tax liability due to the
exercise, although the exercise may give rise to alternative minimum tax (see
discussion below). The Company will not be allowed a deduction for federal
income tax purposes as a result of the exercise of an incentive stock option
regardless of the applicability of the alternative minimum tax. Upon the sale or
exchange of the shares more than two years after grant of the option and one
year after receipt of the shares by the optionee, any gain will be treated as
long-term capital gain under U.S. tax laws. If both of these holding periods are
not satisfied, the optionee will recognize ordinary income under U.S. tax laws
equal to the difference between the exercise price and the lower of the fair
market value of the stock at the date of the option exercise or the sale price
of the stock. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director or
10% shareholder of the Company. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee. Any gain
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized under U.S. tax laws as
long-term capital gain if the sale occurs more than one year after exercise of
the option or as short-term capital gain if the sale is made earlier. The
current federal tax rate on long-term capital gains is capped at 28%. Capital
losses are allowed under U.S. tax laws in full against capital gains plus $3,000
of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory stock option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the exercise price. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer, director or 10% shareholder
of the Company, the date of taxation under U.S. tax laws may be deferred unless
the optionee files an election with the Internal Revenue Service under Section
83(b) of the Code. The income recognized by an optionee who is also an employee
of the Company will be subject to tax withholding by the Company by payment in
cash or out of the current earnings paid to the optionee. Upon resale of such
shares by the optionee, any difference between the sales price and the exercise
price, to the extent not recognized as ordinary income as provided above, will
be treated under U.S. tax laws as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than one year.
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exclusion of
$45,000 for joint returns and $33,750 for individual returns. Alternative
minimum tax will be due if the tax determined under the foregoing formula
exceeds the regular tax of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the shares on the date of exercise over the
option's exercise price. Because the alternative
10
13
minimum tax calculation may be complex, any optionee who upon exercising an
incentive stock option would recognize (together with other alternative minimum
taxable income preference and adjustment items for the year) alternative minimum
taxable income in excess of the exclusion amount noted above should consult his
or her own tax advisor prior to exercising the incentive stock option.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
Stock purchases under the 1997 Stock Plan will generally be taxed in the
same manner as the exercise of a nonstatutory stock option.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
represented and voting at the Annual Meeting with respect to this proposal
(which shares voting affirmatively also represent a majority of the required
quorum) is required for the adoption of the 1997 Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE ADOPTION OF THE 1997 STOCK
PLAN.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1997 and recommends that the shareholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. Ernst &
Young LLP has audited the financial statements of the Company since inception.
Representatives of Ernst & Young LLP are expected to be present at the meeting
and will have the opportunity to make a statement if they desire to do so. They
are also expected to be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING IN FAVOR OF THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of December 31, 1996 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 16, and (iv)
all directors and executive officers as a group.
SHARES BENEFICIALLY
OWNED(1)
5% SHAREHOLDERS, DIRECTORS, ------------------------
NAMED EXECUTIVE OFFICERS PERCENT OF
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER TOTAL
--------------------------------------------------------------- --------- ----------
Rodney Perkins, M.D.(2)(3)..................................... 637,666 3.3%
Paul A. Busse(3)............................................... 110,793 *
Robert Anderson(4)............................................. 11,111 *
Donald M. Kendall.............................................. 0 *
John H. Giroux(3).............................................. 95,614 *
Richard L. Goode, M.D.(3)...................................... 19,500 *
Eugene Kleiner(3).............................................. 443,731 2.3%
Vincent Pluvinage, Ph.D.(3)(5)................................. 269,408 1.4%
Peter Riepenhausen(3)(6)....................................... 407,506 2.2%
Philip S. Schlein(3)........................................... 25,000 *
Stephan Becker-Vogt(3)......................................... 121,126 *
Robert C. Wilson(3)............................................ 120,190 *
All directors and executive officers as a group (13
persons)(2)(3)(5)(6)......................................... 2,284,172 11.8%
- ---------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares of Common Stock.
(2) Includes 119,333 shares held by Dr. Perkins as trustee of the Wayne Calvin
Perkins Trust.
