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 Section240.14a-11(c) or
Section240.14a-12
POLYCOM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
[LOGO]
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Polycom,
Inc., a Delaware corporation (the "Company"), will be held on Thursday, May 21,
1998 at 10:00 a.m., local time, at the Company's facilities, 2584 Junction
Avenue, San Jose, California 95134, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To consider and act upon a correcting amendment and restatement of the
Company's Amended and Restated Certificate of Incorporation establishing
5,000,000 authorized shares of Preferred Stock, par value $.001 per
share, and giving the Company's Board of Directors the authority to issue
the Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof.
3. To consider and act upon an amendment to the Company's 1996 Stock
Incentive Plan increasing the number of shares granted to non-employee
Directors under the automatic option grant program.
4. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the fiscal year ending January 3, 1999.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on April 3, 1998 are entitled to notice of and to vote at the Annual
Meeting.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted.
By Order of the Board of Directors of
Polycom, Inc.
/s/ Brian L. Hinman
Brian L. Hinman
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
San Jose, California
April 21, 1998
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENVELOPE PROVIDED.
POLYCOM, INC.
2584 JUNCTION AVENUE
SAN JOSE, CALIFORNIA 95134
------------------------
PROXY STATEMENT
FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
---------------------
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Polycom, Inc., a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Thursday, May 21,
1998 at 10:00 a.m., local time, and at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's facilities at
2584 Junction Avenue, San Jose, California 95134. The Company's telephone number
is (408) 526-9000. These proxy solicitation materials were mailed on or about
April 21, 1998, together with the Company's 1997 Annual Report to Stockholders,
to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on April 3, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 29,000,624 shares of the Company's common stock, $0.0005 par
value (the "Common Stock"), were issued and outstanding and entitled to be voted
at the Annual Meeting. No shares of the Company's preferred stock were
outstanding as of the Record Date. For information regarding security ownership
by management and by the beneficial owners of more than 5% of the Company's
Common Stock, see "Management--Security Ownership of Management and Certain
Beneficial Owners."
VOTING
Each stockholder entitled to vote at the Annual Meeting is entitled to one
vote for each share of Common Stock held as of the Record Date on all matters
presented at the Annual Meeting. The required quorum for the transaction of
business at the Annual Meeting is a majority of shares of Common Stock
outstanding on the Record Date, entitled to vote, present in person or
represented by proxy. Abstentions and broker non-votes are counted as present
for the purpose of determining the presence or absence of a quorum for the
transaction of business.
Directors are elected by a plurality of the votes of shares present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors. Stockholders do not have the right to cumulate their
votes in the election of directors. Since votes are cast in favor of or withheld
from each nominee, abstentions and broker non-votes will have no effect on the
outcome. Approval of proposal two, the correcting amendment and restatement of
the Company's Amended and Restated Certificate of Incorporation, requires the
affirmative vote of a majority of shares entitled to vote thereon. With regard
to proposal two, abstentions and broker non-votes will have the same effect as
negative votes. Proposal three and proposal four each require for approval the
affirmative vote of a majority of shares present in person or represented by
proxy at the Annual Meeting and entitled to vote. With regard to proposals three
and four, abstentions will have the same effect as negative votes, while broker
non-votes are not included in the total number of votes cast on a proposal and
therefore will not be counted for purposes of determining whether a proposal has
been approved. All votes will be tabulated by the inspector of election
appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
REVOCABILITY OF PROXIES
Any proxy given pursuant to the solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to Polycom, Inc. at 2584 Junction Avenue,
San Jose, California 95134, Attention: Secretary, or hand-delivered to the
Secretary of the Company at or before the taking of the vote at the Annual
Meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. 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, personally or by
telephone, telegram, letter facsimile or other means of communication. No
additional compensation will be paid to such directors, officers and employees
for such services.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission. Proposals of stockholders of the Company
which are intended to be presented by such stockholders at the Company's 1999
Annual Meeting of Stockholders must be received by the Company no later than
December 22, 1998 in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors has selected six nominees, all of whom are currently
serving as directors of the Company. The names of the persons who are nominees
for director and their positions with the Company as of April 21, 1998 are set
forth in the table below. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unavailable to serve. In the event any 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 may be designated by the present Board of Directors to fill the
vacancy. Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominees named below.
The name of and certain information regarding each nominee is set forth
below.
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------
Brian L. Hinman............... 36 Chief Executive Officer and Chairman of the
Board of Directors
Robert C. Hagerty............. 46 President, Chief Operating Officer and
Director
Bandel Carano(1)(2)........... 36 Director
Stanley J. Meresman(1)........ 51 Director
John P. Morgridge(1)(2)....... 64 Director
James R. Swartz............... 55 Director
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
There is no family relationship among any of the directors or executive
officers of the company.
