SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Cree Research, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
CREE RESEARCH, INC.
2810 MERIDIAN PARKWAY
SUITE 108
DURHAM, NORTH CAROLINA 27713
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 12, 1996
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TO THE SHAREHOLDERS OF
CREE RESEARCH, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of Cree
Research, Inc. (the "Company") will be held on Tuesday, November 12, 1996 (at
10:00 a.m. local time), at Doubletree Suites, 2515 Meridian Parkway, Durham,
North Carolina 27713, for the following purposes:
(1) To elect seven (7) directors;
(2) To approve an amendment to the Cree Research, Inc. Amended and
Restated Equity Compensation Plan (formerly the Cree Research,
Inc. Employee Stock Option Plan);
(3) To ratify the action of the Board of Directors in selecting
Coopers & Lybrand, L.L.P. as independent public accountants to
audit the books of the Corporation for the fiscal year ending June
30, 1997; and
(4) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
September 23, 1996 has been fixed as the record date for the
determination of shareholders entitled to notice of and to vote at such Annual
Meeting. Accordingly, only shareholders of record at the close of business on
September 23, 1996, will be entitled to notice of and to vote at said meeting or
any adjournment or adjournments thereof.
It is important that your shares of the Company's common stock be
represented at this meeting in order that the presence of a quorum may be
assured. Your are cordially invited to attend the meeting.
Even if you plan to attend the meeting in person, please date and
execute the enclosed proxy and mail it promptly. If you attend the meeting, you
may revoke your proxy and vote your shares in person. A postage-paid,
return-addressed envelope is enclosed.
A complete list of the shareholders entitled to vote at the meeting
will be available for inspection by any shareholder, for any purpose germane to
the meeting, for a period of at least ten (10) days prior to the meeting during
ordinary business hours at the office of the Secretary of the Company, 2810
Meridian Parkway, Suite 108, Durham, North Carolina 27713. A copy of the Annual
Report, containing the financial statements of the Company for the fiscal year
ended June 30, 1996, is enclosed herewith.
Durham, North Carolina
October 14, 1996 By order of the Board of Directors
ALAN J. ROBERTSON, SECRETARY
CREE RESEARCH, INC.
2810 MERIDIAN PARKWAY
SUITE 108
DURHAM, NORTH CAROLINA 27713
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited by and on behalf of Cree Research,
Inc., a North Carolina corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held Tuesday, November 12, 1996 at 10:00 a.m.,
local time (the "Annual Meeting"), or at any adjournments thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at Doubletree Suites, 2515
Meridian Parkway, Durham, North Carolina 27713. The location of the Company's
principal executive offices is at 2810 Meridian Parkway, Suite 108, Durham,
North Carolina 27713, and its telephone number at that address is (919)
361-5709.
These proxy solicitation materials are being mailed on or about October
14, 1996 to all shareholders entitled to vote at the Annual Meeting. The
Company's Annual Report to Shareholders for fiscal year ended June 30, 1996,
including financial statements, accompanies this Proxy Statement. A copy of the
Company's Form 10-K for the fiscal year ended June 30, 1996 will be furnished,
without charge, upon written request directed to Alan J. Robertson, Chief
Financial Officer, 2810 Meridian Parkway, Suite 108, Durham, North Carolina
27713.
RECORD DATE
Shareholders of record at the close of business on September 23, 1996
are entitled to notice of, and to vote at, the Annual Meeting. At the record
date, 12,300,858 shares of the Company's common stock, $.005 par value (the
"Common Stock"), were issued and outstanding.
REVOCABILITY OF PROXIES
A shareholder who has executed and returned a proxy may revoke it at
any time before it is voted by submitting to the Company a properly executed
proxy bearing a later date, by filing with the Company a written revocation or
by attending the meeting in person and requesting that the proxy be returned.
VOTING
The persons acting as proxies will vote the shares represented thereby
as directed by the person giving the proxy. Unless otherwise directed, the
person acting under the proxies will vote the shares represented thereby (1) for
the election of the seven nominees named in this Proxy Statement; (2) for
approval of the amendment to the Cree Research, Inc. Amended and Restated Equity
Compensation Plan; (3) to ratify the selection of Coopers & Lybrand, L.L.P. as
the independent auditors of the Company for the fiscal year ending June 30,
1997; and (4) in their discretion on such other business as may come before the
meeting and any adjournments thereof. The Company does not know of any other
business to come before the meeting, but it is intended that as to any such
other business the proxies will be voted in accordance with
the judgment of the person or persons acting thereunder. On all matters, each
share of Common Stock has one vote.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy (indicating a lack of authority to vote on such
matter), then the shares held by such shareholder or broker will be deemed
present at the meeting for purposes of determining a quorum but will not be
counted for purposes of calculating the vote with respect to such matter.
Notwithstanding the foregoing, because shareholder approval under North Carolina
law requires the affirmative vote of at least a majority of that number of
shares needed to constitute a quorum, in certain instances an abstention or a
broker non-vote can have the same effect as a negative vote.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials sent to shareholders. In addition, the
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or facsimile. Except as described above, the Company
does not currently intend to solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholder proposals intended to be considered at the 1997 Annual
Meeting of Shareholders must be received by the Company no later than June 16,
1997. Such proposals may be included in next year's proxy statement if they
comply with certain rules and regulations promulgated by the Securities and
Exchange Commission (the "Commission"). Any such proposals should be sent to the
Secretary of the Company at 2810 Meridian Parkway, Suite 108, Durham, North
Carolina 27713.
OUTSTANDING VOTING SECURITIES
On September 23, 1996, the date for determining shareholders entitled
to vote at the meeting, 12,300,858 shares of common stock of the Company were
outstanding, with each share being entitled to one (1) vote on all matters to be
presented for action at the meeting. A quorum will be present at the meeting if
a majority of the outstanding shares of common stock is present at the meeting
in person or by proxy.
A majority of the votes cast is required for all actions to be voted
upon at the meeting as described above other than the election of Directors for
which a plurality of the votes cast is required.
An independent party will receive and tabulate all proxies and ballots,
and such independent party and certain employees of the Company will act as
voting inspectors at the meeting.
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP BY MANAGEMENT
The following table sets forth information as of October 2, 1996
relating to the beneficial ownership of the Company's Common Stock by (i) each
person who was known by the Company as of October 2, 1996, to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock of the Company,
(ii) each executive officer of the Company, (iii) each director, (iv) each
nominee and (v) all executive officers and directors as a group:
2
COMMON STOCK PERCENTAGE OF OUTSTANDING
NAME 1 BENEFICIALLY OWNED 2,3 SHARES OWNED
F. Neal Hunter 200,786 1.63%
Calvin H. Carter, Jr., Ph.D. 4 249,196 2.03%
John W. Palmour, Ph.D 266,000 2.16%
Alan J. Robertson 18,130 *
Walter L. Robb, Ph.D. 255,000 2.07%
1358 Ruffner Road
Schenectady, New York 12309
Dolph W. von Arx 5 298,160 2.42%
4351 Gulf Shore Blvd.
N. PH1
Naples, FL 34102
Michael W. Haley 373,914 3.04%
1031 Summit Avenue
Suite 2-W-1
Greensboro, NC 27415
James E. Dykes 40,000 *
13365 N.E. 226th Avenue Road
Salt Springs, FL 32134
Trustees of General Electric 1,279,967 10.39%
Pension Trust
3003 Summer Street
Stamford, CT 06904
Mellon Bank 829,000 6.73%
Mellon Trust Risk Management
and Compliance
Mellon Bank, N.A. - 4340
One Mellon Bank Center
Pittsburgh, PA 15258-0001
All directors and executive 1,701,186 13.83%
officers as a group (8 persons)
- ------------
1 Officers and directors named without addresses are c/o the Company's address:
2810 Meridian Parkway, Suite 108, Durham, North Carolina 27713.
2 Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock that are beneficially owned by them.
3
3 Includes shares issuable upon exercise of stock options and warrants currently
exercisable within 60 days of October 2, 1996, as follows: All officers and
directors as a group hold 323,702 options and 129,996 warrants for the purchase
of an aggregate of 453,698 shares. Mr. Hunter holds 55,786 options; Dr. Carter
holds 33,786 options; Dr. Palmour holds 28,000 options; and Mr. Robertson holds
18,130 options. Dr. Robb, Mr. von Arx, Mr. Haley and Mr. Dykes hold 65,000,
67,000, 41,000, and 15,000 options, respectively. Mr. von Arx and Mr. Haley hold
63,998 and 65,998 warrants, respectively.
4 Of the shares held by Dr. Carter, 51,060 are held by his immediate family. Dr.
Carter does not have sole voting or investment power over these shares.
5 The 298,160 shares held by Mr. von Arx include 4,000 shares held by his wife.
Mr. von Arx holds voting and investing power over these shares.
* Represents less than 1%
- ---------------------
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the Board of Directors shall be
comprised of three (3) or more directors, with the exact number to be fixed by
the shareholders. In 1988 the shareholders fixed the number of Directors at nine
(9). Seven (7) persons have been nominated for election at the Annual Meeting,
all of whom are currently directors of the Company. The Company is not aware of
any nominee who will be unable or will decline to serve as a director. In the
event that any such nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who 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 a manner that 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. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until such time as his
successor has been duly elected and qualified.
The names of the Company's nominees for director and certain
information about them are set forth below.
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
F. Neal Hunter 34 President, Chief Executive Officer and 1987
Director
Calvin H. Carter, Jr., Ph.D. 41 Director, Vice-President New Product 1987
Development
Walter L. Robb, Ph.D. 68 Director 1993
Michael W. Haley 58 Director 1989
Dolph W. von Arx 62 Director 1991
James E. Dykes 58 Director 1992
4
John W. Palmour, Ph.D. 35 Director, Senior Advanced Device 1995
Scientist
F. NEAL HUNTER has served as a director of the Company since its
inception and became the Company's President and Chief Executive Officer
effective August 1, 1994. He also serves as President of Real Color Displays,
Inc., a wholly-owned subsidiary of the Company. Previously he served as
Vice-President of Marketing and had responsibility for the management of the
Company's optoelectronic products and has also served as Secretary/Treasurer.
Mr. Hunter received his B.S. degree in mechanical engineering from NCSU in 1984.
He is currently a director of RCS Technologies, a privately held advanced
materials company. He is the brother of C. Eric Hunter, who served as the
Company's Chairman of the Board, Chief Executive Officer and President from its
formation in 1987 until August 1, 1994, and thereafter as Chairman of the Board
until he resigned as a member of the Board of Directors effective July 2, 1995.
CALVIN H. CARTER, JR., PH.D., has served as a Vice-President, New
Product Development since July, 1995. He has also served as Vice-President and
as a director of the Company since its inception and Director of Technology from
December, 1987 through July, 1995. He holds B.S., M.S., and Ph.D. degrees in
materials science and engineering from NCSU, having received these degrees in
1977, 1980 and 1983, respectively. Dr. Carter is also a director of Cree-Eastern
European Division, a wholly-owned subsidiary of the Company organized under the
laws of Russia.
WALTER L. ROBB, PH.D., is president of Vantage Management, Inc., a
consulting and investment firm in Schenectady, New York, and has been a director
since April 1993. From 1986 through the end of 1992, Dr. Robb served as a senior
vice president for Corporate Research and Development for General Electric
Corporation. He has held various other positions with General Electric Company
since 1951. Dr. Robb received his B.S. degree in 1948 from Penn State
University, his M.S. degree in 1950 and his Ph.D. degree in 1951 from the
University of Illinois. All of Dr. Robb's degrees were awarded in chemical
engineering. He is currently a director of Marquette Electronics, Inc., Celgene
Corporation and Neopath, Inc., each of which is a public company. He is also a
member of the Council of the National Academy of Engineering.
MICHAEL W. HALEY became a director of the Company in April 1989. Mr.
Haley serves as the chairman and chief executive officer of Triton Management
Company of Greensboro, North Carolina. During the last five years, he has been
actively involved in the management and operation of 60 restaurants owned by
Triton Management Company. Triton sold 59 of these restaurants on September 1,
1993. Mr. Haley graduated from the University of North Carolina-Chapel Hill in
1960, where he received a bachelor's degree in business administration.
DOLPH W. VON ARX became a director of the Company in October 1991. Mr.
von Arx is the non- executive chairman of Morrison's Fresh Cooking, Inc., as of
January, 1996 and is the former chairman, president and chief executive officer
of Planters LifeSavers Company, an affiliate of RJR Nabisco, Inc., where he
served in such capacities for four years. In June 1991, Mr. von Arx retired
after 31 years in the consumer products business. In December 1987, Mr. von Arx
joined R.J. Reynolds Tobacco Company, another affiliate of RJR Nabisco, Inc., as
president and chief executive officer. Mr. von Arx is a graduate of Washington
University, where he received his bachelor's degree in 1960. He is currently a
director of Morrison's Fresh Cooking, Inc., and Ruby Tuesday, Inc., two public
companies.
JAMES E. DYKES became a director of the Company in January 1992 and has
over 30 years of experience in the semiconductor industry. In 1994, Mr. Dykes
became the president and chief executive officer of Intellon Corp., a privately
held start-up company in the home automation industry. From January 1989 until
December 1992, Mr. Dykes served as the president and chief executive officer of
Signetics Company, a subsidiary of North American Philips Corporation. He is now
retired from that position. Mr.
5
Dykes received his B.S. degree in electrical engineering from the University of
Florida in 1962. He is currently a director of EXAR Corp. and the Thomas Group,
both of which are public companies.