(3) Includes with respect to each named person the following number of shares
subject to stock options that are exercisable within 60 days of December 31,
1996: Dr. Perkins, 37,391; Mr. Busse, 98,850; Mr. Giroux, 88,436; Dr. Goode,
12,813; Mr. Kleiner, 20,000; Dr. Pluvinage, 162,500; Mr. Riepenhausen,
332,875; Mr. Schlein, 25,000; Mr. Becker-Vogt, 65,399 and Mr. Wilson,
56,563.
(4) Mr. Anderson resigned as a director of the Company effective April 1, 1997.
(5) Includes 20,520 shares owned by Margaret Farrell, Dr. Pluvinage's wife.
(6) Includes 74,631 shares held by Peter Riepenhausen and Waltraud Riepenhausen,
as trustees of the Riepenhausen Family Trust.
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Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph on page 15 shall not be incorporated by reference into any
such filings.
REPORT OF THE HUMAN RESOURCES COMMITTEE
GENERAL
Through its compensation programs, the Company seeks to provide incentives
and rewards for all employees, including its executive officers, to achieve
individual goals that collectively contribute to the achievement of broader
corporate goals and maximize the interests of the Company's shareholders.
As a key element in the Company's compensation programs, at the beginning
of each fiscal year, the Chief Executive Officer and the Company's other
executive officers establish a number of corporate goals addressing such
business objectives as financial performance, product performance improvements
and product and market development and expansion.
Because the Company's executive officers are responsible for the
achievement of the corporate-level goals, their compensation is determined by
reference both to individual performance and to corporate performance. Of these
two elements, corporate performance has the most significant impact on executive
officer compensation through cash bonuses and the value of stock options.
The Company's executive compensation programs have three specific
objectives:
1. Performance-based compensation -- ReSound believes that it is
important to reward individual executives for their performance as well as
for the overall performance of the Company.
2. Competitive compensation levels -- To attract and retain talented
individuals, the Company believes it must maintain compensation levels and
programs that are competitive in the relevant employment market.
3. Maximization of shareholder interests -- Ultimately, management
seeks to generate a satisfactory return for the Company's shareholders.
Therefore, it is critical to align management's interests with the
interests of the Company's shareholders in establishing compensation
programs.
COMPENSATION OF EXECUTIVE OFFICERS
To achieve the compensation goals outlined above, the Company's executive
compensation is comprised of three key components: (i) salary, (ii) annual cash
bonuses and (iii) stock options.
Specific recommendations with respect to salary and annual cash bonuses for
the executive officers (except the Chief Executive Officer) are made by the
Chief Executive Officer, with the final decisions being made by the Board of
Directors in accordance with the recommendations of the Human Resources
Committee. In the case of the Chief Executive Officer, the Board of Directors
determines actions to be taken, consistent with the recommendations of the Human
Resources Committee. With respect to stock options, the final decisions are made
by the Stock and Option Committee consistent with the recommendations of the
Human Resources Committee.
Salaries are generally reviewed in the early spring of each year and
appropriate adjustments are made after taking into account such factors as
individual performance and experience, market data, responsibility and salary
levels within the Company and the salary range established for the position.
Cash bonus arrangements are established at the commencement of each fiscal
year. Payment of such cash bonuses depends upon corporate financial performance
for the year and achievement of individual goals by each executive. For 1997 (as
in 1994, 1995 and 1996 ) no cash bonus is payable unless the Company achieves a
net profit. Thereafter, ten percent of net profit is set aside for potential
bonuses up to a maximum amount determined based upon a percentage of the annual
salary of the employees, including executive
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officers, eligible to participate in the incentive compensation plan. The
maximum eligible percentage varies between zero and 100% of annual salary,
depending on the position. The portion of the bonus that is actually paid is
based on an assessment of the individual executive's performance. The executive
must remain employed by the Company at the time of payment of bonuses to be
eligible to receive a bonus with respect to the preceding year. Because the
Company did not achieve a net profit in 1996, no bonuses will be paid to the
executive officers with respect to fiscal 1996.