BRIAN L. HINMAN is a founder of the Company and has served as the Chief
Executive Officer since the Company's inception. Mr. Hinman has also served as
the Chairman of the Board of Directors since January 1997. Mr. Hinman served as
President from the Company's inception until January 1997. Prior to founding the
Company, Mr. Hinman co-founded PictureTel, a manufacturer of videoconferencing
equipment, where he served as Vice President of Engineering from August 1984 to
January 1991. He is a co-founder and director of the International Multimedia
Teleconferencing Consortium, Inc. which is dedicated to the International
Telecommunications Union standards of H.320 and T.120 for video and
dataconferencing. Mr. Hinman holds nine U.S. patents and seven foreign patents
in the teleconferencing field. Mr. Hinman holds a B.S.E.E. degree from the
University of Maryland and an S.M.E.E. degree from Massachusetts Institute of
Technology.
ROBERT C. HAGERTY joined the Company in January 1997 and serves as the
President, Chief Operating Officer and a member of the Board of Directors. Prior
to joining the Company, Mr. Hagerty served as President, Chief Executive Officer
and Director of Stylus Assets, Ltd., a document management company, from
November 1995 through December 1996. From July 1993 to October 1995, Mr. Hagerty
served in various executive management positions of Logitech, Inc. Prior to that
time, Mr. Hagerty served in various executive management positions at Conner
Peripherals, Inc. Mr. Hagerty holds a B.S. degree in Operations Research and
Industrial Engineering from the University of Massachusetts, Amherst and an M.A.
degree in Management from St. Mary's College of California.
BANDEL CARANO has been a director of the Company since July 1991. Since
1987, Mr. Carano has been a General Partner of Oak Investment Partners ("Oak"),
a venture capital investment firm. Mr. Carano is also a director of Digital
Sound Corp., a unified messaging systems company, Netopia, Inc. (formerly
3
Farallon Communications, Inc.), an Internet collaboration tools company, and a
number of private companies. Mr. Carano received both his B.S. and M.S. degrees
in Electrical Engineering from Stanford University.
STANLEY J. MERESMAN has been a director of the Company since January 1995.
Mr. Meresman served as the Senior Vice President, Finance and Chief Financial
Officer of Silicon Graphics, Inc. ("Silicon Graphics") from May 1989 to May
1997. Prior to joining Silicon Graphics, Mr. Meresman was Vice President,
Finance and Administration, and Chief Financial Officer of Cypress Semiconductor
Corporation. Mr. Meresman has a B.S. degree in Industrial Engineering and
Operations Research from the University of California, Berkeley and an M.B.A.
degree from Stanford University.
JOHN P. MORGRIDGE has been a director of the Company since April 1992. In
January 1995, Mr. Morgridge became the Chairman of the Board of Cisco Systems,
Inc. ("Cisco"). Prior to this appointment, Mr. Morgridge had served as President
and Chief Executive Officer of Cisco since October 1988. Prior to Cisco, Mr.
Morgridge served two years as President and Chief Operating Officer of GRiD
Systems Corporation. From 1982 to 1986, Mr. Morgridge was Vice President of
Sales, Marketing and Service for Stratus Computers, Inc. Mr. Morgridge holds a
B.B.A. degree in Marketing and Finance from the University of Wisconsin and an
M.B.A. degree in Marketing and Transportation from Stanford University.
JAMES R. SWARTZ has been a director of the Company since July 1991. Mr.
Swartz co-founded Accel Partners, a venture capital investment firm, and has
been managing partner of Accel Partners, since September 1983. Mr. Swartz is
also a director of Netopia, Inc. (formerly Farallon Communications, Inc.), an
Internet collaboration tools company, Remedy Corporation, a developer of
client/server application software, and a number of private companies. Mr.
Swartz holds an A.B. degree in Engineering Sciences and Applied Physics from
Harvard University and an M.S.I.A. degree from Carnegie Mellon University.
The Company's bylaws authorize the Board of Directors to fix the number of
directors by resolution. The Company currently has authorized six directors.
Each director holds office until the next annual meeting of stockholders or
until his successor is duly elected and qualified. The officers serve at the
discretion of the Board of Directors.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The six candidates receiving the highest number of affirmative votes of the
shares represented in person or by proxy and voting on this particular matter at
the Annual Meeting will be elected directors of the Company to serve until the
next Annual Meeting or until their successors have been elected and qualified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
BOARD AND COMMITTEES MEETINGS
During the fiscal year ended December 28, 1997, the Board of Directors held
six meetings. Each of the directors attended or participated in 75% or more of
the aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board on which
he served during the past fiscal year.
The Board of Directors of the Company has two standing committees: an Audit
Committee and a Compensation Committee. It does not have a nominating committee
or a committee performing the functions of a nominating committee.
The Audit Committee, which currently consists of Messrs. Carano, Meresman
and Morgridge, is responsible for reviewing internal auditing procedures, the
adequacy of internal controls, and the results and scope of the audit and other
services provided by the Company's independent auditors. The Audit Committee
held four meetings during the last fiscal year.
4
The Compensation Committee, which currently consists of Messrs. Carano and
Morgridge, is primarily responsible for reviewing and approving the Company's
general compensation policies and establishing salaries, incentives and other
forms of compensation for the Company's executive officers and other employees
of the Company. The Compensation Committee also has the exclusive authority to
administer the Company's 1996 Stock Incentive Plan and make option grants
thereunder, and administers the other benefit plans of the Company. The
Compensation Committee held six meetings during the last fiscal year.