JOHN W. PALMOUR, PH.D., is one of the Company's co-founders and is
employed as a Senior Advanced Device Scientist with the Company, in which
capacity he is responsible for developing advanced silicon carbide devices such
as microwave transistors, power transistors, high temperature devices and
nonvolatile memories. Dr. Palmour has served as a director since October, 1995
and had previously served on the Company's Board of Directors from October, 1992
through April, 1993. He has served as the Chairman of the Company's Intellectual
Property Committee since August, 1989. He received his B.S. and Ph.D. degrees
from NCSU in 1982 and 1988, respectively, in the fields of material science and
engineering. He currently is a director of RCS Technologies, Inc., a
privately-held research and development company engaged in the field of advanced
materials.
Other executive officers and non-directors include:
Alan J. Robertson joined the Company in October 1991 as Controller, and
was appointed Chief Financial Officer in February 1992. Effective August 1, 1994
he became the Secretary/Treasurer of the Company. From March 1986 through April
1991, Mr. Robertson served in financial and accounting positions at Best
Products Co., Inc. For two years prior to that time, Mr. Robertson was employed
as an auditor with the accounting firm of Ernst and Whinney. Mr. Robertson
received his B.S. degree in Business Administration from Old Dominion University
in 1984.
To the Company's best knowledge, there are no material proceedings to
which any director or officer is a party adverse to the Company or its
subsidiaries or in which any director or officer has a material interest adverse
to the Company or its subsidiaries.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held five (5) meetings during the
fiscal year ended June 30, 1996. The Board of Directors has an Audit Committee,
a Compensation Committee and an Executive Committee. The Board of Directors has
no standing nominating committee or committee performing similar functions.
During the fiscal year ended June 30, 1996, each director attended or
participated in 75% or more of the aggregate of (i) all meetings of the Board of
Directors (held during the period in which such director served), and (ii) all
meetings of committees of the Board on which such director served. None of the
members of the Board of Directors of the Company attended fewer than 75% of the
aggregate of (i) the total number of meetings of the Board of Directors (held
during the period for which he had been a director) and (ii) the total number of
meetings held by all committees of the Board of Directors on which he served
(during the periods that he served).
The members of the Audit Committee of the Board of Directors during the
fiscal year ended June 30, 1996 were Michael W. Haley, Calvin H. Carter, Jr.,
Ph.D., and Dolph W. von Arx. The Audit Committee is authorized by the Board of
Directors to review, with the Company's independent accountants, the annual
financial statements of the Company prior to publication; to review the work of
and approve non-audit services performed by such independent accountants; and to
make annual recommendations to the Board of Directors for the appointment of
independent public accountants for the ensuing year. The Audit Committee also
reviews the effectiveness of the financial and accounting functions,
organization, operations and management of the Company. The Audit Committee held
four (4) meetings during the fiscal year ended June 30, 1996.
From the commencement of the last fiscal year until August 23, 1995,
the members of the Compensation Committee of the Board of Directors were F. Neal
Hunter, Dolph W. von Arx and James E.
6
Dykes. From August 23, 1995, until the end of the last fiscal year, the members
of the Compensation Committee of the Board of Directors were Walter L. Robb,
Ph.D., Michael W. Haley, and James E. Dykes. Mr. Dykes served as Chairman of the
Compensation Committee throughout the last fiscal year. The Compensation
Committee reviews and recommends to the Board of Directors the compensation and
benefits of officers of the Company, with the exception of the Chief Financial
Officer, and reviews general policy matters relating to compensation and
benefits of employees of the Company. Moreover, the administration of the
Company's Equity Compensation Plan (the "Plan"), has been delegated to the
Compensation Committee and that committee reviewed and approved the grant of
stock options and the terms of the grants under the plan during the fiscal year
ended June 30, 1996. The Compensation Committee held two (2) meetings during the
fiscal year ended June 30, 1996.
The members of the Executive Committee of the Board of Directors during
the fiscal year ended June 30, 1996 were F. Neal Hunter, Dolph W. von Arx and
James E. Dykes. The Executive Committee renders advice and recommendations to
the Board of Directors with regard to policies of the Company and the conduct of
its affairs; considers matters submitted to the committee during intervals
between meetings of the Board of Directors; and, subject to ratification by the
Board, approves contracts, agreements and other material corporate documents.
The Executive Committee held two (2) meetings during the fiscal year ended June
30, 1996.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. C. Eric Hunter resigned as the Company's non-executive Chairman,
effective July 2, 1995. On that date, Mr. Hunter signed an agreement with the
Company to provide consulting services to the Company for three (3) years. Mr.
Hunter will receive $100,500 under this arrangement, plus Company paid medical
and dental insurance.
The Company has license and supply agreements with C3, Inc. to supply
silicon carbide crystals for gemstone applications. Two of the majority
shareholders of C3, Inc., Jeffrey Hunter and C. Eric Hunter (also president and
CEO of C3, Inc.), are the brothers of the Company's president and CEO, F. Neal
Hunter.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's directors and executive officers,
and persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten-percent
(10%) beneficial owners are required by Commission regulations to furnish the
Company with copies of all reports they file under Section 16(a).
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent (10%) beneficial owners were
complied with during the fiscal year ended June 30, 1996, on a timely basis.
7
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table and narrative text provide certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and the other highest paid
executive officers whose annual salary and bonuses exceeded $100,000 for the
fiscal years indicated.
SUMMARY COMPENSATION TABLE
====================================================================================================================================
ANNUAL COMPENSATION Long Term Compensation
=======================================
Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Options/ LTIP All other
Name and Year Salary Bonus Compensation Stock SARs PAYOUTS Compensation
Principal Position Ended ($) ($) ($) Awards (#) ($) ($) 3
- ------------------------------------------------------------------------------------------------------------------------------------
F. Neal Hunter 1996 117,346 -0- -0- -0- 24,000 -0- 902
President, Chief 1995 116,636 -0- -0- -0- 30,000 -0- 883
Executive Officer 1994 80,667 -0- -0- -0- -0- -0- 348
and Director 1
- ------------------------------------------------------------------------------------------------------------------------------------
Calvin H. Carter, Jr., 1996 105,235 -0- -0- -0- 20,000 -0- 810
Ph.D. Vice President, 1995 105,000 -0- -0- -0- -0- -0- 806
New Product 1994 93,168 -0- -0- -0- 20,000 -0- 348
Development and
Director
- ------------------------------------------------------------------------------------------------------------------------------------
John W. Palmour, 1996 100,800 -0- -0- -0- 16,000 -0- 776
Ph.D., Senior 1995 95,455 -0- -0- -0- -0- -0- 733
Advanced Device 1994 90,773 -0- -0- -0- 20,000 -0- 348
Scientist and
Director 2
====================================================================================================================================
-------------------
1 Mr. F. Neal Hunter became President and Chief Executive Officer on August 1,
1994, and was elected Chairman of the Board on August 1, 1995.
2 Dr. Palmour, a co-founder of the Company was elected to serve as a member of
the Company's Board of Directors at the Company's annual meeting of
shareholders on October 31, 1995.
3 These amounts represent term life insurance premiums paid by the Company for
and on behalf of the named executive officers.
- ------------------
STOCK OPTIONS GRANTED FOR FISCAL YEAR
The following table sets forth information about the stock options granted
to the executive officers of the Company as compensation for fiscal year ended
June 30, 1996. No stock appreciation rights were granted to the named executive
officers during this period.
8
OPTION GRANTS FOR LAST FISCAL YEAR
INDIVIDUAL GRANTS
Potential Realizable
Value at Assumed
% of Total Annual Rates of
Options Stock Price
Number of Granted to Exercise Appreciation for
Options Employees Price Expiration Option Term 2
NAME Granted in Fiscal Year 1 ($/Sh) Date 5% 10%
------- ----------------- -------- ------ -- ---
F. Neal Hunter 24,000 12.3% $14.38 7/1/05 $184,961 $453,243
Calvin H. Carter, 20,000 10.3% $14.38 7/1/05 $154,134 $377,702
Jr., Ph.D.
John W. Palmour, 16,000 8.2% $14.38 10/2/05 $127,593 $314,697
Ph.D.
1 Options to acquire an aggregate of 194,500 shares of Common Stock were
granted to all employees of the Company as compensation for fiscal year
ended June 30, 1996.
2 The potential realizable value of the options reported above was calculated
by assuming 5% and 10% annual rates of appreciation of the Common Stock of
the Company from the date of grant of the options until the expiration of
the options. These assumed annual rates of appreciation were used in
compliance with the Securities and Exchange Commission and are not intended
to forecast future price appreciation of the Common Stock of the Company.
The Company chose not to report the present value of the options because the
Company does not believe any formula will determine with reasonable accuracy
a present value because of unknown or volatile factors. The actual value
realized from the options could be substantially higher or lower than the
values reported above, depending upon the future appreciation or
depreciation of the Common Stock of the Company during the option period and
the timing of exercise of the options.
- ------------
TERMS OF 1996 STOCK OPTION GRANTS TO EXECUTIVE OFFICERS
Options to purchase 60,000 shares of Common Stock were granted to the named
executive officers with an exercise price of $14.38 per share pursuant to the
Company's Amended and Restated Equity Compensation Plan. The options are fully
vested and are currently exercisable. None of the options are transferable and
such options expire on the dates listed in the foregoing table, subject to early
termination if employment terminates.
STOCK OPTIONS EXERCISED DURING FISCAL YEAR AND YEAR END VALUES OF UNEXERCISED
OPTIONS
The following table sets forth information about the stock options exercised
by the named executive officers of the Company as compensation for fiscal year
ended June 30, 1996. No stock appreciation rights were exercised by the named
officers during this period.
9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUE OF UNEXERCISED IN-THE-
SHARES NUMBER OF UNEXERCISED MONEY OPTIONS AT FY
ACQUIRED VALUE OPTIONS AT FY-END (#) END ($)
--------------------- --------
NAME ON EXERCISE REALIZED 1 EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE 2
F. Neal Hunter --- --- 55,786 / --- $244,789 / $ ---
Calvin H. --- --- 33,786 / 8,000 $114,229 / $62,960
Carter, Jr.,
Ph.D.
John W. --- --- 28,000 / 8,000 $94,440 / $62,960
Palmour, Ph.D.
- ------------
1 Upon exercise of the option, an option holder does not receive the amount
reported above under the column "Value Realized". The amount reported
above under the column "Value Realized" merely reflect the amount by
which the value of the Common Stock of the Company on the date the option
was exercised exceeded the exercise price of the option. The option
holder does not realize any cash until the shares of Common Stock issued
upon exercise of the options are sold.
2 The value of the Common Stock at October 4, 1996 was $11.50 per share
based on the last sale price of the Common Stock on that date as reported
by The Nasdaq Stock Market. The value of options was determined by
subtracting the aggregate exercise prices of the options from the value
of the Common Stock issuable upon exercise of the options.
- ------------
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Alan J. Robertson,
Chief Financial Officer, with an effective date of January 1, 1993, which
provided for an initial term of two years and automatically renews for
successive 12-month periods. The agreement provides for eight weeks severance
and automatic vesting of all outstanding options upon involuntary termination
other than for cause.
COMPENSATION OF DIRECTORS
Through the period prior to and during the fiscal year ended June 30, 1995,
outside directors of the Company have been compensated on a discretionary basis
through stock option awards made by the Compensation Committee pursuant to the
Option Plan. The Shareholders approved a new Stock Option Plan for Non-Employee
Directors (the "Formula Plan"), effective as of July 1, 1995.
Stock options granted to directors typically have been granted at the
current fair market value of the Company's Common Stock with a vesting schedule
for the options shorter than that of stock options granted to employees under
the Equity Compensation Plan. Directors' expenses in attending and participating
in Board meetings and committee meetings are reimbursed by the Company. No other
cash or non-cash compensation is paid to directors for their services as such.
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From the commencement of the last fiscal year until August 23, 1995, the
members of the Compensation Committee of the Board of Directors were F. Neal
Hunter, Dolph W. von Arx and James E. Dykes. From August 23, 1995 until the end
of the last fiscal year, the members of the Compensation Committee of the Board
of Directors were Walter L. Robb, Ph.D., Michael W. Haley, and James E. Dykes.
Mr. Dykes served as Chairman of the Compensation Committee of the Board of
Directors throughout the last fiscal year. Mr. von Arx, Dr. Robb, Mr. Haley and
Mr. Dykes are nonemployee directors. F. Neal Hunter has served as a director of
the Company since its inception and became the Company's President and Chief
Executive Officer effective August 1, 1994. Mr. Hunter participated in
discussions concerning compensation of executive officers and directors.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee reviews and recommends salary and bonus
incentives for executives, and reports such as recommendations to the Board of
Directors for consideration and approval. The Compensation Committee also
administers the Equity Compensation Plan for the purposes of securing and
retaining team members and others who provide services of value to the Company.
The strategy-guiding recommendations and actions of the Committee, the
actions taken and a description of the effect on the 1996 compensation of Mr. F.
Neal Hunter, President and Chief Executive Officer of the Company, are discussed
below. As a member of the Compensation Committee during the first half of the
last fiscal year, Mr. Hunter participated in decisions concerning the
compensation of persons other than himself.
COMPENSATION STRATEGY
The Compensation Committee is responsible for ensuring that executive
compensation is based on objective measures of performance by the Company, the
individual, and where appropriate, the organizational unit. The Compensation
Committee also believes that compensation should vary with corporate performance
and should be driven by the long-term interests of the shareholders. The
compensation strategy being followed by the Committee is based on the following
principles:
COMPENSATION PHILOSOPHY
Through the Compensation Committee, the Company has developed and
implemented compensation policies, plans and programs which seek to tie
executive compensation to the attainment of specific individual, operating group
and Company-wide objectives, while providing compensation sufficient to attract
and retain talented executives who will contribute to the Company's long-term
success. In furtherance of these goals, annual base salaries are generally set
at levels which take into account both competitive and performance factors. The
Company also relies to a significant degree on annual and longer-range incentive
compensation to attract and motivate its executives. Incentive compensation is
variable and is closely tied to corporate performance to encourage
profitability, growth and the enhancement of stockholder value. During the
fiscal year ended on June 30, 1996, the compensation for the Company's executive
officers consisted of base salary, annual cash incentive opportunities,
longer-term equity incentives, participation as eligible (with all other
eligible employees of the Company) in the Company's 401(k) savings plan and
profit sharing plan, and certain benefits available generally to employees of
the Company.