Because stock options provide an incentive for executives to maximize
shareholder value over time, stock options are a key to aligning the interests
of management and shareholders. Value accrues to executives only as the value of
the Company's stock appreciates. Vesting schedules encourage a long-term
commitment to the Company by its executive officers. The number of stock options
held by each executive officer is periodically reviewed against ranges
established for each position and additional awards are considered to optimize
the level of incentives and rewards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
As of January 1, 1996, Peter Riepenhausen, President and Chief Executive
Officer of the Company, was receiving an annual base salary of $300,000.
Effective as of April 1, 1996, Mr. Riepenhausen's annual base salary was
increased to $330,000. In setting this base salary, the Company's Board of
Directors considered such factors as Mr. Riepenhausen's management in a
difficult corporate environment, the pending and completed acquisitions by the
Company and the Company's settlement of major litigation. Because the Company
did not achieve a net profit in 1996, Mr. Riepenhausen was not paid a bonus with
respect to fiscal 1996.
Mr. Riepenhausen was granted a nonstatutory stock option to purchase 50,000
shares of Common Stock on April 18, 1996 at an exercise price of $12.50 per
share, which option vests at the rate of 1/48th of the shares each month
commencing on April 18, 1996. Such option was granted pursuant to the Company's
1988 Stock Option Plan.
Mr. Riepenhausen has previously been granted options to purchase 560,000
shares of Common Stock which continue to be outstanding at exercise prices of
$2.50 to $19.88, with various vesting periods. Mr. Riepenhausen does not
participate in the Human Resources Committee's determination of his salary or
bonus or the determination of options granted to him by the appropriate
committee of the Board of Directors.
HUMAN RESOURCES COMMITTEE
PHILIP S. SCHLEIN (CHAIRMAN)
DONALD M. KENDALL
RODNEY PERKINS, M.D.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
There are currently no employee directors serving on the Human Resources
Committee. The following non-employee directors currently serve on the Human
Resources Committee: Donald M. Kendall, Rodney Perkins, M.D. and Philip S.
Schlein.
Dr. Rodney Perkins is currently the Chairman of the Board of Directors of
the Company and also served as the Company's President and Chief Executive
Officer from 1984 to July 1988. In January 1991, Dr. Perkins entered into a
Contract Consulting Agreement with the Company pursuant to which he is paid
$5,833 per month for consulting services beyond his current responsibilities as
Chairman of the Board of Directors. See "Proposal No. 1 Election of
Directors -- Compensation of Directors." Dr. Perkins is also President of the
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California Ear Institute at Stanford ("CEI"), a medical clinic specializing in
the diagnosis and treatment of hearing disorders that served as a site for
clinical trials of the Company's products. In 1996, the Company had net sales of
approximately $192,000 to CEI, representing an insignificant percentage of the
Company's total net sales in 1996. At December 31, 1996, accounts receivable
from CEI were approximately $16,000, representing an insignificant percentage of
the Company's accounts receivable balance at December 31, 1996. See
"Transactions with Management and Others." Dr. Perkins is a member of the Human
Resources Committee of the Board of Directors of Laserscope, a surgical systems
company. The Company and Laserscope have not conducted any business with each
other in the past and the Company does not presently anticipate doing so in the
future.
See "Proposal No. 1 Election of Directors -- Compensation of Directors" for
a discussion of certain information with respect to directors serving on the
Human Resources Committee.
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period since the Company's stock
was first registered under Section 12 of the Securities Exchange Act of 1934, as
amended (March 4, 1993). The graph assumes that $100 was invested on March 4,
1993: (i) in the Common Stock of ReSound, (ii) in the Nasdaq Market Index and
(iii) in the MG Medical Instruments and Supplies Index (provided by Media
General Financial Services, Inc.). The stock price performance on the following
graph is not necessarily indicative of future stock price performance.