COMPENSATION OF DIRECTORS
The Company has not paid cash compensation to its directors. Non-employee
members of the Board of Directors are eligible to receive periodic option grants
under the Automatic Option Grant program under the Company's 1996 Stock
Incentive Plan. During 1997 Messrs. Carano, Meresman, Morgridge and Swartz each
received an option grant under the Automatic Option Grant Program for 4,000
shares with an exercise price of $3.875 per share. Each option is immediately
exercisable for all of the option shares, but any shares purchased under the
option will be subject to repurchase by the Company, at the exercise price, upon
the optionee's cessation of Board service during a two-year vesting period. The
shares will vest, and the Company's repurchase right will lapse, as to 50% of
the shares in each of two successive equal annual installments, provided that
the optionee has continued to serve on the Board of Directors. The option shares
will vest immediately upon an acquisition of the Company by merger or asset sale
or upon certain other changes in control or ownership of the Company. In
addition, upon the completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock, each option may be surrendered to the
Company in return for a cash payment in a per share amount equal to the excess
of the highest reported price per share of Common Stock paid in the tender offer
over the per share option exercise price.
5
PROPOSAL TWO
APPROVAL OF CORRECTING AMENDMENT AND RESTATEMENT
OF CERTIFICATE OF INCORPORATION
Prior to the Company's initial public offering in 1996, the Board of
Directors (the "Board") and stockholders approved the Company's Amended and
Restated Certificate of Incorporation, as currently in effect (the
"Certificate"), which upon the closing of the offering was intended to establish
5,000,000 authorized shares of "undesignated" Preferred Stock and to give the
Board the authority to issue the Preferred Stock in one or more series and to
set the rights, preferences, privileges and restrictions thereof. The
Certificate as approved by the Board and the Company's stockholders did not
contain the language necessary to allow the Board to set the rights,
preferences, privileges and restrictions of the undesignated Preferred Stock.
The stockholders are being asked to approve at the Annual Meeting a
correcting amendment and restatement of the Certificate that will allow the
Board to set the rights, preferences, privileges and restrictions of the
undesignated Preferred Stock. The full text of the proposed correcting amendment
and restatement of the Certificate (the "Restated Certificate") is attached to
this proxy as EXHIBIT A.
PURPOSE OF THE AMENDMENT AND RESTATEMENT
If approved by the stockholders, the Restated Certificate provides that the
Board has the authority to issue the Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. The issuance of the Preferred Stock will allow
the Board the flexibility to issue Preferred Stock in strategic relationships,
equipment leasing transactions and other capital raising transactions. However,
the issuance of such Preferred Stock may also have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. In particular, the issuance of Preferred Stock
with voting and conversion rights could adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others, and
could have the effect of diluting the earnings per share and book value per
share of outstanding shares of Common Stock. At present, the Company has no
plans to issue any shares of the Preferred Stock.
If the Restated Certificate is not approved, the future issuance of any
shares of Preferred Stock would require stockholder approval.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of the Restated Certificate requires an affirmative vote of a
majority of shares entitled to vote thereon. The effect of an abstention and
broker non-vote is the same as a vote against the proposal. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT AND RESTATEMENT OF THE
CERTIFICATE.
6
PROPOSAL THREE
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
GRANTED TO NON-EMPLOYEE MEMBERS OF THE BOARD OF DIRECTORS
The Company's stockholders are being asked to approve an amendment to the
automatic option grant program under the Company's 1996 Stock Incentive Plan
(the "1996 Plan") which will (i) increase the number of options granted to
non-employee Board members upon their initial election to the Board of Directors
from 16,000 shares to 20,000 shares and (ii) increase the number of options
granted on the date of each annual stockholders meeting to each non-employee
Board member that continues to serve as a director of the Company from 4,000
shares to 5,000 shares.
PURPOSE
Except as otherwise described, the Company has not paid cash or other
compensation to its non-employee members of the Board of Directors. In light of
competition among companies for directors with appropriate experience, the
purpose of the amendment is to attract and retain the best available personnel
for service as outside directors of the Company, to provide additional incentive
to the outside directors of the Company to serve as directors and to encourage
their continued service on the Board.
The 1996 Plan is intended to promote the interests of the Company, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company as an
incentive for them to remain in the service of the Company. The 1996 Plan is the
successor equity incentive program to the Company's 1991 Stock Option Plan (the
"Predecessor Plan"). The 1996 Plan became effective upon adoption by the Board
on March 5, 1996 (the "Effective Date") and was approved by the stockholders on
March 7, 1996. The Automatic Option Grant Program became effective on April 29,
1996 in connection with the initial public offering of the Company's Common
Stock.
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
The following is a summary of the principal features of the 1996 Plan, as
most recently amended. However, the summary does not purport to be a complete
description of all the provisions of the 1996 Plan, which is filed as Exhibit
10.3 to the Company's Registration Statement on Form S-1 (Registration No.