11
CASH-BASED COMPENSATION
The Compensation Committee fixes the base salary of the Chief Executive
Officer and reviews and approves base salaries for each of the Company's other
executive officers annually in connection with annual performance reviews. In
adjusting these base salaries, the Compensation Committee examines both
qualitative and quantitative factors relating to corporate and individual
performance. In many instances, the qualitative factors necessarily involve a
subjective assessment by the Committee. The Committee does not base its
considerations on any single performance factor nor does it specifically assign
relative weights to factors but rather considers a variety of factors and
evaluates individual performance against those factors both in absolute terms
and in relation to the executive's peers within the Company. Generally, in
determining salary adjustments for executive officers (other than the Chief
Executive Officer), the Committee relies primarily on the evaluation and
recommendations of Mr. Hunter, who has served as the President and the Chief
Executive Officer of the Company since August 2, 1994.
In addition, in determining base salaries for the fiscal year ended on June
30, 1996, the Committee reviewed an independent survey of base salaries paid to
executive officers of a broad group of companies in the electrical and
electronics industry of comparable size. The survey includes a broader group of
companies than those companies included in the NASDAQ Electronic Component
Stocks Index used in the performance measurement comparison graph included in
this Proxy Statement. To assist in recruiting highly qualified management, the
Committee utilizes equity-based compensation to augment base salaries which have
typically been below the industry average. These amounts are set based on
individual qualifications and experience. Generally, these salaries paid to
executive officers for the fiscal year ended on June 30, 1996, were set at
levels between the first through third quartiles of salaries paid to executives
under the independent survey.
For the fiscal year ended on June 30, 1996, the Compensation Committee did
not increase the salary of Mr. Hunter, who has served as the President and Chief
Executive Officer of the Company since August 1, 1994.
During the fiscal year ended on June 30, 1996, executive officers
participated along with all employees in an incentive compensation program,
under which bonuses were premised upon Company-wide operating profits (profits
before interest and taxes). Because an operating profit was not achieved in
other than the first quarter, no bonuses were paid in the remaining quarters of
the fiscal year ended on June 30, 1996.
EQUITY INCENTIVES
The Company utilizes the Equity Compensation Plan as amended and restated to
further align the interests of stockholders and management by creating common
incentives related to the possession by management of a substantial economic
interest in the long-term appreciation of the Company's stock. Generally,
options under the Equity Compensation Plan are granted with exercise prices set
at 100% of the fair market value of the underlying stock on the date of the
grant, have a term of ten years, and are subject to vesting over five years
although other vesting schedules have been used in some situations. In
determining the size of an option to be granted to an executive officer, the
Compensation Committee takes into account the officer's position and level of
responsibility within the Company, the officer's existing stock and unvested
option holdings, the potential reward to the officer if the stock price
appreciates in the public market, and the competitiveness of the officer's
overall compensation arrangements, including stock options, although outstanding
performance by an individual may also be taken into consideration. Option grants
also may be made to new executives upon commencement of employment and, on
occasion, to executives in connection with a significant change in job
responsibility. The Compensation Committee generally grants options taking into
account multiple year periods. Therefore, option grants are not necessarily made
each year. As
12
compensation for the fiscal year ended June 30, 1996, based on the factors
described above, the Compensation Committee granted options to purchase 242,500
shares of Common Stock.
THE COMPENSATION COMMITTEE
James E. Dykes, Chairman
Michael W. Haley
Walter L. Robb, Ph.D.
COMPARATIVE PERFORMANCE GRAPH
The graph set forth below compares cumulative total shareholder return on
the Company's Common Stock with the cumulative total return of the Market Index
(CRSP Total Return Index for The Nasdaq Stock Market) and a Peer Index (NASDAQ
Electronic Components Stock Index), for the period from February 9, 1993 (the
date of the Company's initial public offering) to June 30, 1996. The comparison
assumes the investment of $100 in the Common Stock, the Market Index and the
Peer Index on February 9, 1993, and the reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CREE RESEARCH, INC.,
MARKET INDEX AND PEER INDEX
FEBRUARY 9, 1993 TO JUNE 30, 1996
(Performance Graph appears here. The plot points are listed in the table
below.)
Symbol Index Description 2/9/93 6/30/93 6/30/94 6/30/95 6/28/96
------ ----------------- ------ ------- ------- ------- -------
[ ] Cree Research, Inc. $100 $131 $108 $295 $308
O Market Index $100 $101 $103 $137 $176
(Triangle) Peer Index $100 $102 $112 $232 $244
13
APPROVAL OF AMENDMENT OF
AMENDED AND RESTATED EQUITY COMPENSATION PLAN
The Shareholders on October 31, 1995 approved an amendment and restatement
of the Cree Research, Inc. Amended and Restated Equity Compensation Plan (the
"Equity Compensation Plan").
On July 30, 1996, the Board of Directors of the Company approved an
amendment to the Equity Compensation Plan, subject to approval of the
shareholders of the Company, to increase from 1,040,000 shares of Common Stock,
to 1,540,000 shares of Common Stock that may be issued under the Equity
Compensation Plan. On September 17, 1996, the Board of Directors of the Company
approved amendments to the Equity Compensation Plan to conform to the
requirements of Rule 16b-3 , which was recently amended by the Securities and
Exchange Commission. As a result of the recent amendments to Rule 16b-3, the
definition of a "disinterested person" has been removed from Rule 16b-3 and the
amended rule now exempts from Section 16(b) of the Securities and Exchange Act
of 1934, as amended, any transaction involving a grant from the issuer if the
transaction is approved by the board of directors or by a committee of the board
of directors composed solely of two (2) or more "non-employee directors", as
such term is defined in the amended rule. With the exception of the increase in
the number of shares of Common Stock issuable under the Equity Compensation Plan
and the change of references from "Disinterested Persons" to "Non-employee
Directors", the provisions of the Equity Compensation Plan, as amended, are
unchanged from the amended and restated version of the Equity Compensation Plan
approved by the shareholders of the Company on October 31, 1995. The Board of
Directors has directed that the Equity Compensation Plan, as amended, be
submitted to a vote of the shareholders of the Company for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENT OF THE EQUITY COMPENSATION PLAN AND TO RESTATE THE EQUITY COMPENSATION
PLAN IN THE FORM AS AMENDED.
The ability to offer stock through options or other equity-based
compensation awards has been and will continue to be a necessary and beneficial
method by which the Company can retain the services of employees and attract
competent personnel. The Board of Directors believes that the Equity
Compensation Plan will continue to promote the growth and prosperity of the
Company by providing employees and others with an additional incentive to
contribute their best efforts to the Company. The Board of Directors believes
that equity- based compensation awards create this incentive by providing the
recipient with an opportunity to acquire a proprietary interest in the Company
and thereby providing a means to participate in the future growth of the
Company.
Described in the following section are some of the material terms of the
Equity Compensation Plan.
AMENDED AND RESTATED EQUITY COMPENSATION PLAN
DESCRIPTION OF PLAN
The following description of the Equity Compensation Plan is merely a
summary of some of its terms and provisions, is not intended to be a complete
description of the Equity Compensation Plan, and is qualified in its entirety by
reference to the full text of the plan, a copy of which is attached as Appendix
A to this Proxy Statement.
The Equity Compensation Plan is not generally subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Equity Compensation Plan is not a qualified plan under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code").
14
NATURE AND PURPOSE
The Equity Compensation Plan provides for the grant of a number of different
types of equity-based compensation awards under one plan. Awards under the
Equity Compensation Plan may be made to participants in the form of incentive
stock options, nonqualified stock options, restricted stock and other forms of
equity- based compensation as may be provided and are permissible under the
Equity Compensation Plan.
The Equity Compensation Plan is designed, for the benefit of the Company, to
attract and retain for the Company personnel of exceptional ability; to motivate
such personnel through added incentives to make a maximum contribution to
greater profitability; to develop and maintain a highly competent management
team; and to be competitive with other similar companies with respect to
executive and non-executive compensation.
ADMINISTRATION
The Equity Compensation Plan will be administered by the Compensation
Committee ("the "Committee"). Members of the Committee are to be appointed by
the Board from among its members who are "non-employee directors" as required
under Rule 16b-3 to serve at the pleasure of the Board, and may be removed by
the Board in its discretion. The Committee has the exclusive right to interpret,
construe, and administer the Equity Compensation Plan and to select the persons
eligible to receive awards. The Committee will determine the number of stock
options or shares of stock subject to an award and the form, terms, conditions,
and duration of each award. The Committee's decisions will be conclusive, final
and binding upon all parties.
The Committee is given broad discretion under the Equity Compensation Plan
to make adjustments to awards under the plan upon any extraordinary event
affecting the Company or its financial condition or performance, including, for
example, recapitalization or merger transactions or a change in control or
potential change in control of the Company. See "--Securities to be Offered,"
"--Types of Awards," and "--Effects of Change in Control" below. In addition,
the Committee has full power and authority to determine whether, to what extent
and under what circumstances any award under the Equity Compensation Plan may be
canceled or suspended.
SECURITIES TO BE OFFERED
The Company is authorized to issue an aggregate of 1,040,000 shares of
Common Stock under the Equity Compensation Plan. As of October 2, 1996, the
Company has granted all authorized shares under the Plan. Consequently, the
Board authorized an additional 500,000 shares, subject to shareholder approval.
The Common Stock subject to awards under the Equity Compensation Plan will be
made available from the authorized and unissued shares of Common Stock. The
amendment to the Equity Compensation Plan for which approval is sought will
increase the number of authorized shares issuable under the Equity Compensation
Plan, as amended, by 500,000 shares. Thus, an aggregate of 1,540,000 shares will
be available to be issued pursuant to the awards granted under the Equity
Compensation Plan. The last sale price of the Common Stock of the Company on
October 4, 1996 as reported on The Nasdaq Stock Market was $11.50 per share.
To the extent any shares of Common Stock awarded or subject to purchase
under the Equity Compensation Plan are not delivered or purchased, or are
reacquired by the Company, such shares will not be charged against the aggregate
number of shares available for awards under the Equity Compensation Plan and may
again be awarded under the plan. This would occur, for example, upon a
forfeiture of restricted
15
stock or termination, expiration, or cancellation of a stock option under the
Equity Compensation Plan, or any other termination of an award without payment
being made in the form of Common Stock.
Proportionate and equitable adjustments will be made by the Committee upon
the occurrence of certain events that result in changes in the outstanding
shares of Common Stock or that result in exchanges of shares of Common Stock for
a different number or class of Common Stock or other securities of the Company
or another corporation. These events include without limitation a reorganization
or recapitalization of the Company or reclassification of its shares, stock
split-up, stock dividend, or consolidation of shares of Common Stock, merger,
consolidation, or sale of assets of the Company, or any distribution to
shareholders other than a cash dividend. Under such circumstances, adjustments
may be made by the Committee in the limitation on the aggregate number of shares
of Common Stock that may be awarded under the Equity Compensation Plan, the
number and class of shares that may be subject to an award, the purchase price
for shares of Common Stock under outstanding stock options, and the number of
shares to be transferred in settlement of outstanding stock rights, and the
terms, conditions, or restrictions of any award or award agreement, including
the price payable for the acquisition of Common Stock.
The Committee is also authorized to make adjustments in performance-based
criteria or in the terms and conditions of other awards under the Equity
Compensation Plan in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations,
or accounting principles. The Committee may also correct any defects or
omissions or reconcile any inconsistencies in the Equity Compensation Plan or
any agreement evidencing an award under the Equity Compensation Plan in the
manner and to the extent it shall deem desirable to carry it into effect.
Moreover, the Committee may, in its discretion, make such adjustments in the
terms of awards under the Equity Compensation Plan as it deems appropriate if
the Company assumes any outstanding employee benefit plans or awards or the
right or obligation to make future awards in connection with the acquisition of
any other entity.
ELIGIBLE PARTICIPANTS
The Committee has the exclusive right to determine those persons eligible to
participate in the Equity Compensation Plan and shall select the persons
eligible to receive awards. Subject to the foregoing, any employee of the
Company, as well as any other person, including directors, may participate in
the Equity Compensation Plan if the Committee determines such participation is
in the best interest of the Company, subject to any limitations as may be
provided by applicable law or the Committee. As of September 28, 1996, the
Company had approximately 156 full-time employees, 4 part-time employee and 7
directors, 4 of whom were not employees of the Company as of such date.
TYPES OF AWARDS
The Committee is provided broad discretion to determine the terms and
conditions of the various types of awards under the Equity Compensation Plan.
Each award granted will be evidenced by a written agreement setting forth the
terms and conditions of the award. Each such agreement will also be subject to
and incorporate the applicable terms and conditions of the Equity Compensation
Plan and any other terms and conditions, not inconsistent with the Equity
Compensation Plan, required by the Committee. The various forms of awards that
may be made to participants under the Equity Compensation Plan are described
below.
INCENTIVE STOCK OPTIONS
The Company is authorized to grant incentive stock options ("ISOs") that may
be entitled to favorable tax treatment under Section 422 of the Code. See "--Tax
Effects of Equity Compensation Plan Participation"
16
below. ISOs may be granted to eligible participants under the Equity
Compensation Plan at such time or times as determined by the Committee until
July 1, 2005, subject to certain conditions described below.