Measurement Period NASDAQ Market
(Fiscal Year Covered) ReSound Index Industry
4/3/93 100.00 100.00 100.00
1993 182.76 119.85 98.72
1994 90.80 125.84 108.51
1995 66.67 163.22 175.11
1996 65.52 202.83 183.72
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COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company whose total annual salary and bonus exceeded $100,000 for 1996,
and the compensation received by each such individual for the Company's two
prior years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
--------------------------- OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2)(3) COMPENSATION OPTIONS (SHARES)(4)
- ---------------------------- ----- -------- -------------- ------------ -------------------
Peter Riepenhausen.......... 1996 $322,893 $ 0 -- 50,000
President and Chief 1995 293,269 100,000 $ 87,000(9) 100,000
Executive Officer 1994 133,260(5) 0 -- 400,000
John H. Giroux.............. 1996 $169,483 $ 0 -- 25,000
President of USA 1995 152,308 0 -- --
Profit Center 1994 142,744 0 -- 41,771
Paul A. Busse............... 1996 $173,586 $ 0 -- 25,000
Senior Vice President of 1995 158,269 0 -- 62,500
Finance and Administration 1994 133,500 0 -- 31,042
and Chief Financial
Officer
Vincent Pluvinage, Ph.D..... 1996 $207,039 $ 0 -- 25,000
Executive Vice President 1995 191,923 0 -- 100,000
1994 162,038 0 -- 74,375
Stephan Becker-Vogt......... 1996 $219,371(6) $ 0 -- 25,000
Senior Vice President and 1995 214,788(7) 0 -- 65,000
Executive Vice President
of ReSound Europe 1994 174,051(8) 0 -- 41,250
- ---------------
(1) Includes amounts deferred under the Company's 401(k) plan except with
respect to Mr. Becker-Vogt.
(2) Includes bonuses earned in the indicated year and paid in the subsequent
year. Excludes bonuses paid in the indicated year but earned in the
preceding year.
(3) Executive officers are entitled to discretionary bonuses based on individual
and corporate performance. These bonuses are determined based upon the
recommendation of the Human Resources Committee of the Board of Directors.
See "Report of the Human Resources Committee."
(4) Options granted under the 1988 Stock Option Plan.
(5) Consists of salary paid to Mr. Riepenhausen commencing on May 1, 1994, his
employment commencement date, and ending on December 31, 1994.
(6) Mr. Becker-Vogt was paid 331,250 DM in 1996. The compensation reported above
assumes an average exchange rate of $1 U.S. per each 1.51 DM.
(7) Mr. Becker-Vogt was paid 305,000 DM in 1995. The compensation reported above
assumes an average exchange rate of $1 U.S. per each 1.42 DM.
(8) Mr. Becker-Vogt was paid 275,000 DM in 1994. The compensation reported above
assumes an average exchange rate of $1 U.S. per each 1.58 DM.
(9) Mr. Riepenhausen received a housing adjustment of $87,000 in 1995.
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STOCK OPTION GRANTS IN 1996
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to grants of options to purchase
Common Stock of the Company made in 1996 and the value of all options held by
such executive officers on December 31, 1996.
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------
NAME (SHARES) FISCAL YEAR(1) (PER SHARE) DATE 5%($) 10%($)
- ------------------------ --------- -------------- ----------- ---------- -------- --------
Peter Riepenhausen...... 50,000 6.5% $ 12.50 4/18/01 $393,059 $996,089
John H. Giroux.......... 25,000 3.3% $ 12.50 4/18/01 $196,530 $498,045
Paul A. Busse........... 25,000 3.3% $ 12.50 4/18/01 $196,530 $498,045
Vincent Pluvinage,
Ph.D. ................ 25,000 3.3% $ 12.50 4/18/01 $196,530 $498,045
Stephan Becker-Vogt..... 25,000 3.3% $ 12.50 4/18/01 $196,530 $498,045
- ---------------
(1) The Company granted options to employees to purchase an aggregate of 768,750
shares of Common Stock during 1996.
(2) Potential realizable values are reported net of the option exercise price
but before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only. Actual realized gains, if any, on stock
option exercises are dependent on future performance of the Company's Common
Stock, as well as the optionee's continued employment through the vesting
period.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to exercises in 1996 of options
to purchase Common Stock of the Company.