333-2296).
EQUITY INCENTIVE PROGRAMS
The 1996 Plan contains three (3) separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program, and
(iii) a Stock Issuance Program. The principal features of these programs are
described below. The 1996 Plan (other than the Automatic Option Grant Program)
is administered by the Compensation Committee of the Board. The Compensation
Committee acting in such administrative capacity (the "Plan Administrator") has
complete discretion (subject to the provisions of the 1996 Plan) to authorize
option grants and direct stock issuances under the 1996 Plan. Pursuant to
provisions in the 1996 Plan, the Board may appoint a Secondary Committee of one
or more Board members, including employee directors, to authorize option grants
and direct stock issuances to eligible persons other than Board members and
executive officers subject to the short-swing liability provisions of the
federal securities laws. All grants under the Automatic Option Grant Program are
to be made in strict compliance with the provisions of that program, and no
administrative discretion will be exercised by the Plan Administrator with
respect to the grants made under such program. Stockholder approval of this
Proposal will also constitute pre-approval of each option which is granted on or
after the date of the Annual Meeting pursuant to the provisions of the Automatic
Option Grant Program and the subsequent exercise of each such option in
accordance with those provisions.
7
SHARE RESERVE
A total of 4,125,000 shares of Common Stock has been reserved for issuance
over the term of the 1996 Plan. In no event may any one participant in the 1996
Plan be granted stock options and direct stock issuances for more than 300,000
shares in the aggregate per calendar year under the 1996 Plan.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the 1996
Plan, (ii) the maximum number and class of securities for which any one
participant may be granted stock options and direct stock issuances under the
1996 Plan, (iii) the number and class of securities for which option grants will
subsequently be made under the Automatic Option Grant Program to each
newly-elected or continuing non-employee Board member, and (iv) the number and
class of securities and the exercise price per share in effect under each
outstanding option.
Should an option expire or terminate for any reason prior to exercise in
full or be canceled in accordance with the provisions of the 1996 Plan, the
shares subject to the portion of the option not so exercised or canceled will be
available for subsequent issuance under the 1996 Plan. Unvested shares issued
under the 1996 Plan and subsequently repurchased by the Company at the original
option exercise or direct issue price paid per share will also be added back to
the share reserve and will accordingly be available for subsequent issuance
under the 1996 Plan.
ELIGIBILITY
Employees of the Company or any parent or subsidiary, non-employee members
of the Board or the board of directors of any parent or subsidiary corporation,
and consultants and other independent advisors in the service of the Company or
its parent or subsidiary corporations will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Non-employee members of
the Board will also be eligible to participate in the Automatic Option Grant
Program.
As of March 5, 1998, nine executive officers, four non-employee Board
members and approximately 210 other employees were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, and the four
non-employee Board members were also eligible to participate in the Automatic
Option Grant Program.
DISCRETIONARY OPTION GRANT PROGRAM
Options granted under the Discretionary Option Grant Program must have an
exercise price per share not less than the fair market value per share of Common
Stock on the option grant date. No granted option can have a term in excess of
ten years. Granted options generally become exercisable in a series of
installments over the optionee's period of service with the Company.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator has complete discretion
to extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more options
may be unvested and subject to repurchase by the Company, at the original
exercise price paid per share, if the optionee ceases service with the Company
prior to vesting in those shares. The Plan Administrator has complete discretion
to establish the vesting schedule to be in effect for any such unvested shares
and, in certain circumstances,
8
may cancel the Company's outstanding repurchase rights with respect to those
shares and thereby accelerate the vesting of those shares.
The Plan Administrator also has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
outstanding options under the Predecessor Plan) and to issue replacement options
with an exercise price based on the fair market price of Common Stock at the
time of the new grant.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for those shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
LIMITED STOCK APPRECIATION rights may be provided to one or more
non-employee Board members or officers of the Company as part of their option
grants. Any option with such limited stock appreciation rights may be
surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the officer will be entitled to a cash distribution from
the Company in an amount per surrendered option share equal to the excess of (a)
the highest price paid per share of Common Stock in connection with the tender
offer over (b) the exercise price payable for such share.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program as proposed to be amended, if
approved by the Stockholders, each individual who first becomes a non-employee
Board member, whether through election by the stockholders or appointment by the
Board, will automatically be granted, at the time of such initial election or
appointment, a non-statutory option to purchase 20,000 shares of Common Stock,
provided such individual has not previously been in the Company's employ. In
addition, on the date of each Annual Meeting, each individual who is to continue
to serve as a non-employee Board member will automatically be granted a
non-statutory option to purchase 5,000 shares of the Company's Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There will be no limit on the number of such 5,000-share option
grants that any one non-employee Board member may receive over his or her period
of Board service.
Each 20,000-share or 5,000-share option granted under the Automatic Option
Grant Program will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the grant date, subject to earlier termination.