The exercise price of an ISO under the Equity Compensation Plan may not be
less than 100% of the fair market value of the Common Stock at the date of grant
(110% for 10% owners of the Company). The fair market value of the Common Stock
for any day in question will be determined for purposes of the Equity
Compensation Plan based upon the closing price of the Common Stock as reported
on the exchange on which the Common Stock is traded if the Common Stock is
traded on an exchange or on The Nasdaq Stock Market if the Common Stock is
traded on The Nasdaq Stock Market, provided at least 100 shares of Common Stock
were sold on such date. If there was not a sale of at least 100 shares of Common
Stock that day, then the fair market value shall be determined based on the
closing price of the Stock on the last day on which there was a sale of at least
100 shares of Common Stock. The Committee is also authorized to establish an
alternate method of determining fair market value of the Common Stock.
An ISO granted under the Equity Compensation Plan must be exercised in whole
or in part from time to time within 10 years from the date of grant (5 years for
10% owners of the Company), or such shorter period specified by the Committee
corresponding in the award agreement. Upon a termination of employment of the
optionee with the Company, as determined by the Committee in its discretion, the
ISO will lapse and cease to be exercisable upon, or within such period
following, the termination of employment, as determined by the Committee and
provided in the award agreement. In no event, however, can the period of time
during which an ISO remains exercisable following a termination of employment
exceed three months, unless employment is terminated because of death or
disability of the optionee. Following death or disability, the period of time
during which an ISO right may be exercised cannot exceed one year after the date
of death or disability. In no event can the period of time following a
termination of employment during which an ISO right may be exercised extend
beyond the original exercise period of the ISO.
The amount of ISOs which are first exercisable by any one participant in any
year which may receive favorable tax treatment as ISOs is generally limited to
$100,000. However, if a participant's employment is terminated on account of
death, disability or retirement, to the extent the aggregate fair market value
of the shares of Common Stock with respect to which ISOs are first exercisable
during the post-termination period by the eligible participant exceeds $100,000,
such options shall be treated as non-qualified stock options. Similar treatment
applies in the event the exercise of an ISO is accelerated by reason of an
"acceleration event." See "Effects of Change in Control" below. The aggregate
fair market value of the Common Stock for these purposes is determined as of the
date the ISO is granted.
Subject to the limitation on the maximum number of shares of Common Stock
that may be issuable pursuant to the Equity Compensation Plan as discussed under
"Securities to be Offered" above, the maximum number of shares of Common Stock
may be subject to ISO awards under the Equity Compensation Plan. An ISO granted
under the Equity Compensation Plan will also be subject to such other terms and
conditions which the Committee deems necessary to impose in order to qualify the
ISO under Section 422 of the Code, as well as any other terms and conditions not
inconsistent with the ISO provisions of the Equity Compensation Plan as
determined by the Committee.
The Committee may combine awards of ISOs to participants under the Equity
Compensation Plan with other awards under the Equity Compensation Plan and may
provide that all or part of the shares of Common Stock to be issued upon the
exercise of an ISO will take the form of restricted stock, as provided for under
the Equity Compensation Plan and described below.
17
NONQUALIFIED STOCK OPTIONS
The Company may also grant nonqualified stock options ("NQSOs") to eligible
participants to purchase shares of Common Stock at such time or times as
determined by the Committee. These stock options will not be eligible for the
favorable tax treatment available to ISOs under Section 422 of the Code.
The exercise price of an NQSO under the Equity Compensation Plan will be as
established by the Committee in the agreement evidencing the award. Such
exercise price will not be limited under the Equity Compensation Plan and may be
less than 100% of the fair market value at the time of grant. Thus, discounted
stock options providing for an exercise price of less than the fair market value
of the Stock at the date of the award may be granted as NQSOs under the Equity
Compensation Plan.
An NQSO under the Equity Compensation Plan will be exercisable in full or in
part from time to time as specified by the Committee or in the corresponding
award agreement. Upon termination of employment of the optionee, the NQSO will
lapse and cease to be exercisable upon, or within such period following, such
termination of employment, as determined by the Committee and specified in the
award agreement. The period of time during which the NQSO may be exercisable
following termination of employment cannot exceed three months, unless
employment is terminated as a result of retirement or disability, in which case
such period cannot exceed one year after the date of retirement or disability or
within such longer period as the Committee may specify. If the termination of
employment is as a result of death, such period may exceed one year after the
date of death, as provided by the Committee or in the corresponding award
agreement.
An NQSO may also be subject to such other terms and conditions, not
inconsistent with the Equity Compensation Plan, as determined by the Committee
and specified in the award agreement.
INCIDENTS OF STOCK OPTIONS
Each stock option (ISO or NQSO) granted under the Equity Compensation Plan
will be subject to such terms and conditions, not inconsistent with the Equity
Compensation Plan, as may be determined by the Committee. Such provisions, for
example, may require the continued employment of a participant as consideration
for the grant or exercise of a stock option.
A stock option under the Equity Compensation Plan will not be transferable
by the participant other than by will or the laws of descent and distribution
and will be exercisable during the lifetime of the participant only by the
participant or his or her guardian or legal representative.
The purchase price for shares of Common Stock upon exercise of a stock
option under the Equity Compensation Plan will be payable in such amounts, at
such times, and upon such terms as will be determined by the Committee. The
Committee may establish payment terms for the exercise of stock options that
permit the participant to deliver shares of Common Stock with a fair market
value equal to the stock option exercise price as payment upon exercise of a
stock option.
No cash dividends will be paid on shares of Common Stock subject to
unexercised stock options under the Equity Compensation Plan. The Committee,
however, may, in its discretion, provide for the payment of "dividend
equivalents" on shares of Common Stock subject to an exercisable stock option
under the Equity Compensation Plan. The Committee may also, in its discretion,
authorize payment of "interest equivalents" on dividend equivalents under the
Equity Compensation Plan.
To the extent a participant may be required to pay the Company amounts with
respect to income and employment tax withholding in connection with the exercise
of an NQSO and/or with respect to certain dispositions of Common Stock acquired
upon exercise of an ISO, the Committee, in its sole discretion, may
18
permit the participant to satisfy the obligation, in whole or in part, by making
an irrevocable election that a portion of the total fair market value of the
applicable shares of Common Stock be paid in cash in lieu of the issuance of
Common Stock and that such cash payment be applied to the satisfaction of the
withholding obligations. Certain restrictions, however, will be applicable with
respect to this feature of the Equity Compensation Plan for participants subject
to Section 16(b) of the Exchange Act and Rule 16b-3 thereunder.
RESTRICTED STOCK
Restricted stock awards may be made to participants under the Equity
Compensation Plan as an incentive for the performance of future services that
will contribute materially to the successful operation of the Company. The
Company may award restricted stock either alone, in addition to, or in tandem
with other awards granted under the Equity Compensation Plan and/or cash
payments made outside of the Equity Compensation Plan.
A restricted stock award under the Equity Compensation Plan will be an award
of Common Stock issued with the restriction that the holder may not sell,
transfer, pledge, or assign such stock and with such other restrictions as the
Committee, in its sole discretion, may impose. These other restrictions may
include without limitation, a restriction on the right to vote such shares to
the extent, if any, such shares possess voting rights and the right to receive
cash dividends. The restrictions may lapse separately or in combination and at
such time or times as the Committee may determine appropriate.
In addition to determining the applicable restrictions on restricted stock,
which restrictions may include service or performance restrictions, the
Committee may also in its discretion determine the purchase price, if any, to be
paid for such restricted stock, the length of the time during which the
restrictions will apply, and whether dividends and other distributions on the
restricted stock will be paid currently to the participant or paid to the
Company for the account of the participant.
A participant receiving an award of restricted stock under the Equity
Compensation Plan must accept the award within 60 days, or such shorter period
as the Committee may specify, after the date of the award, by executing an award
agreement and paying the purchase price, if any, for the restricted stock. Upon
termination of employment of a participant with the Company prior to the lapse
of restrictions, all shares of restricted stock then held by the participant
will be forfeited, unless otherwise provided in the award agreement or
determined by the Committee.
Except as otherwise provided in the Equity Compensation Plan, no shares of
restricted stock received by a participant may be sold, exchanged, transferred,
pledged, or otherwise disposed of during the restriction period. The Committee
in its discretion may waive applicable restrictions upon the death, disability,
or retirement of a participant or in cases of special circumstances. In its
discretion, the Committee may also waive any remaining restrictions on
restricted stock upon hardship or other special circumstances of a participant
whose employment with the Company is involuntarily terminated.
Unless otherwise provided, a participant receiving an award of restricted
stock will have all the rights of a holder of the Common Stock with respect to
such restricted stock, including the right to vote the shares to the extent, if
any, such shares possess voting rights and the right to receive any dividends
thereon. The Committee may require, however, that any dividends be deferred
automatically and reinvested in additional restricted stock or may require that
dividends and other distributions on restricted stock be paid to the Company for
the account of the participant. If all of the restrictions applicable to
restricted stock expire without a forfeiture of the restricted stock,
unrestricted certificates for such shares will be delivered to the participant.
To ensure that award payments actually reflect performance of the Company
and the service of the participant, the Committee in its discretion may provide
for a tandem performance-based or other award
19
designed to guarantee a minimum value, payable in cash or Stock, to the
recipient of a restricted stock award, subject to such performance, future
service, deferral, and other terms and conditions as may be specified by the
Committee.
OTHER STOCK-BASED AWARDS
The Equity Compensation Plan also authorizes the grant of other awards that
are valued in whole or in part by reference to, or otherwise based on, Common
Stock. These other stock-based awards will include without limitation
convertible preferred stock, convertible debentures, exchangeable securities,
phantom stock, and stock- award options valued by reference to book value or
performance. Other stock-based awards may be granted either alone or in addition
to or in tandem with other awards granted under the Equity Compensation Plan
and/or cash awards made outside of the Equity Compensation Plan.
The Committee in its sole discretion is empowered to determine the
participants eligible to receive other stock-based awards, the time or times at
which such awards may be made, the number of shares of Common Stock subject to
such awards, and all other terms and conditions of such awards. The provisions
of other stock- based awards need not be the same with respect to each
recipient.
Shares of Common Stock subject to other stock-based awards may not be sold,
assigned, transferred, pledged, or otherwise encumbered prior to the date on
which the shares are issued or, if later, the date on which any applicable
restriction, performance, or deferral period lapses. Interest or dividend
equivalents may be payable with respect to other stock-based awards in the
discretion of the Committee. The Committee may also determine whether any other
stock-based award will be subject to vesting or forfeiture provisions, and the
effects of termination of employment upon such awards.
EFFECTS OF CHANGE IN CONTROL
The Committee is granted broad discretion under the Equity Compensation Plan
to deal with awards under the Equity Compensation Plan upon an acceleration
event, which will be deemed to occur in the event of a change in control or a
potential change in control of the Company, as defined in the Equity
Compensation Plan. For these purposes, a "change in control" will be deemed to
have occurred if (a) any person, including a group, but not the Company or any
subsidiary or employee benefit plan thereof, makes a tender or exchange offer
for shares of the Common Stock pursuant to which any shares of the Common Stock
are purchased, or such person, together with its affiliates and associates,
becomes the beneficial owner of at least 20% of the Common Stock, or (b) the
shareholders of the Company approve a definitive agreement or plan to merge the
Company with or into another corporation, to sell or otherwise dispose of all or
substantially all of its assets, or to liquidate the Company, or (c) during any
period of 24 consecutive months the incumbent directors at the beginning of such
period cease for any reason other than death to constitute at least a majority
of the Board, provided that a director will be deemed to be an incumbent
director if such director, although not a director at the beginning of such
24-month period, was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors then qualified as incumbent
directors. A "potential change in control" is defined in the Equity Compensation
Plan to mean either the approval by shareholders of the Company of an agreement
by the Company, the consummation of which would result in a change in control of
the Company, as described above, or the acquisition of direct or indirect
beneficial ownership by any person (as described above) of securities of the
Company representing 5% or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of a resolution to the
effect that a potential change in control of the Company has occurred for the
purposes of the Equity Compensation Plan. A "Board-approved change in control"
will be deemed to have occurred if the offer, acquisition, or transaction in
question is approved by a majority of the directors serving as members of the
Board at the time of the potential change in control or change in control.
20
Upon the occurrence of an acceleration event, the Committee in its
discretion may declare any and all then outstanding stock options not previously
exercisable and vested as immediately exercisable and fully vested, in whole or
in part. In addition, under such circumstances the Committee may also in its
discretion declare the restrictions applicable to awards of restricted stock, or
other stock-based awards to have lapsed. The Committee in its discretion may
also direct that the value of all outstanding stock options, restricted stock,
and other stock- based awards, in each case to the extent vested, be cashed out
on the basis of the change in control price as of the date such change in
control or such potential change in control is determined to have occurred or
such other date as the Committee may determine prior to the change in control.
For these purposes, "change in control price" means the highest price per share
of Common Stock paid in any transaction reported on The Nasdaq Stock Market or
any exchange on which the stock is traded, or paid or offered in any bona fide
transaction related to a potential or actual change in control of the Company at
any time during the 60-day period immediately preceding, the occurrence of the
change in control, or, where applicable, the occurrence of the potential change
in control event, in each case as determined by the Committee.
AMENDMENT AND TERMINATION
The Equity Compensation Plan will continue in effect until terminated by the
Company as provided in the Equity Compensation Plan. Notwithstanding the
perpetual nature of the Equity Compensation Plan, ISOs may only be granted under
the Equity Compensation Plan until July 1, 2005.
Upon the recommendation of the Committee, or otherwise, the Board may amend
the Equity Compensation Plan. To the extent required by Rule 16b-3 under the
Exchange Act, no amendment to the Equity Compensation Plan may be made without
approval by the Company's shareholders that would make certain changes,
including altering the group of persons eligible to participate in the Equity
Compensation Plan, increasing the maximum number of shares of Common Stock
available for awards under the Equity Compensation Plan (except as otherwise
provided in the Equity Compensation Plan), extending the period during which
ISOs may be granted under the Equity Compensation Plan, limiting or restricting
the powers of the Committee in administering the Equity Compensation Plan,
changing the definition of participants eligible for ISOs or increasing the
limit or value of shares of Common Stock for which eligible participants may be
granted ISOs under the Equity Compensation Plan, materially increasing the
benefits accruing to participants under the Equity Compensation Plan, materially
modifying the requirements of eligibility for participation in the Equity
Compensation Plan, or changing the amendment provisions of the Equity
Compensation Plan.