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR AT FISCAL YEAR
SHARES END(#) END($)
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE) UNEXERCISABLE)(2)
- ------------------------ ----------- -------------- ------------------ --------------------
Peter Riepenhausen...... 40,000 $330,000 332,815/227,185 $ 15,625/$0
John H. Giroux.......... -- -- 88,436/ 38,960 675,390/0
Paul A. Busse........... -- -- 98,850/ 74,792 175,725/0
Vincent Pluvinage,
Ph.D. ................ 10,833 $ 69,998 162,500/108,542 16,276/638
Stephan Becker-Vogt..... 6,250 $ 46,875 65,339/ 67,506 28,906/0
- ---------------
(1) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the date of
exercise minus the exercise price of the option, and does not necessarily
indicate that the optionee sold such stock.
(2) Based on the closing price of the Company's Common Stock as reported on the
Nasdaq National Market on December 31, 1996 of $7.125 per share.
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
In 1996, the Company had net sales of approximately $192,000 to the
California Ear Institute at Stanford ("CEI"), a medical clinic specializing in
the diagnosis and treatment of hearing disorders that served as a site for
clinical trials of the Company's products. Dr. Rodney Perkins, Chairman of the
Company's Board of Directors, is President of CEI. Such sales represented an
insignificant percentage of the Company's total net sales in 1996. In addition,
at December 31, 1996, accounts receivable from CEI were approximately $16,000,
representing an insignificant percentage of the Company's accounts receivable
balance at December 31, 1996. Dr. Perkins has been granted options to purchase
shares of Common Stock in connection with his consulting services to the Company
beyond his duties as a director. Also in connection with his consulting services
to the Company, the Company paid Dr. Perkins an aggregate of approximately
$81,246 in 1996. See "Proposal No. 1 Election of Directors -- Compensation of
Directors" and "Human Resources Committee Interlocks and Insider Participation."
In October 1995, the Company borrowed $1.7 million under a guaranteed loan
from Silicon Valley Bank. This loan was repaid in full in October 1996. Such
loan was guaranteed by six of the Company's directors at the time it was entered
into: Drs. Goode and Perkins, James J. Gallogly and Messrs. Kleiner,
Riepenhausen and Wilson. In connection with their agreement to execute and
deliver personal guarantees to Silicon Valley Bank with respect to this loan,
the Company issued warrants to purchase an aggregate of 105,492 shares of Common
Stock to the six directors who executed such guarantees at an initial exercise
price of $8.13 per share, exercisable immediately, expiring December 1, 2000.
The Company has entered into indemnification agreements with each of its
directors and executive officers, which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific filing deadlines for these
reports have been established, and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during 1996. To the best of
the Company's knowledge, all of these filing requirements have been satisfied,
except for the following. On April 3, 1996, Mr. Riepenhausen exercised an option
to purchase 30,000 shares of the Company's Common Stock. On July 31, 1996, Mr.
Riepenhausen exercised options to purchase 10,000 shares of the Company's Common
Stock. In each case, Mr. Riepenhausen failed to make the requisite SEC filing by
the established deadline. On March 4, 1996, Mr. Becker-Vogt exercised an option
to purchase 6,250 shares of the Company's Common Stock. Mr. Becker-Vogt failed
to make the requisite SEC filing by the established deadline. In making this
statement, the Company has relied solely on written representations of its
directors and executive officers and any ten percent holders and copies of the
reports that they filed with the SEC.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 1998 Annual Meeting must be received by
the Company no later than December 23, 1997 in order that they may be included
in the proxy statement and form of proxy relating to that meeting.
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21
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CRAIG W. JOHNSON
Secretary
Dated: April 21, 1997
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APPENDIX
RESOUND CORPORATION
1997 STOCK PLAN
APPROVED BY THE COMPANY'S BOARD OF DIRECTORS IN APRIL, 1996, SUBJECT TO
APPROVAL BY THE COMPANY'S SHAREHOLDERS AT THE ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD MAY 22, 1997.
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement. Stock purchase rights may also be granted under the
Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary
(as defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean ReSound Corporation, a California
corporation.
(i) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent, Subsidiary or Affiliate to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not, so long as a director's
eligibility is not precluded by Applicable Laws.
(j) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is
23
guaranteed by contract or statute. For purposes of this Plan, a change in status
from an Employee to a Consultant or from a Consultant to an Employee will not
constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
(l) "Employee" shall mean any person (including any Named
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including without
limitation the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall
be the closing sales price for such stock as quoted on such system on the date
of determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option, as designated in the
applicable written option agreement.