Each 20,000-share or 5,000-share option will be immediately exercisable for all
the option shares. However, any shares purchased under the option will be
subject to repurchase by the Company, at the option exercise price paid per
share, upon the optionee's cessation of Board service prior to vesting in those
shares. The shares subject to each initial 20,000-share automatic option grant
will vest in a series of four successive equal annual installments upon the
optionee's completion of each year of Board service over the four year period
measured from the grant date. The shares subject to each annual 5,000-share
grant will vest in two successive equal annual installments over the optionee's
period of continued service as a Board member, with the first such installment
to vest upon optionee's completion of one year of Board service measured from
the grant date. Should the optionee cease to serve as a Board member, the
optionee will generally have until the earlier of (i) the twelve month period
following such cessation of service or (ii) the expiration date of the option
term, in which to exercise the option for the number of shares that are vested
at the time of such individual's cessation of Board service.
9
The shares subject to each automatic option grant will immediately vest in
full upon (i) the optionee's death or permanent disability while a Board member,
(ii) an acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than 50% of the Company's outstanding
voting stock or (iv) a change in the majority of the Board effected through one
or more proxy contests for Board membership. In addition, upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding voting stock, each option may be surrendered to the Company for a
cash payment in an amount equal to the excess of the highest price per share of
Common Stock paid in connection with such tender offer over the per share
exercise price multiplied by the number of shares subject to such option.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than the fair market value on the issuance date, payable in cash or through
a promissory note payable to the Company. Shares may also be issued solely as a
bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator, however, has the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the 1996 Plan.
CHANGE OF CONTROL PROVISIONS
In the event that the Company is acquired by merger or asset sale, the
vesting of each outstanding option under the Discretionary Option Grant Program
which is not to be assumed by the successor corporation, including options held
by the Company's executive officers, will automatically accelerate in full, and
all unvested shares issued under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed in connection with such acquisition
may, in the Plan Administrator's discretion, be subject to immediate
acceleration of vesting, and any unvested shares which do not vest at the time
of such acquisition may be subject to full and immediate vesting, in the event
the individual's service with the successor entity is subsequently terminated
within a specified period following the acquisition. In connection with a change
in control of the Company other than by merger or asset sale (whether such
change of control is by successful tender offer for more than 50% of the
outstanding voting stock or a change in the majority of the Board by one or more
contested elections for Board membership), the Plan Administrator will have the
discretionary authority to provide for automatic acceleration of vesting of
outstanding options under the Discretionary Option Grant Program and the
automatic vesting of all unvested shares issued under the Discretionary Option
Grant and Stock Issuance Programs, with such acceleration of vesting to occur
either at the time of such change in control or upon the subsequent termination
of the individual's service.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to have the Company withhold a
portion of the shares otherwise issuable to such individuals in satisfaction of
the tax liability incurred by such individuals in connection with the exercise
of those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
10
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and more
than one year after the exercise date. If either of these two holding periods is
not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will generally recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
11
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1996 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Internal Revenue Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices equal to the
fair market value of the shares at the time of issuance or grant will not result
in any charge to the Company's earnings, but the Company must disclose in the
notes to the Company's financial statements the fair value of options granted
under the 1996 Plan and the pro forma impact on the Company's annual net income
and earnings per share as though the computed fair value of such options had
been treated as compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law or
regulation. The Board may terminate the 1996 Plan at any time, and the 1996 Plan
will in all events terminate on December 31, 2005.
PLAN BENEFITS
If the amendments to the Automatic Option Grant Program under the 1996 Stock
Incentive Plan are approved, each non-employee Board member will receive an
annual grant of an option to purchase 5,000 shares of the Common Stock of the
Company. Assuming the current nominees to the Company's Board of Directors are
elected by the stockholders at the Annual Meeting, the aggregate number of stock
options to be granted to the non-employee Board members as a group in the fiscal
year ending January 3, 1999 will be 20,000. The Company cannot currently
determine the number of shares for which options will be granted in the future
to all executive officers as a group or all employees (including current
officers who are not executive officers) as a group. However, see
"MANAGEMENT--Option Grants in Last Fiscal Year" for the number of stock options
granted to the officers named in the Summary Compensation Table in the last
fiscal year. In the fiscal year ended December 28, 1997, options to purchase an
aggregate of 1,140,000
12
shares of Common Stock of the Company were granted to executive officers as a
group at a weighted average exercise price of approximately $4.04, and options
to purchase an aggregate of 910,700 shares of Common Stock of the Company were
granted to all employees (including current officers who are not executive
officers) as a group at a weighted average exercise price of approximately
$4.71.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of the Company
present in person or represented by proxy and entitled to vote at the Annual
Meeting is required for approval of the amendments to the Automatic Option Grant
Program under the 1996 Plan. The effect of an abstention is the same as a vote
against approval of the amendments to the Automatic Option Grant Program under
the 1996 Plan. Should such stockholder approval not be obtained, then the 1996
Plan will remain unchanged, and option grants and direct stock issuances will
continue to be made pursuant to the provisions of the 1996 Plan in effect prior
to the amendments summarized in this proposal three.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE AUTOMATIC
OPTION GRANT PROGRAM UNDER THE 1996 STOCK INCENTIVE PLAN.