Notwithstanding the foregoing, no amendment to or discontinuation of the
Equity Compensation Plan or any provision thereof may adversely affect any award
previously granted to a participant under the Equity Compensation Plan, without
the written consent of such participant. The Committee is empowered to determine
whether an amendment or discontinuation adversely affects any existing award.
Notwithstanding the foregoing, the Committee retains the power to (a) annul any
award if the participant is terminated for cause as determined by the Committee,
(b) provide for the forfeiture of shares of Common Stock or other gain under an
award as determined by the Committee for competing against the Company, and (c)
convert any outstanding ISO to an NQSO. If an acceleration event (change in
control or potential change in control) has occurred, no amendment or
termination will impair the rights of any person with respect to an outstanding
award as discussed under "Effects of Change in Control" above.
RESALE RESTRICTIONS
Participants under the Equity Compensation Plan may be restricted under
certain circumstances in their ability to resell shares of Common Stock
purchased or awarded under the Equity Compensation Plan. Resale restrictions may
be imposed by virtue of the provisions of the Equity Compensation Plan and the
applicable award agreement and/or by application of the federal and state
securities laws.
21
A participant acquiring shares of Common Stock granted pursuant to a stock
award under the Equity Compensation Plan or upon exercise of a stock option
granted under the Equity Compensation Plan will hold such shares subject to any
applicable restrictions imposed in the Equity Compensation Plan and/or by the
Committee. For example, the Committee is authorized to grant awards of
restricted stock under the Equity Compensation Plan. Shares of Common Stock
issued pursuant to a restricted stock award will be issued with the restriction
that the holder may not sell, transfer, pledge, or assign such stock and with
such other restrictions as the Committee, in its sole discretion, may impose.
Such restrictions may lapse separately or in combination and at such time or
times as the Committee may deem appropriate. If and when the applicable
restriction period expires without a prior forfeiture of the restricted stock,
unrestricted certificates for the applicable shares of Common Stock will be
delivered to the participant granted the restricted stock award. Similar resale
restrictions may also be applicable to other awards under the Equity
Compensation Plan.
TAX EFFECTS OF EQUITY COMPENSATION PLAN
The following discussion of the federal income tax consequences of awards
granted under the Equity Compensation Plan is intended only as a summary of the
present federal income tax treatment of stock options (ISOs and NQSOs) and other
stock awards under the Equity Compensation Plan. The federal income tax laws
pertaining to the Equity Compensation Plan are highly technical, and such laws
are subject to change at any time. Some variations on the federal income tax
effects of Equity Compensation Plan participation described below may occur with
respect to participation by persons subject to Section 16(b) of the Exchange
Act.
QUALIFIED OPTIONS
Although the Company has obtained neither a letter ruling from the Internal
Revenue Service (the "IRS") nor an opinion of counsel stating that the ISO
provisions of the Equity Compensation Plan constitute an incentive stock option
plan under the Code, it is expected that the options granted under the ISO
provisions of the Equity Compensation Plan will qualify as ISOs for federal
income tax purposes.
In general, no taxable income will be realized by an optionee, and no
federal income tax deduction will be allowed to the Company, upon the grant or
exercise of an ISO. The federal income tax consequences of a disposition of
Common Stock received pursuant to the exercise of an ISO will depend upon
whether the optionee has held the shares for the requisite holding period. If
the optionee disposes of such shares after the later to occur of (1) two years
from the date of the grant of the ISO or (2) one year after the date of the
transfer of the shares to him (the "Holding Period"), then the optionee will be
taxed according to the rules of sales and exchanges generally. The amount
subject to tax will be the difference between the amount realized and the
optionee's cost basis in the shares of Common Stock, which difference will be a
capital gain if the shares are held as a capital asset. In such event, the
Company will not be entitled to a tax deduction by reason of the disposition.
For purposes of this discussion, "disposition" means a lifetime transfer of
legal title, such as by sale, exchange, or gift, but does not include a transfer
that is triggered by death, such as one by bequest or inheritance or one made by
a decedent to his estate.
The Holding Period will not apply to an ISO that is exercised after the
optionee's death by his estate or by a person who acquired the right to exercise
it by bequest or inheritance, or otherwise by reason of the optionee's death.
The Holding Period will apply if the optionee dies after he exercises his ISO.
In that case, his estate, or any other person holding the shares acquired
pursuant to the ISO, must either hold the shares for the applicable Holding
Period or suffer the tax consequences discussed below for a "disqualifying
disposition."
A "disqualifying disposition" takes place if the optionee makes a
disposition of the shares of Common Stock acquired through the exercise of an
ISO before satisfying the Holding Period. If a "disqualifying
22
disposition" occurs, the optionee must include as ordinary income the gain
realized on that disposition to the extent of the lesser of (1) the fair market
value of the Common Stock on the date of exercise of the ISO minus the option
price or (2) the amount realized on the disposition minus the option price. Upon
the occurrence of a "disqualifying disposition," the Company will be entitled to
deduct, as compensation paid, the amount so included as ordinary income by the
optionee.
Under the Equity Compensation Plan, an optionee who exercises an option may
be allowed to pay for his shares with cash or with shares of Common Stock,
including shares acquired in a prior ISO exercise. Generally, such payment would
not give rise to recognition by the optionee of a gain or loss. If, however, an
optionee exercises an option and pays for the shares upon exercise with shares
that the optionee acquired in a prior ISO exercise but has not held for the
requisite Holding Period, the optionee will be taxed on the disposition of the
shares acquired in the prior ISO exercise as if a "disqualifying disposition" of
those shares had occurred.
In order for an ISO granted under the Equity Compensation Plan to be
governed by the general rules pertaining to ISOs, the optionee must be an
employee of the Company for the entire time from the date the ISO is granted
until three months before its exercise. An optionee who is disabled has twelve
months rather than three months after leaving employment to exercise his ISOs.
These employment requirements do not apply if the optionee dies before
exercising an ISO, but in such circumstances the employment requirement must
have been met by the employee at his death.
The federal alternative minimum tax consequences of the exercise of an ISO
under the Equity Compensation Plan may differ from the federal income tax
consequences of such exercise. The alternative minimum tax consequences of the
disposition of shares acquired upon the exercise of an ISO may also differ from
the regular income tax consequences of such disposition. The difference between
the option price and the fair market value of the shares upon exercise will be a
preference item subject to the federal alternative minimum tax. For purposes of
the individual alternative minimum tax, the income tax rules governing the
transfer of property in connection with the performance of services apply, not
the regular income tax rules applicable only to ISOs. For example, if an
optionee acquires shares pursuant to the exercise of an ISO under the Equity
Compensation Plan and disposes of the shares in the same taxable year, tax
treatment under the regular income tax and the alternative minimum tax will be
the same. If, however, the shares are disposed of in a disqualifying disposition
in a later taxable year, the difference between the option price and the fair
market value of the shares will be included in alternative minimum taxable
income in the year of exercise and in regular taxable income, but not in
alternative taxable income, in the year of the disposition. Similarly, if an
optionee acquires shares pursuant to the exercise of an ISO under the Equity
Compensation Plan and disposes of the shares after the Holding Period is
satisfied, the difference between the option price and the fair market value of
the stock at the time of exercise will be included in alternative minimum
taxable income, but not in regular taxable income, in the year of exercise, and
for alternative minimum tax purposes the cost basis of the shares will be the
sum of the option price and the amount of income included in alternative minimum
taxable income in the year of exercise.
NONQUALIFIED OPTIONS
Holders of NQSOs will not be entitled to the special tax treatment afforded
by Sections 421 and 422 of the Code in connection with ISOs. Under the Code, an
optionee granted an NQSO will realize no taxable income upon receipt of the
NQSO, but will not deemed to have realized ordinary taxable income equal to the
excess of the fair market value of the stock acquired at the time of the
exercise of the NQSO, over the option price paid, unless at the time of exercise
the stock remains subject to a "substantial risk of forfeiture" as defined in
Section 83 of the Code. Whether an optionee who exercises an NQSO under the
Equity Compensation Plan will acquire the stock subject to such risk will depend
upon the terms of the NQSO award as determined by the Committee. For a complete
discussion of the income tax treatment when a participant acquires Common Stock
subject to a "substantial risk of forfeiture," see "Restricted Stock" below.
23
The Company is required for federal income tax purposes to withhold tax on the
amount of income realized by the optionee in the transaction. The Company will
be entitled to a deduction for federal income tax purposes in the year the
optionee must report the income in an amount equal to the ordinary income
realized by the optionee as a result of exercise of his NQSO.
An optionee's tax basis in shares acquired upon the exercise of an NQSO will
be the fair market value of such shares used to determine the amount of ordinary
taxable income reported by the optionee with respect to the exercise of the
NQSO. Upon any sale of such shares of Common Stock, the optionee's gain or loss
will therefore equal the difference between the sale price and such tax basis.
Any such gain or loss will be short-term or long-term capital gain or loss,
depending on whether the shares have been held for more than the long-term
capital gain holding period. In general, when an NQSO is exercised by the
exchange of previously acquired stock, the optionee receives a tax-free exchange
and basis carryover for old shares for an equivalent number of new shares. The
basis for any additional shares will equal the sum of the amount included in
gross income by reason of the exercise of the NQSO, plus any amount of cash paid
by the optionee upon the exercise of the NQSO.
RESTRICTED STOCK
A recipient of restricted stock, or any other stock award under the Equity
Compensation Plan that is subject to a "substantial risk of forfeiture,"
generally will be subject to federal income tax at ordinary income rates on the
excess of the fair market value of the restricted stock or other stock award, at
such time that the stock is no longer subject to forfeiture and restrictions on
transfer for purposes of Section 83 of the Code ("restrictions"), over the
purchase price, if any, of such restricted stock or other stock award. However,
a recipient who so elects under Code Section 83(b) within 30 days of the date of
transfer of the shares will have ordinary taxable income on the date of transfer
of the shares equal to the excess of the fair market value of such shares on the
transfer date, determined without regard to the restrictions, over the purchase
price, if any, of such restricted stock or other stock award. No additional
ordinary taxable income will then be recognized when the restrictions expire,
although any gain on the disposition of the stock will be subject to tax as
discussed below. If the shares subject to such election are forfeited, the
recipient will only be entitled to a deduction, refund, or loss for tax purposes
equal to the purchase price, if any, of the forfeited shares, regardless of
whether the recipient made an election Section 83(b) of the Code.
Upon the sale of any Common Stock following the expiration of the forfeiture
period for restricted stock or other stock award or upon the sale of Common
Stock for which a timely election under Section 83(b) of the Code was made, the
participant will realize capital gain or loss equal to the difference between
the amount realized on the sale and the participant's basis in such stock. The
holding period to determine whether the participant has long-term or short-term
capital gain will generally begin when the restrictions expire, and the tax
basis for such shares will generally be based on the fair market value of such
shares on such date. However, if the participant timely elects to be taxed as of
the date of transfer of the shares, the holding period will commence on such
date, and the tax basis will be equal to the fair market value of the shares on
such date, determined without regard to the restrictions.
The Company will be entitled to a deduction for federal income tax purposes
in the year the participant is taxable in an amount equal to the ordinary income
realized by the participant as a result of the restricted stock or other stock
award. The Equity Compensation Plan requires any participant exercising an award
to give the Committee prompt written notice of any election made by the
participant under Section 83(b) of the Code.
DIVIDENDS AND DIVIDEND EQUIVALENTS
Dividends paid on restricted stock or other stock awards transferred to a
participant under the Equity Compensation Plan will generally be treated as
compensation that is taxable as ordinary income to the
24
participant and deductible by the Company, subject to applicable withholding
requirements, unless the participant makes a timely election under Section 83(b)
of the Code, in which case the dividends will be treated as dividends that are
taxable as ordinary income to the participant but not deductible by the Company.
If dividend equivalents are credited with respect to an award under the Equity
Compensation Plan, such equivalents will be taxed at ordinary income rates when
paid to the participant and will generally be deductible by the Company at that
time, subject to applicable withholding requirements.
PAYMENTS UPON CHANGE IN CONTROL
The Equity Compensation Plan authorizes the acceleration of payment of
awards and related shares of Common Stock in the event of a change in control or
potential change in control of the Company, as defined in the Equity
Compensation Plan. Such acceleration of payment may cause part or all of the
consideration involved to be treated as a "parachute payment" under the Code,
which may subject the recipient thereof to a 20% excise tax and which may not be
deductible by the Company for federal income tax purposes.
BENEFITS UNDER THE PLAN
The table set forth below indicates benefits under the Equity Compensation
Plan. During the period since the adoption of the Equity Compensation Plan in
August, 1989, the value of the Common Stock has increased by 293%, resulting in
a substantial increase in shareholder and optionholder value over such period.
The amounts reflected in the following table under the column "Dollar Values"
merely reflect the amount by which the value of the Common Stock as of October
4, 1996 exceeded the exercise price of the options, all of which were granted at
the market value of the Common Stock on the date of grant. Options are subject
to vesting and not all of the options are currently exercisable. The
optionholders realize no cash until and unless the options are exercised and the
Common Stock issued upon such exercise is sold by the optionholder.
Consequently, the theoretical value of the options to the holders thereof will
fluctuate based on fluctuations in the price of the Common Stock, and the actual
value may be higher or lower than the Dollar Values indicated, depending upon
when the options became or become exercisable, are exercised and the underlying
Common Stock sold.
The following table indicates the outstanding options for each of the
persons or groups indicated below under the Equity Compensation Plan.