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(r) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the
Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
Option or a Stock Purchase Right.
(u) "Optionee" shall mean an Employee or Consultant who
receives an Option or a Stock Purchase Right.
(v) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1997 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 of the Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(z) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 14 of the Plan.
(aa) "Stock Purchase Right" shall mean the right to purchase
Common Stock pursuant to Section 11 of the Plan.
(bb) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 650,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF ADMINISTRATOR.
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(i) MULTIPLE ADMINISTRATIVE BODIES. If
permitted by Rule 16b-3, and by the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable securities
laws and the Code (collectively, the "Applicable Laws"), grants under the Plan
may (but need not) be made by different administrative bodies with respect to
Directors, Officers who are not directors and Employees who are neither
Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Options to Employees or Consultants who are
also Officers or Directors of the Company, grants under the Plan shall be made
by (A) the Board, if the Board may make grants under the Plan in compliance with
Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify grants
of Options to Named Executives as performance-based compensation, or (B) a
Committee designated by the Board to make grants under the Plan, which Committee
shall be constituted in such a manner as to permit grants under the Plan to
comply with Rule 16b-3, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER
PERSONS. With respect to grants of Options to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule 16b-3
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to
whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent
Options are granted hereunder;
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(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to reduce the exercise price of any Option
to the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date the Option was
granted.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided, however, that Employees of
an Affiliate shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option may, if he or she is
otherwise eligible, be granted an additional Option or Options.
(b) TYPE OF OPTION. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its approval by
the shareholders of the Company as described in Section 21 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 17 of the Plan.
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7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement. In the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be subject to Options and
Stock Purchase Rights granted to any one Employee under this Plan for any fiscal
year of the Company shall be 650,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time
of the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant; or
(B) granted to any person other than a
Named Executive, the per Share exercise price shall be the price determined by
the Administrator.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares
that (x) in the case of Shares acquired upon exercise of an Option either have
been owned by the Optionee for more than six months on the date of surrender or
were not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal
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to the aggregate exercise price of the Shares as to which said Option shall be
exercised, (5) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (6) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price, (7) any combination of the foregoing methods of payment,
or (8) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as to
the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 9(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was
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entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the optionee does not exercise such Option (which he or she
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 10(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), he or she may, but only within six
(6) months (or such other period of time not exceeding twelve (12) months as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) from the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent he or she was entitled to exercise it at the date of
such termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the
time of his death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised, at any time within six (6) months
(or such other period of time, not exceeding twelve (12) months, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee or Consultant three (3) months (or such other period of time as is
determined by the Administrator as provided above) after the date of death,
subject to the limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) after the termination of
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have
full power and authority to extend the period of time for which an option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 10(b), 10(c)
and 10(d) above or in the Option Agreement to such greater
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time as the Board shall deem appropriate, provided, that in no event shall such
option be exercisable later than the date of expiration of the term of such
Option as set forth in the Option Agreement.
(f) RULE 16B-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall be determined by the
Administrator), and the time within which such person must accept such offer,
which shall in no event exceed thirty (30) days from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock purchase agreement in
the form determined by the Administrator. Shares purchased pursuant to the grant
of a Stock Purchase Right shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. WITHHOLDING TAXES. As a condition to the exercise of Options
and Stock Purchase Rights granted hereunder, the Optionee shall make such
arrangements as the Administrator may require for the satisfaction of any
federal, state, local or foreign withholding
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tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option or Stock Purchase Right. The Company shall not be
required to issue any Shares under the Plan until such obligations are
satisfied.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right which tax liability is subject
to tax withholding under applicable tax laws, and the Optionee is obligated to
pay the Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by one or some combination
of the following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option or Stock Purchase Right that
number of Shares having a fair market value equal to the amount required to be
withheld. For this purpose, the fair market value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
Any surrender by an Officer or Director of previously owned
Shares to satisfy tax withholding obligations arising upon exercise of an Option
or Stock Purchase Right must comply with the applicable provisions of Rule
16b-3.