13
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P., independent
auditors, to audit the financial statements of the Company for the fiscal year
ending January 3, 1999. Coopers & Lybrand L.L.P. has audited the Company's
financial statements since 1991. A representative of Coopers & Lybrand L.L.P. is
expected to be present at the meeting, will have the opportunity to make a
statement if he or she desires to do so, and is expected to be available to
respond to appropriate questions.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. The effect of an abstention is the same as a vote against the
ratification of the appointment of the Independent Auditors. In the event that
the stockholders do not approve the selection of Coopers & Lybrand L.L.P., the
appointment of the independent auditors will be reconsidered by the Board of
Directors. Even if the may direct the appointment of a different independent
auditing firm at any time during the year if the Board of Directors believes
that such a change would be in the best interests of the Company and its
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND, L.L.P., AS INDEPENDENT AUDITORS FOR THE
COMPANY'S FISCAL YEAR ENDING JANUARY 3, 1999.
14
MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 5, 1998 for the following: (i) each person or entity who
is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's directors;
(iii) the Company's Chief Executive Officer and each of the officers ("Named
Officers") named in the Summary Compensation Table on page 18 hereof; and (iv)
all directors and executive officers of the Company as a group.
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS AND OFFICERS(1) OWNED(2) OWNED(2)
- --------------------------------------------------------------------------------------- ------------ -------------
PRINCIPAL STOCKHOLDERS
Oak Investment Partners IV, L.P. and its related entities(3) .......................... 5,421,676 18.7%
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Brentwood Associates V, L.P.(4) ....................................................... 3,639,144 12.6%
2730 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Minnesota Mining and Manufacturing(5) ................................................. 3,020,476 10.4%
3M Austin Center
6801 River Place Boulevard
Austin, TX 78726-9000
Accel III, L.P. and its related entities(6) ........................................... 2,633,398 9.1%
One Palmer Square
Princeton, NJ 08542
Institutional Venture Partners V and its related entities(7) .......................... 2,126,976 7.3%
Building Two, Suite 290
3000 Sand Hill Road
Menlo Park, CA 94025
DIRECTORS
Bandel Carano(3)....................................................................... 5,441,676 18.8%
Stanley J. Meresman.................................................................... 54,000 *
John P. Morgridge...................................................................... 40,338 *
James R. Swartz(6)..................................................................... 2,653,398 9.2%
NAMED EXECUTIVE OFFICERS
Brian L. Hinman(8)..................................................................... 1,911,317 6.6%
Robert C. Hagerty(9)................................................................... 77,500 *
Michael R. Kourey(10).................................................................. 248,327 *
Ardeshir Falaki(11).................................................................... 117,250 *
Alan D. Hagedorn....................................................................... 60,890 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(13 persons)(12)..................................................................... 11,128,804 38.4%
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address for each listed stockholder is c/o
Polycom, Inc., 2584 Junction Avenue, San Jose, California 95134.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to
15
securities. Shares of Common Stock subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after
March 5, 1998 are deemed outstanding for purposes of computing the
beneficial ownership of the person holding such options but are not deemed
outstanding for purposes of computing the beneficial ownership of any other
person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(3) Includes 5,249,735 shares held by Oak Investment Partners IV, L.P. ("Oak
IV") and 171,941 shares held by Oak IV Affiliates Fund, L.P. ("Oak IV
Affiliates"). Mr. Carano, a director of the Company, is a General Partner
of Oak IV and Oak IV Affiliates. Mr. Carano disclaims beneficial ownership
of the shares held by these entities except to the extent of his pecuniary
interest therein arising from his general partnership interests in Oak IV
and Oak IV Affiliates. The shares beneficially owned by Mr. Carano consist
of options to purchase 20,000 shares of Common Stock in the form of
immediately exercisable options, some of which, if exercised and issued,
would be unvested and subject to a repurchase right of the Company that
lapses over time.
(4) Includes 2,533,083 shares held by Brentwood Associates VII, 1,012,846
shares held by Brentwood Associates V, and 93,215 shares held by Brentwood
Affiliates Fund.
(5) Includes warrants to purchase 2,000,000 shares, which are immediately
exercisable.
(6) Includes 2,317,391 shares held by Accel III, L.P. ("Accel III"), 210,671
shares held by Accel Japan, L.P. ("Accel Japan") and 105,336 shares held by
Accel Investors' 91, L.P. ("Accel Investors"). Mr. Swartz, a director of
the Company, is a General Partner of Accel III, Accel Japan and Accel
Investors. Mr. Swartz disclaims beneficial ownership of the shares held by
these entities except to the extent of his pecuniary interest therein
arising from his general partnership interests in Accel III, Accel Japan
and Accel Investors. The shares beneficially owned by Mr. Swartz consist of
20,000 shares of common stock in the form of immediately exercisable
options, some of which, if exercised and issued, would be unvested and
subject to a repurchase right of the Company that lapses over time.