NAME AND POSITION DOLLAR VALUE 1,2 NUMBER OF UNITS 2
- ----------------- ---------------- -----------------
F. Neal Hunter 244,789 55,786
President, Chief Executive Officer
Calvin H. Carter, Jr., Ph.D. 177,189 41,786
Vice President &
Director of Technology
John W. Palmour, Ph.D., Director 157,400 36,000
Senior Advanced Device Scientist
All Executive Officers as a 474,408 120,234
Group (3 persons)
25
NAME AND POSITION DOLLAR VALUE 1,2 NUMBER OF UNITS 2
- ----------------- ---------------- -----------------
All Directors as a Group 1,146,940 260,000
Excluding Executive
Officers (5 persons)
All Employees as a Group 2,871,764 548,706
Excluding Executive
Officers and Directors (181 persons)
- ------------
1 Dollar Value is calculated by subtracting the exercise price of each
outstanding option from $11.50, the market value of the Common Stock of the
Company as reported on The Nasdaq Stock Market on October 4, 1996, and
multiplying the result by the number of shares of Common Stock subject to
the options. Options whose exercise price exceeds the market value of the
Common Stock are not included in such calculations. Options are included
whether or not the options are currently vested or exercisable.
2 Includes only options outstanding that were granted under the Equity
Compensation Plan. Does not include 192,803 shares previously issued upon
exercise of options.
- -------------
No determination has been made with respect to any other awards which may be
made under the Equity Compensation Plan in the future. Such future awards will
be determined in accordance with the terms of the Equity Compensation Plan,
which are described above, as amended. Consequently, it is not possible to
determine the benefits or amounts that will be received by or allocated to any
executive officers or employees of the Company or other persons pursuant to the
Equity Compensation Plan in the future.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand, L.L.P. as the
independent auditors of the Company for the current fiscal year. The selection
of the independent auditors is being submitted to the shareholders for
ratification at the Annual Meeting. In the event that ratification by the
shareholders of the selection of Coopers & Lybrand, L.L.P. as the Company's
independent auditors is not obtained, the Board of Directors will reconsider
such selection.
Coopers & Lybrand, L.L.P. has audited the Company's financial statements
since 1990. Its representatives are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
The ratification of the selection of Coopers & Lybrand, L.L.P. will require
the affirmative vote of not less than a majority of the shares of the Company's
Common Stock represented and voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND, L.L.P..
26
ANNUAL REPORT
The Company's Annual Report to Shareholders for fiscal year ended June 30,
1996, including financial statements, accompanies this Proxy Statement.
OTHER BUSINESS
The Company currently knows of no other matters to be submitted at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of Proxy to vote the
shares they represent as the Board of Directors may recommend.
THE COMPANY'S ANNUAL REPORT TO THE SEC (FORM 10-K) IS AVAILABLE TO
SHAREHOLDERS WITHOUT CHARGE ON WRITTEN REQUEST TO: CHIEF FINANCIAL OFFICER, CREE
RESEARCH, INC., 2810 MERIDIAN PARKWAY, SUITE 108, DURHAM, NORTH CAROLINA 27713.
Dated: October 14, 1996
27
APPENDIX A
CREE RESEARCH, INC.
AMENDED AND RESTATED
EQUITY COMPENSATION PLAN
(formerly the Cree Research, Inc.
Employee Stock Option Plan)
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed, for the benefit of the Company, to attract and
retain for the Company personnel of exceptional ability; to motivate
such personnel through added incentives to make a maximum contribution
to the Company; to develop and maintain a highly competent management
team; and to be competitive with other companies with respect to
executive compensation.
1.2 Awards under the Plan may be made to Participants in the form of (i)
Incentive Stock Options; (ii) Nonqualified Stock Options; (iii)
Restricted Stock; and (iv) Other Stock-Based Awards and such other
forms of equity-based compensation as may be provided and are
permissible under this Plan and the law.
1.3 The Cree Research, Inc. Employee Stock Option Plan (the "Stock Option
Plan") was initially adopted effective August 2, 1989, and was amended
and restated in the form of the Equity Compensation Plan effective as
of July 1, 1995. This amendment and restatement of the Stock Option
Plan shall be effective as of September 17, 1996 (the "Effective
Date"). Notwithstanding any other provision of this Plan, any Award
granted to a Participant prior to the date on which the shareholders of
the Company approve the Plan (which approval must be obtained within
the 12-month period before the Effective Date or the 12-month period
after the Effective Date in order for Incentive Stock Options to be
granted under the Plan) shall be conditioned upon and subject to such
shareholder approval to the extent required by Section 16(b) of the
Act, or the rules thereunder, or Section 422 of the Code. If an
Incentive Stock Option is granted prior to the date on which such
shareholder approval is obtained, and such approval is not obtained
after the end of the 12-month period beginning on the effective date,
such Incentive Stock Option shall be deemed a Nonqualified Stock Option
granted pursuant to Article V.
ARTICLE II - DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
2.1 "Acceleration Event" means the occurrence of an event defined in
Article IX of the Plan.
A-1
2.2 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time
be amended or renumbered.
2.3 "Agreement" means the written agreement evidencing each Award granted
to a Participant under the Plan.
2.4 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including, but not limited to, a Stock Option,
Restricted Stock, Other Stock-Based Awards, or any combination of the
foregoing.
2.5 "Board" means the Board of Directors of Cree Research, Inc.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
2.7 "Committee" means the Compensation Committee or such other committee
consisting of two or more members as may be appointed by the Board to
administer this Plan pursuant to Article III. To the extent required by
Rule 16b-3 under the Act, the Committee shall consist of individuals
who are members of the Board and Non-employee Directors. Committee
members may also be appointed for such limited purposes as may be
provided by the Board.
2.8 "Company" means Cree Research, Inc., a North Carolina corporation, and
its successors and assigns. The term "Company" shall include any
corporation which is a member of a controlled group of corporations (as
defined in Section 414(b) of the Code, as modified by Section 415(h) of
the Code) which includes the Company; any trade or business (whether or
not incorporated) which is under common control (as defined in Section
414(c) of the Code, as modified by Section 415(h) of the Code) with the
Company; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Section 414(m) of
the Code) which includes the Company; and any other entity required to
be aggregated with the Company pursuant to regulations under Section
414(o) of the Code. With respect to all purposes of the Plan,
including, but not limited to, the establishment, amendment,
termination, operation and administration of the Plan, Cree Research,
Inc. shall be authorized to act on behalf of all other entities
included within the definition of "Company".
2.9 "Disability" means a disability as determined under procedures
established by the Committee or in any Award.
2.10 "Discount Stock Options" means Nonqualified Stock Options which provide
for an exercise price of less than the Fair Market Value of the Stock
at the date of the Award.
2.11 "Non-employee Director" shall have the meaning set forth in Rule 16b-3
under the Act.
2.12 "Early Retirement" shall mean retirement from active employment with
the Company, with the express consent of the Committee, pursuant to
early retirement provisions established by the Committee or in any
Award.
A-2
2.13 "Eligible Participant" means any employee of the Company, as shall be
determined by the Committee, as well as any other person, including
directors, whose participation the Committee determines is in the best
interest of the Company, subject to limitations as may be provided by
the Code, the Act or the Committee.
2.14 "Fair Market Value" means, with respect to any given day, the
following:
(i) If the Stock is not listed for trading on a national
securities exchange but is listed on the NASDAQ National
Market System or the NASDAQ Small-Cap Market System, then the
Fair Market Value shall be the last sale price of the Stock on
the date of reference if a minimum of 100 shares are traded on
such date or, if less than 100 shares are traded on such date,
then the last sale price of the Stock as of the last date on
which at least 100 shares were traded, in either case as
reported by the NASDAQ National Market System or the NASDAQ
Small-Cap Market System, as the case may be.
(ii) If the Stock is listed for trading on any national securities
exchange, then the Fair Market Value shall be the closing
price of the Stock on such exchange on the date of reference
if a minimum of 100 shares are traded on such date or, if less
than 100 shares are traded on such date, then the closing
price of the Stock on such exchange as of the last date on
which at least 100 shares were traded.
The Committee may establish an alternative method of determining Fair
Market Value.
2.15 "Incentive Stock Option" means a Stock Option granted under Article IV
of the Plan, and as defined in Section 422 of the Code.
2.16 "Nonqualified Stock Option" means a Stock Option granted under
Article V of the Plan.
2.17 "Normal Retirement" shall mean retirement from active employment with
the Company on or after age 65, or pursuant to such other requirements
as may be established by the Committee or in any Award.
2.18 "Option Grant Date" means, as to any Stock Option, the latest of:
(a) the date on which the Committee grants the Stock Option by
entering into an Award Agreement with the Participant;
(b) the date the Participant receiving the Stock Option becomes an
employee of the Company, to the extent employment status is a
condition of the grant or a requirement of the Code or the
Act; or
(c) such other date (later than the dates described in (a) and (b)
above) as the Committee may designate.
2.19 "Participant" means an Eligible Participant to whom an Award has been
granted and who has entered into an Agreement evidencing the Award.
A-3
2.20 "Plan" means the Cree Research, Inc. Equity Compensation Plan as set
forth herein, and, as further amended or amended and restated from time
to time.
2.21 "Restricted Stock" means an Award of Stock under Article VII of the
Plan, which Stock is issued with the restriction that the holder may
not sell, transfer, pledge, or assign such Stock and with such other
restrictions as the Committee, in its sole discretion, may impose,
including without limitation, any restriction on the right to vote such
Stock, and the right to receive any cash dividends, which restrictions
may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
2.22 "Restriction Period" means the period commencing on the date an Award
of Restricted Stock is granted and ending on such date as the Committee
shall determine.
2.23 "Retirement" shall mean Early Retirement or Normal Retirement.
2.24 "Stock" means shares of the Common Stock of Cree Research, Inc., par
value $.01 per share,* as may be adjusted pursuant to the provisions of
Section 3.11.
2.25 "Stock Option" means an Award under Article IV or V of the Plan of an
option to purchase Stock. A Stock Option may be either an Incentive
Stock Option or a Nonqualified Stock Option.
2.26 "Termination of Employment" means the discontinuance of employment of a
Participant with the Company for any reason. The determination of
whether a Participant has discontinued employment shall be made by the
Committee in its discretion. In determining whether a Termination of
Employment has occurred, the Committee may provide that service as a
consultant or service with a business enterprise in which the Company
has a significant ownership interest shall be treated as employment
with the Company. The Committee shall have the discretion, exercisable
either at the time the Award is granted or at the time the Participant
terminates employment, to establish as a provision applicable to the
exercise of one or more Awards that during the limited period of
exercisability following Termination of Employment, the Award may be
exercised not only with respect to the number of shares of Stock for
which it is exercisable at the time of the Termination of Employment
but also with respect to one or more subsequent installments for which
the Award would have become exercisable had the Termination of
Employment not occurred.
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. A Committee member
who is not a Non- employee Director, with respect to action to be taken
by the Committee, shall not be able to participate in the decision to
the extent prescribed by Rule 16b-3 under the Act. The Committee, in
its discretion, may delegate to one or more of its members such of its
powers as it deems appropriate. The Committee also may limit the power
of any member to the extent necessary to comply with Rule 16b-3 under
the Act or any other law. Members of the
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* $.005 per share after giving effect to the stock split effective
August 14, 1995.
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Committee shall be appointed originally, and as vacancies occur, by the
Board, to serve at the pleasure of the Board. The Board may serve as
the Committee, if by the terms of the Plan all Board members are
otherwise eligible to serve on the Committee.
3.2 The Committee shall meet at such times and places as it determines. A
majority of its members shall constitute a quorum, and the decision of
a majority of those present at any meeting at which a quorum is present
shall constitute the decision of the Committee. A memorandum signed by
all of its members shall constitute the decision of the Committee
without necessity, in such event, for holding an actual meeting.
3.3 The Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to receive
an Award, and to act in all matters pertaining to the granting of an
Award and the contents of the Agreement evidencing the Award, including
without limitation, the determination of the number of Stock Options,
shares of Stock subject to an Award, and the form, terms, conditions
and duration of each Award, and any amendment thereof consistent with
the provisions of the Plan. All acts, determinations and decisions of
the Committee made or taken pursuant to grants of authority under the
Plan or with respect to any questions arising in connection with the
administration and interpretation of the Plan, including the
severability of any and all of the provisions thereof, shall be
conclusive, final and binding upon all Participants, Eligible
Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan, as it deems
appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and 3.4, and
notwithstanding any other provisions of the Plan, the Committee is
authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to an
Award in the event of an Acceleration Event as defined in Article IX.
Such action may include, but shall not be limited to, establishing,
amending or waiving the forms, terms, conditions and duration of an
Award and the Award Agreement, so as to provide for earlier, later,
extended or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and amounts of
payment, an accelerated release of restrictions or other modifications.
The Committee may take such actions pursuant to this Section 3.5 by
adopting rules and regulations of general applicability to all
Participants or to certain categories of Participants, by including,
amending or waiving terms and conditions in an Award and the Award
Agreement, or by taking action with respect to individual Participants.
3.6 The number of shares of Stock which are available for Award under the
Plan shall be 1,540,000 shares or any larger number of shares of Stock
that, subsequent to the date this Plan is adopted, may be authorized
for issuance by the Company. Such shares of Stock shall be made
available from authorized and unissued shares. If, for any reason, any
shares of Stock awarded or subject to purchase under the Plan are not
delivered or purchased, or are reacquired by the Company, for reasons
including, but not limited to, a forfeiture of Restricted Stock or
termination, expiration or cancellation of a Stock Option, or any other
termination of an Award without payment being made in the form of
Stock, whether or not Restricted Stock, such shares of Stock shall not
be charged against the aggregate number of
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shares of Stock available for Awards under the Plan, and may again be
available for Award under the Plan.
3.7 Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Each Award Agreement shall be subject to and incorporate, by
reference or otherwise, the applicable terms and conditions of the
Plan, and any other terms and conditions, not inconsistent with the
Plan, as may be imposed by the Committee.