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
14. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by
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will or by the laws of descent or distribution; provided that the Administrator
may in its discretion grant transferable Nonstatutory Stock Options and Stock
Purchase Rights pursuant to agreements specifying (i) the manner in which such
Nonstatutory Stock Options and Stock Purchase Rights are transferable; (ii) that
any such transfer shall be limited to the following recipients: a charitable
trust established by the Optionee, a living trust established by the Optionee or
a member of Optionee's immediate family; and (iii) that any such transfer shall
be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee or a transferee permitted by this
Section 14.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, the number of shares of Common
Stock that have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the maximum number of shares of Common Stock for which Options
and Stock Purchase Rights may be granted to any employee under Section 8 of the
Plan, and the price per share of Common Stock covered by each such outstanding
Option and Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, each Option and Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option and
Stock Purchase Right shall terminate as of a date fixed by the Administrator and
give each Optionee the right to exercise his or her Option as to all or any part
of the Optioned Stock, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each Option and Stock Purchase Right shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to some or all of the
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33
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be exercisable for
a period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period. All outstanding repurchase rights
held by the Company pursuant to Section 11 of the Plan at the time of a merger
or sale of assets shall be assigned to the successor corporation or a parent or
subsidiary of such successor corporation, unless the Administrator determines,
in the exercise of its sole discretion and in lieu of such assignment, that such
repurchase rights shall terminate automatically prior to the consummation of the
transaction.
16. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
17. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
21 of the Plan:
(i) any increase in the number of Shares
subject to the Plan available for grant as incentive stock options, other than
an adjustment under Section 15 of the Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options; or
(iii) any change in the limitation on grants to
employees as described in Section 8 of the Plan or other changes which would
require shareholder approval to qualify Options and Stock Purchase Rights
granted hereunder as performance-based compensation under Section 162(m) of the
Code.
(b) SHAREHOLDER APPROVAL. If any amendment requiring
shareholder approval under Section 16(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 21 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options and Stock Purchase Rights
already granted and
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34
such Options and Stock Purchase Rights shall remain in full force and effect as
if this Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
18. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option or
Stock Purchase Right and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
20. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve.
21. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law
and the rules of any stock exchange upon which the Shares are listed.
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35
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF RESOUND CORPORATION
1997 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ReSound Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated April 21, 1997, and hereby appoints Rodney Perkins,
M.D. and Peter Riepenhausen, or either of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Shareholders of ReSound Corporation to be held on May 22, 1997 at 9:00 a.m.,
local time, at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City,
California 94065 and at any adjournment or postponement thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse side
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any adjournment(s) thereof.
---------
SEE
REVERSE
SIDE
---------
36
/X/ Please mark your / /
votes as in this example
FOR all nominees WITHHOLD authority to
listed to the right vote for all nominees
(except as indicated) listed to the right
1. Election of / / / / Nominees: Richard L. Goode, M.D.,
Directors Donald M. Kendall,
Eugene Kleiner,
Rodney Perkins, M.D.,
Peter Riepenhausen,
Philip S. Schlein,
Robert C. Wilson
If you wish to withhold authority
to vote for any individual nominee,
strike a line through that nominee's
name in the list to the right.
2. Proposal to authorize the adoption FOR AGAINST ABSTAIN
of the Company's 1997 Stock Plan and
the reservation of up to a maximum of / / / / / /
650,000 shares of the Company's Common
Stock for issuance thereunder.
3. Proposal to ratify the appointment
of Ernst & Young LLP as the independent / / / / / /
auditors of the Company for the year
ending December 31, 1997.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS;
(2) FOR APPROVAL OF THE ADOPTION OF THE COMPANY'S 1997 STOCK PLAN AND
THE RESERVATION OF UP TO 650,000 SHARES OF THE COMPANY'S COMMON STOCK
FOR ISSUANCE THEREUNDER; (3) FOR RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
SIGNATURE(S) _____________________ DATE ____________________________
NOTE: This Proxy should be marked, dated, signed by the shareholder(s)
exactly as his or her name appears hereon, and returned in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
If shares are held by joint tenants or as community property, both
should sign.