(7) Includes 2,093,186 shares held by Institutional Venture Partners V and
33,790 shares held by Institutional Venture Management V. Institutional
Venture Management V is the General Partner of Institutional Venture
Partners V.
(8) Includes 6,667 shares owned by Mr. Hinman in the form of immediately
exercisable options, some of which, if exercised and issued, would be
unvested and subject to a repurchase right of the Company which lapses over
time. Mr. Hinman is also a Director of the Company.
(9) Mr. Hagerty is also a Director of the Company.
(10) Includes 41,667 shares owned Mr. Kourey in the form of immediately
exercisable options, some of which, if exercised and issued, would be
unvested, and 5,128 shares in the form of Common Stock which are unvested.
Unvested shares are subject to a repurchase right of the Company which
lapses over time.
(11) Includes options to purchase 100,000 shares of Common Stock.
(12) Includes options to purchase 312,501 shares of Common Stock, 32,000 shares
of which are in the form of immediately exercisable options, some of
which, if exercised and issued, would be unvested, and 17,628 shares of
unvested Common Stock. Unvested shares are subject to a repurchase right
of the Company that lapses over time.
16
EXECUTIVE OFFICER COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
four other most highly compensated executive officers whose salary plus bonus
exceeded $100,000 during the last fiscal year, information concerning
compensation paid for services to the Company in all capacities during the last
three fiscal years. The individuals in the table will be collectively referred
to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
-------------------- SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS(#) ($)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
Brian L. Hinman ..................................... 1997 150,000 -- -- --
Chairman of the Board and 1996 150,000 -- 6,667 --
Chief Executive Officer 1995 115,802 -- --
Robert C. Hagerty(2) ................................ 1997 159,539 -- 300,000 --
President and Chief 1996 -- -- -- --
Operating Officer 1995 -- -- -- --
Michael R. Kourey ................................... 1997 186,029 -- 200,000 --
Vice President, Finance and Administration, 1996 135,000 -- 106,667 --
Chief Financial Officer and Secretary 1995 130,033 -- -- --
Ardeshir Falaki(3) .................................. 1997 134,462 -- 250,000 25,000(4)
Vice President and General Manager Data 1996 81,731 24,997 -- --
conferencing 1995 -- -- -- --
Alan D. Hagedorn(5) ................................. 1997 130,000 -- -- --
Vice President, Manufacturing 1996 32,500 -- 130,000 --
1995 -- -- -- --
- ------------------------
(1) Includes bonuses earned or accrued with respect to services rendered in the
fiscal year indicated, whether or not such bonus was actually paid during
such fiscal year.
(2) Mr. Hagerty joined the Company in January 1997.
(3) Mr. Falaki joined the Company in April 1996.
(4) Includes $25,000 of payments made under a relocation agreement between Mr.
Falaki and the Company.
(5) Mr. Hagedorn joined the Company in September 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to each of the Named Executive Officers,
information concerning stock options granted during the fiscal year ended
December 28, 1997. No stock appreciation rights were granted to the Named
Executive Officers during such fiscal year.
17
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TERM(5)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE(3) DATE(4) 5% 10%
- ------------------------------------- ----------- ----------------- ----------- ------------- ---------- ------------
Brian L. Hinman...................... -- -- -- -- -- --
Robert C. Hagerty.................... 300,000 15% $ 3.938 1/07 $ 742,882 $ 1,882,608
Michael R. Kourey.................... 200,000 10% $ 3.00 5/07 $ 377,337 $ 956,246
Ardeshir Falaki...................... 250,000 12% $ 3.00 5/07 $ 471,671 $ 1,195,317
Alan Hagedorn........................ -- -- -- -- -- --
- ------------------------
(1) All options in this table are incentive stock options and were granted under
the 1996 Stock Incentive Plan and have exercise prices equal to the fair
market value on the date of grant. All such options have ten-year terms
(subject to earlier termination upon the optionee's cessation of service)
and vest over a five-year period at the rate of one-fifth at the end of one
year from the date of grant and 1/48th each month thereafter, with the
exception of the options granted Mr. Falaki, whose options vest thirty
percent at the end of October 1997 and the remainder in 42 equal monthly
installments. The shares subject to each option will immediately vest in
full in the event the Company is acquired by a merger or asset sale (unless
the Company's repurchase right with respect to the unvested shares is to be
assigned to the acquiring entity or the option is to be assumed by such
entity).
(2) The Company granted options to purchase a total of 2,050,700 shares of
Common Stock to employees in fiscal 1997.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by lending the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
(4) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of the Company.
(5) Potential realizable value assumes that the stock price increases from the
exercise price from the date of grant until the end of the option term (10
years) at the annual rate specified (5% and 10%). Annual compounding results
in total appreciation of approximately 62.9% (at 5% per year) and 159.4% (at
10% per year). The assumed annual rates of appreciation are specified in SEC
rules and do not represent the Company's estimate or projection of future
stock price growth. The Company does not necessarily agree that this method
can properly determine the value of an option.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the Named Executive Officers,
certain information concerning stock options exercised during the fiscal year
ended December 28, 1997, and the number of shares subject to exercisable stock
options as of December 28, 1997. Also reported are values for "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Common Stock as of December 26, 1997 (the last trading day of fiscal 1997) which
was $5.125 per share.