3.8 The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to:
(a) the listing of such shares on any stock exchange on which the
Stock may then be listed; and
(b) the completion of any registration or qualification of such
shares of Stock under any federal or state law, or any ruling
or regulation of any government body which the Company shall,
in its discretion, determine to be necessary or advisable.
3.9 All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal
or state laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. In making such determination, the Committee may rely upon
an opinion of counsel for the Company.
3.10 Subject to the restrictions on Restricted Stock, as provided in Article
VII of the Plan and in the Restricted Stock Award Agreement, each
Participant who receives an Award of Restricted Stock shall have all of
the rights of a shareholder with respect to such shares of Stock,
including the right to vote the shares to the extent, if any, such
shares possess voting rights and receive dividends and other
distributions. Except as provided otherwise in the Plan or in an Award
Agreement, no Participant awarded a Stock Option shall have any right
as a shareholder with respect to any shares of Stock covered by his or
her Stock Option prior to the date of issuance to him or her of a
certificate or certificates for such shares of Stock.
3.11 If any reorganization, recapitalization, reclassification, stock
split-up, stock dividend, or consolidation of shares of Stock, merger
or consolidation of the Company or sale or other disposition by the
Company of all or a portion of its assets, any other change in the
Company's corporate structure, or any distribution to shareholders
other than a cash dividend results in the outstanding shares of Stock,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of Stock or other
securities of the Company, or for shares of Stock or other securities
of any other corporation; or new, different or additional shares or
other securities of the Company or of any other corporation being
received by the holders of outstanding shares of Stock, then equitable
adjustments shall be made by the Committee in:
(a) the limitation on the aggregate number of shares of Stock that
may be awarded as set forth in Section 3.6 of the Plan;
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(b) the number and class of Stock that may be subject to an Award,
and which have not been issued or transferred under an
outstanding Award;
(c) the purchase price to be paid per share of Stock under
outstanding Stock Options; and
(d) the terms, conditions or restrictions of any Award and Award
Agreement, including the price payable for the acquisition of
Stock; provided, however, that all adjustments made as the
result of the foregoing in respect of each Incentive Stock
Option shall be made so that such Stock Option shall continue
to be an Incentive Stock Option, as defined in Section 422 of
the Code.
3.12 In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against
all amounts paid by them in settlement thereof, provided such
settlement is approved by independent legal counsel selected by the
Company, or paid by them in satisfaction of a judgment or settlement in
any such action, suit or proceeding, except as to matters as to which
the Committee member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding, a Committee member
shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
3.13 The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other Award under the Plan to represent
to and agree with the Company in writing that he is acquiring the
shares of Stock without a view to distribution thereof. The
certificates for such shares of Stock may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
3.14 The Committee shall be authorized to make adjustments in performance
based criteria or in the terms and conditions of other Awards in
recognition of unusual or nonrecurring events affecting the Company or
its financial statements or changes in applicable laws, regulations or
accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award
Agreement in the manner and to the extent it shall deem desirable to
carry it into effect. In the event the Company shall assume outstanding
employee benefit awards or the right or obligation to make future such
awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
3.15 The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances, any Award shall be
canceled or suspended. In particular, but without limitation, all
outstanding Awards to any Participant may be canceled if (a) the
Participant, without the consent of the Committee, while employed by
the Company or after termination of such employment, becomes associated
with, employed by, renders services to, or owns any interest in, other
than any insubstantial interest, as determined by the Committee,
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any business that is in competition with the Company or with any
business in which the Company has a substantial interest as determined
by the Committee; or (b) is terminated for cause as determined by the
Committee.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions
of Section 422 of the Code, and any provision hereof that cannot be so
construed shall be disregarded.
4.2 Incentive Stock Options shall be granted only to Eligible Participants
who are in the active employment of the Company, each of whom may be
granted one or more such Incentive Stock Options for a reason related
to his employment at such time or times determined by the Committee
following the Effective Date through the date which is ten (10) years
following the Effective Date, subject to the following conditions:
(a) The Incentive Stock Option price per share of Stock shall be
set in the Award Agreement, but shall not be less than 100% of
the Fair Market Value of the Stock on the Option Grant Date.
If the Eligible Participant owns more than 10% of the
outstanding Stock (as determined pursuant to Section 424(d) of
the Code) on the Option Grant Date, the Incentive Stock Option
price per share shall not be less than 110% of the Fair Market
Value of the Stock on the Option Grant Date.
(b) The Incentive Stock Option may be exercised in whole or in
part from time to time within ten (10) years from the Option
Grant Date (five (5) years if the Eligible Participant owns
more than 10% of the Stock on the Option Grant Date), or such
shorter period as may be specified by the Committee in the
Award; provided, that in any event, the Incentive Stock Option
shall lapse and cease to be exercisable upon a Termination of
Employment or within such period following a Termination of
Employment as shall have been specified in the Incentive Stock
Option Award Agreement, which period shall in no event exceed
three months unless:
(i) employment shall have terminated as a result of death
or Disability, in which event such period shall not
exceed one year after the date of death or
Disability; or
(ii) death shall have occurred following a Termination of
Employment and while the Incentive Stock Option or
Stock Right was still exercisable, in which event
such period shall not exceed one year after the date
of death;
provided, further, that such period following a Termination of
Employment shall in no event extend the original exercise
period of the Incentive Stock Option or any related Stock
Right.
(c) To the extent the aggregate Fair Market Value, determined as
of the Option Grant Date, of the shares of Stock with respect
to which Incentive Stock Options (determined without regard to
this subsection) are first exercisable during any calendar
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year by any Eligible Participant exceeds $100,000, such
options shall be treated as Nonqualified Stock Options granted
under Article V.
(d) The Committee may adopt any other terms and conditions which
it determines should be imposed for the Incentive Stock Option
to qualify under Section 422 of the Code, as well as any other
terms and conditions not inconsistent with this Article IV as
determined by the Committee.
4.3 The Committee may at any time offer to buy out for a payment in cash,
Stock or Restricted Stock an Incentive Stock Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
4.4 If the Incentive Stock Option Award Agreement so provides, the
Committee may require that all or part of the shares of Stock to be
issued upon the exercise of an Incentive Stock Option shall take the
form of Restricted Stock, which shall be valued on the date of
exercise, as determined by the Committee, on the basis of the Fair
Market Value of such Restricted Stock determined without regard to the
deferral limitations and/or forfeiture restrictions involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock Options
to Eligible Participants to purchase shares of Stock at such time or
times determined by the Committee, following the Effective Date,
subject to the terms and conditions set forth in this Article V.
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Award Agreement and may be less than or greater than
100% of the Fair Market Value at the time of the grant.
5.3 The Nonqualified Stock Option may be exercised in full or in part from
time to time within such period as may be specified by the Committee or
in the Award Agreement; provided, that, in any event, the Nonqualified
Stock Option and the related Stock Right shall lapse and cease to be
exercisable three months following the Participant's Termination of
Employment.
5.4 The Nonqualified Stock Option Award Agreement may include any other
terms and conditions not inconsistent with this Article V or in Article
VI, as determined by the Committee.
ARTICLE VI - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
6.1 Each Stock Option shall be granted subject to such terms and
conditions, if any, not inconsistent with this Plan, as shall be
determined by the Committee, including any provisions as to continued
employment as consideration for the grant or exercise of such Stock
Option and any provisions which may be advisable to comply with
applicable laws, regulations or rulings of any governmental authority.
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6.2 A Stock Option shall not be transferable by the Participant other than
by will or by the laws of descent and distribution, or, to the extent
otherwise allowed by Rule 16b-3 under the Act or other applicable law,
pursuant to a qualified domestic relations order as defined by the Code
or the Employee Retirement Income Security Act, or the rules
thereunder, and shall be exercisable during the lifetime of the
Participant only by him or by his guardian or legal representative.
6.3 Shares of Stock purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the
Stock Option Award Agreement. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of Stock Options
which permit the Participant to deliver shares of Stock, or other
evidence of ownership of Stock satisfactory to the Company, with a Fair
Market Value equal to the Stock Option price as payment.
6.4 No cash dividends shall be paid on shares of Stock subject to
unexercised Stock Options. The Committee may provide, however, that a
Participant to whom a Stock Option has been granted which is
exercisable in whole or in part at a future time for shares of Stock
shall be entitled to receive an amount per share equal in value to the
cash dividends, if any, paid per share on issued and outstanding Stock,
as of the dividend record dates occurring during the period between the
date of the grant and the time each such share of Stock is delivered
pursuant to exercise of such Stock Option or the related Stock Right.
Such amounts (herein called "dividend equivalents") may, in the
discretion of the Committee, be:
(a) paid in cash or Stock either from time to time prior to, or at
the time of the delivery of, such Stock, or upon expiration of
the Stock Option if it shall not have been fully exercised; or
(b) converted into contingently credited shares of Stock, with
respect to which dividend equivalents may accrue, in such
manner, at such value, and deliverable at such time or times,
as may be determined by the Committee.
Such Stock, whether delivered or contingently credited, shall be
charged against the limitations set forth in Section 3.6.
6.5 The Committee, in its sole discretion, may authorize payment of
interest equivalents on dividend equivalents which are payable in cash
at a future time.
6.6 In the event of Disability or death, the Committee, with the consent of
the Participant or his legal representative, may authorize payment, in
cash or in Stock, or partly in cash and partly in Stock, as the
Committee may direct, of an amount equal to the difference at the time
between the Fair Market Value of the Stock subject to a Stock Option
and the option price in consideration of the surrender of the Stock
Option.
6.7 If a Participant is required to pay to the Company an amount with
respect to income and employment tax withholding obligations in
connection with exercise of a Nonqualified Stock Option, and/or with
respect to certain dispositions of Stock acquired upon the exercise of
an Incentive Stock Option, the Committee, in its discretion and subject
to such rules as it may adopt, may permit the Participant to satisfy
the obligation, in whole or in part, by making an
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irrevocable election that a portion of the total Fair Market Value of
the shares of Stock subject to the Nonqualified Stock Option and/or
with respect to certain dispositions of Stock acquired upon the
exercise of an Incentive Stock Option, be paid in the form of cash in
lieu of the issuance of Stock and that such cash payment be applied to
the satisfaction of the withholding obligations. The amount to be
withheld shall not exceed the statutory minimum federal and state
income and employment tax liability arising from the Stock Option
exercise transaction. Notwithstanding any other provision of the Plan,
any election under this Section 6.7 is required to satisfy the
applicable requirements under Rule 16b-3 of the Act.
6.8 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Stock Option for the same or a
different number of shares of Stock as the Stock Option surrendered, or
may require such surrender as a condition precedent to a grant of a new
Stock Option to such Participant. Subject to the provisions of the
Plan, such new Stock Option shall be exercisable at the such price,
during such period and on such other terms and conditions as are
specified by the Committee at the time the new Stock Option is granted.
Upon surrender, the Stock Options surrendered shall be canceled and the
shares of Stock previously subject to them shall be available for the
grant of other Stock Options.
ARTICLE VII - RESTRICTED STOCK
7.1 Restricted Stock Awards may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Restricted Stock may be made either alone, in addition to or in tandem
with other Awards granted under the Plan and/or cash payments made
outside of the Plan.
7.2 With respect to Awards of Restricted Stock, the Committee shall:
(a) determine the purchase price, if any, to be paid for such
Restricted Stock, which may be equal to or less than par value
and may be zero, subject to such minimum consideration as may
be required by applicable law;
(b) determine the length of the Restriction Period;
(c) determine any restrictions applicable to the Restricted Stock
such as service or performance, other than those set forth in
this Article VII;
(d) determine if the restrictions shall lapse as to all shares of
Restricted Stock at the end of the Restriction Period or as to
a portion of the shares of Restricted Stock in installments
during the Restriction Period; and
(e) determine if dividends and other distributions on the
Restricted Stock are to be paid currently to the Participant
or paid to the Company for the account of the Participant.
7.3 Awards of Restricted Stock must be accepted within a period of 60 days,
or such shorter period as the Committee may specify, by executing a
Restricted Stock Award Agreement and paying whatever price, if any, is
required.
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The prospective recipient of a Restricted Stock Award shall not have
any rights with respect to such Award, unless such recipient has
executed a Restricted Stock Award Agreement and has delivered a fully
executed copy thereof to the Committee, and has otherwise complied with
the applicable terms and conditions of such Award.
7.4 Except when the Committee determines otherwise, or as otherwise
provided in the Restricted Stock Award Agreement, if a Participant
terminates employment with the Company for any reason before the
expiration of the Restriction Period, all shares of Restricted Stock
still subject to restriction shall be forfeited by the Participant and
shall be reacquired by the Company.
7.5 Except as otherwise provided in this Article VII, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
7.6 To the extent not otherwise provided in a Restricted Stock Award
Agreement, in cases of death, Disability or Retirement or in cases of
special circumstances, the committee, if it finds that a waiver would
be appropriate, may elect to waive any or all remaining restrictions
with respect to such Participant's Restricted Stock.
7.7 In the event of hardship or other special circumstances of a
Participant whose employment with the Company is involuntarily
terminated, the Committee may waive in whole or in part any or all
remaining restrictions with respect to any or all of the Participant's
Restricted Stock, based on such factors and criteria as the Committee
may deem appropriate.
7.8 The certificates representing shares of Restricted Stock may either:
(a) be held in custody by the Company until the Restriction Period
expires or until restrictions thereon otherwise lapse, and the
Participant shall deliver to the Company a stock power
endorsed in blank relating to the Restricted Stock; and/or
(b) be issued to the Participant and registered in the name of the
Participant, and shall bear an appropriate restrictive legend
and shall be subject to appropriate stop-transfer orders.
7.9 Except as provided in this Article VII, a Participant receiving a
Restricted Stock Award shall have, with respect to the shares of
Restricted Stock covered by any Award, all of the rights of a
shareholder of the Company, including the right to vote the shares to
the extent, if any, such shares possess voting rights and the right to
receive any dividends; provided, however, the Committee may require
that any dividends on such shares of Restricted Stock shall be
automatically deferred and reinvested in additional Restricted Stock
subject to the same restrictions as the underlying Award, or may
require that dividends and other distributions on Restricted Stock
shall be paid to the Company for the account of the Participant. The
Committee shall determine whether interest shall be paid on such
amounts, the rate of any such interest, and the other terms applicable
to such amounts.
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7.10 If and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the
Participant.
7.11 In order to better ensure that Award payments actually reflect the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Restricted Stock Award,
subject to such performance, future service, deferral and other terms
and conditions as may be specified by the Committee.
ARTICLE VIII - OTHER STOCK-BASED AWARDS
8.1 Other awards that are valued in whole or in part by reference to, or
are otherwise based on, Stock ("Other Stock-Based Awards"), including
without limitation, convertible preferred stock, convertible
debentures, exchangeable securities, phantom stock and Stock awards or
options valued by reference to book value or performance, may be
granted either alone or in addition to or in tandem with Stock Options
or Restricted Stock granted under the Plan and/or cash awards made
outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the Eligible Participants to whom and the time
or times at which such Awards shall be made, the number of shares of
Stock subject to such Awards, and all other conditions of the Awards.
The Committee also may provide for the grant of shares of Stock upon
the completion of a specified Performance Period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
8.2 Other Stock-Based Awards made pursuant to this Article VIII shall be
subject to the following terms and conditions:
(a) Subject to the provisions of this Plan and the Award
Agreement, shares of Stock subject to Awards made under this
Article VIII may not be sold, assigned, transferred, pledged
or otherwise encumbered prior to the date on which the shares
are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) Subject to the provisions of this Plan and the Award Agreement
and unless otherwise determined by the Committee at the time
of the Award, the recipient of an Award under this Article
VIII shall be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend
equivalents with respect to the number of shares covered by
the Award, as determined at the time of the Award by the
Committee, in its sole discretion, and the Committee may
provide that such amounts, if any, shall be deemed to have
been reinvested in additional Stock or otherwise reinvested.
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(c) Any Award under this Article VIII and any Stock covered by any
such Award shall vest or be forfeited to the extent so
provided in the Award Agreement, as determined by the
Committee, in its sole discretion.
(d) Upon the Participant's Retirement, Disability or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the
remaining limitations imposed hereunder, if any, with respect
to any or all of an Award under this Article VIII.
(e) Each Award under this Article VIII shall be confirmed by, and
subject to the terms of, an Award Agreement.
(f) Stock, including securities convertible into Stock, issued on
a bonus basis under this Article VIII may be issued for no
cash consideration.
8.3 Other Stock-Based Awards may include a phantom stock Award, which is
subject to the following terms and conditions:
(a) The Committee shall select the Eligible Participants who may
receive phantom stock Awards. The Eligible Participant shall
be awarded a phantom stock unit, which shall be the equivalent
to a share of Stock.
(b) Under an Award of phantom stock, payment shall be made on the
dates or dates as specified by the Committee or as stated in
the Award Agreement and phantom stock Awards may be settled in
cash, Stock, or some combination thereof as determined by the
Committee in its sole discretion.
(c) The Committee shall determine such other terms and conditions
of each Award as it deems necessary in its sole discretion.
ARTICLE IX - ACCELERATION EVENTS
9.1 For the purposes of the Plan, an Acceleration Event shall occur in the
event of a "Potential Change in Control," or "Change in Control" or a
"Board-Approved Change in Control", as those terms are defined below.
9.2 A "Change in Control" shall be deemed to have occurred if:
(a) Any "Person" as defined in Section 3(a)(9) of the Act,
including a "group" (as that term is used in Sections 13(d)(3)
and 14(d)(2) of the Act), but excluding the Company and any
employee benefit plan sponsored or maintained by the Company,
including any trustee of such plan acting as trustee, who:
(i) makes a tender or exchange offer for any shares of
the Company's Stock (as defined below) pursuant to
which any shares of the Company's Stock are purchased
(an "Offer"); or
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(ii) together with its "affiliates" and "associates" (as
those terms are defined in Rule 12b-2 under the Act)
becomes the "Beneficial Owner" (within the meaning of
Rule 13d-3 under the Act) of at least 20% of the
Company's Stock (an "Acquisition");
(b) The shareholders of the Company approve a definitive agreement
or plan to merge or consolidate the Company with or into
another corporation, to sell or otherwise dispose of all or
substantially all of its assets, or to liquidate the Company
(individually, a "Transaction"); or
(c) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of
such 24 month period shall be deemed to have satisfied such 24
month requirement, and be an Incumbent Director, if such
director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually, because they
were directors at the beginning of such 24 month period, or by
prior operation of this Section 9.2(c).
9.3 A "Board-Approved Change in Control" shall be deemed to have occurred
if the Offer, Acquisition or Transaction, as the case may be, is
approved by a majority of the Directors serving as members of the Board
at the time of the Potential Change in Control or Change in Control.
9.4 A "Potential Change in Control" means the happening of any one of
the following:
(a) The approval by shareholders of an agreement by the Company,
the consummation of which would result in a Change in Control
of the Company, as defined in Section 9.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group, other than the
Company or any Company employee benefit plan, including any
trustee of such plan acting as such trustee, of securities of
the Company representing five percent or more of the combined
voting power of the Company's outstanding securities and the
adoption by the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred for
the purposes of this Plan.
9.5 Upon the occurrence of an Acceleration Event, the Committee in its
discretion may declare any or all then outstanding Stock option, not
previously exercisable and vested as immediately exercisable and fully
vested, in whole or in part.
9.6 Upon the occurrence of an Acceleration Event, the Committee in its
discretion may declare the restrictions applicable to Awards of
Restricted Stock or Other Stock-Based Awards to have lapsed, in which
case the Company shall remove all restrictive legends and stop-transfer
orders applicable to the certificates for such shares of Stock, and
deliver such certificates to the Participants in whose names they are
registered.
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9.7 Upon the occurrence of an Acceleration Event, the value of all
outstanding Stock Options, Restricted Stock and Other Stock-Based
Awards, in each case to the extent vested, shall, unless otherwise
determined by the Committee in its sole discretion at or after grant
but prior to any Change in Control, be cashed out on the basis of the
"Change in Control Price" (as defined in Section 9.8) as of the date
such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
9.8 For purposes of Section 9.7, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported on
any exchange on which the Stock is then traded or on the NASDAQ
National Market System or the NASDAQ Small-Cap Market System, as the
case may be, or paid or offered in any bona fide transaction related to
a Potential or actual Change in Control of the Company, at any time
during the 60 day period immediately preceding the occurrence of the
Change in Control, or, where applicable, the occurrence of the
Potential Change in Control event, in each case as determined by the
Committee.
ARTICLE X - AMENDMENT AND TERMINATION
10.1 The Board, upon recommendation of the Committee, or otherwise, at any
time and from time to time, may amend or terminate the Plan. To the
extent required by Rule 16b-3 under the Act, no amendment, without
approval by the Company's shareholders, shall:
(a) alter the group of persons eligible to participate in the
Plan;
(b) except as provided in Section 3.6, increase the maximum number
of shares of Stock or Stock Options which are available for
Awards under the Plan;
(c) extend the period during which Incentive Stock option Awards
may be granted beyond the date which is ten (10) years
following the Effective Date.
(d) limit or restrict the powers of the Committee with respect to
the administration of this Plan;
(e) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or
the value of shares of Stock for which an Eligible Participant
may be granted an Incentive Stock Option;
(f) materially increase the benefits accruing to Participants
under this Plan;
(g) materially modify the requirements as to eligibility for
participation in this Plan; or
(h) change any of the provisions of this Article X.
10.2 No amendment to or discontinuance of this Plan or any provision thereof
by the Board or the shareholders of the Company shall, without the
written consent of the Participant, adversely affect, as shall be
determined by the Committee, any Award theretofore granted to such
Participant under this Plan; provided, however, the Committee retains
the right and power to:
A-16
(a) annul any Award if the Participant is terminated for cause as
determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other gain
under an Award as determined by the Committee for competing
against the Company; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
10.3 If an Acceleration Event has occurred, no amendment or termination
shall impair the rights of any person with respect to an outstanding
Award as provided in Article IX.
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 Nothing in the Plan or any Award granted hereunder shall confer upon
any Participant any right to continue in the employ of the Company, or
to serve as a director thereof, or interfere in any way with the right
of the Company to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan shall
be deemed salary or compensation for the purpose of computing benefits
under any employee benefit plan or other arrangement of the Company for
the benefit of its employees unless the Company shall determine
otherwise. No Participant shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires
a right to receive payments from the Company under the Plan, such right
shall, except as otherwise provided by the Committee, be no greater
than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of
the company, and no special or separate fund shall be established and
no segregation of assets shall be made to assure payment of such
amounts, except as provided in Article VII with respect to Restricted
Stock and except as otherwise provided by the Committee.
11.2 The Company may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option or the exercise thereof,
or in connection with any other type of equity-based compensation
provided hereunder or the exercise thereof, including, but not limited
to, the withholding of payment of all or any portion of such Award or
another Award under this Plan until the Participant reimburses the
Company for the amount the Company is required to withhold with respect
to such taxes, or canceling any portion of such Award or another Award
under this Plan in an amount sufficient to reimburse itself for the
amount it is required to so withhold, or selling any property
contingently credited by the Company for the purpose of paying such
Award or another Award under this Plan, in order to withhold or
reimburse itself for the amount it is required to so withhold.
11.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by
any United States government or regulatory agency as may be required.
Any provision herein relating to compliance with Rule 16b-3 under the
Act shall not be applicable with respect to participation in the Plan
by Participants who are not subject to Section 16(b) of the Act.
A-17
11.4 The terms of the Plan shall be binding upon the Company, and its
successors and assigns.
11.5 Neither a Stock Option, nor any other type of equity-based compensation
provided for hereunder, shall be transferable except as provided for
herein. Unless otherwise provided by the Committee or in an Award
Agreement, transfer restrictions shall only apply to Incentive Stock
Options as required in Article IV and to the extent otherwise required
by federal or state securities laws. If any Participant makes such a
transfer in violation hereof, any obligation of the Company shall
forthwith terminate.
11.6 This Plan and all actions taken hereunder shall be governed by the laws
of the State of North Carolina.
11.7 The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver shares of Stock or
payments in lieu of or with respect to Awards hereunder; provided,
however, that, unless the Committee otherwise determines with the
consent of the affected Participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the
Plan.
11.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such
Participant under Section 83(b) of the Code, or any similar provision
thereof.
11.9 If any provision of this Plan or an Award Agreement is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award Agreement under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award
Agreement, it shall be stricken and the remainder of the Plan or the
Award Agreement shall remain in full force and effect.
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APPENDIX
PROXY
This Proxy is Solicited on Behalf of the Board of Directors of
CREE RESEARCH, INC.
The undersigned shareholder of Cree Research, Inc. hereby acknowledges
receipt of the Notice of Annual Meeting of Shareholders and the accompanying
Proxy Statement and hereby constitutes and appoints F. Neal Hunter and
Alan J. Robertson, and each of them, attorneys and proxies with full power of
substitution, to act and vote the shares of the undersigned at the Annual
Meeting of Shareholders of the said corporation to be held Tuesday, November
12, 1996, at 10:00 a.m. and at any adjournment or adjournments thereof. The
undersigned hereby directs this proxy to be voted as follows:
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. IN THE ABSENCE
OF ANY DIRECTION TO THE CONTRARY, THE PROXYHOLDERS WILL VOTE THIS PROXY FOR
THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE AS DIRECTORS, FOR APPROVAL
OF THE OTHER MATTERS LISTED ON THE REVERSE, AND IN THEIR DISCRETION WITH
RESPECT TO ANY OTHER MATTERS WHICH PROPERLY COME BEFORE THE MEETING. IF, AT
OR BEFORE THE TIME OF THE MEETING, ANY OF THE NOMINEES LISTED ON THE REVERSE
HAS BECOME UNAVAILABLE FOR ANY REASON, THE PROXYHOLDERS HAVE THE DISCRETION
TO VOTE FOR A SUBSTITUTE NOMINEE.
(To be Signed on Reverse Side)
A [X] Please mark your
votes as in this
example.
FOR WITHHOLD AUTHORITY
all nominees to vote for all nominees
listed at right listed at right
1. Election of [ ] [ ] Nominees: F. Neal Hunter
Directors Calvin H. Carter, Jr. Ph.D.
Walter L. Robb, Ph.D.
Michael W. Haley
Dolph W. von Arx
For, except vote withheld from the following James E. Dykes
nominee(s): John W. Palmour, Ph.D.
____________________________________________
FOR AGAINST ABSTAIN
2. Approving an amendment to the
Amended and Restated Equity
Compensation Plan of the Company. [ ] [ ] [ ]
3. Ratifying the selection of Coopers &
Lybrand L.L.P., as auditors for the fiscal
year ending June 30, 1997. [ ] [ ] [ ]
4. In their discretion with respect to any other business to come before the
meeting or any adjournments thereof.
Please check box if you intend to attend the Annual Meeting in
person. Please complete, sign and return proxy whether or not
you intend to attend the meeting. [ ]
Any proxy heretofore given by the undersigned is hereby revoked.
PLEASE RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
NOTE: If you receive more than one proxy, please date and sign each one and
return all proxies in the same envelope.
Number of Shares __________ Signature of Stockholder_________________________
Date______________
IMPORTANT: Please sign your name exactly as it appears on your certificate.
Please add your full title to your signature. Executors,
administrators, trustees and other Fiduciaries should so indicate
when signing and furnish proof of such fiduciary capacity. All
persons signing on behalf of corporations and/or partnerships
should so indicate when signing.