18
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE(#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------------- ------------- ----------- ------------- ----------- -------------
Brian L. Hinman................... -- -- 6,389 278 $ 2,396 $ 104
Robert C. Hagerty(1).............. -- -- -- 300,000 $ -- $ 356,250
Michael R. Kourey................. -- -- 33,056 273,611 $ 2,396 $ 425,104
Ardeshir Falaki................... -- -- 79,167 170,833 $ 168,230 $ 363,020
Alan D. Hagedorn.................. -- -- 32,500 97,500 $ 0 $ 0
- ------------------------
(1) Mr. Hagerty joined the Company in January 1997.
CERTAIN TRANSACTIONS
In 1997, the Company issued a $250,000 interest free loan to Michael R.
Kourey, Vice President, Finance and Administration and Chief Financial Officer.
The loan is due in March, 2002, or within four months of Mr. Kourey's
resignation from the Company, if earlier. The Company has previously made loans
for an aggregate of $12,000 to Mr. Kourey bearing a weighted average interest
rate of 7.29%. The loans are secured by an aggregate of 74,500 shares of Common
Stock of the Company held by Mr. Kourey. As of December 28, 1997, the total
amount outstanding was approximately $265,000.
REPORT ON REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors resolved on May 6, 1997
to reprice stock option grants made to Mr. Falaki, a Named Executive Officer. At
the time of repricing, the exercise prices of stock options held by Mr. Falaki
were significantly higher than the closing trading price for the Company's
Common Stock. The Company granted an option to purchase the same number of
shares granted under the previous grants, at an exercise price equal to the
closing sales price per share on the date of the grant (May 6, 1997), in
cancellation of all of Mr. Falaki's existing rights to purchase shares of Common
Stock under the previously held options. The Compensation Committee repriced the
options pursuant to the 1996 Stock Incentive Plan's stated purpose to provide
eligible individuals in the Company's service with an opportunity to acquire a
proprietary interest in the Company.
TEN-YEAR OPTION REPRICINGS
LENGTH OF
NUMBER OF MARKET ORIGINAL OPTION
SECURITIES PRICE OF EXERCISE TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING AT
OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED(#) REPRICING REPRICING PRICE REPRICING
- ------------------------------------ --------- ----------- ----------- ----------- ----------- --------------------
Ardeshir Falaki(3).................. 5/6/97 100,000 $ 3.00 $ 9.00 $ 3.00 9 years
Vice President and General 5/6/97 65,000 $ 3.00 $ 6.12 $ 3.00 9 years, 6 months
Manager Data conferencing 5/6/97 10,000 $ 3.00 $ 4.50 $ 3.00 9 years, 9 months
- ------------------------
THE COMPENSATION COMMITTEE
Bandel Carano
John P. Morgridge
19
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of directors
Bandel Carano and John P. Morgridge, neither of whom is an employee or officer
of the Company. The Compensation Committee of the Board of Directors sets the
compensation of the Chief Executive Officer and the other executive officers and
key employees, subject to ratification by the Board. The Compensation Committee
also administers the Company's 1996 Stock Incentive Plan and approves stock
option grants for all executive officers and other key employees.
GENERAL COMPENSATION POLICY
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
executive officers of the Company should be designed to attract, motivate and
retain talented executives responsible for the success of the Company and should
be determined within a competitive framework and based on the achievement of
overall financial results, individual contributions and a measure of customer
satisfaction. Within this overall philosophy, the Committee's objectives are to:
- Offer a total compensation program that takes into consideration the
compensation practices of a specifically identified peer group of
companies and other selected companies with which the Company competes for
executive talent.
- Provide annual variable incentive awards that take into account the
Company's overall financial performance relative to corporate objectives
and the performance of the peer group companies and that are also based on
individual contributions and a measure of customer satisfaction.
- Align the financial interests of executive officers with those of
stockholders by providing significant equity-based, long-term incentives.
COMPENSATION COMPONENTS AND PROCESS
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term
equity-based incentive awards.
The Committee determines the compensation levels for the executive officers
with the assistance of the Company's Human Resources Department, which works
with an independent consulting firm that furnishes the Committee with executive
compensation data drawn from a nationally recognized survey of similarly sized
technology companies (the "Peer Companies"). A significant number of the Peer
Companies are listed in the Hambrecht & Quist Technology Index which is included
in the Performance Graph for this Proxy Statement (see "Comparison of
Stockholder Return"). Certain companies not included in this Index were taken
into account as Peer Companies because the Company competes for executive talent
with those firms. However, some organizations in the Hambrecht & Quist
Technology Index were excluded from the Peer Companies list because they were
not considered competitors for executive talent or because compensation
information was not available.
The positions of the Company's CEO and executive officers were compared with
those of their counterparts at the Peer Companies, and the market compensation
levels for comparable positions were examined to determine base salary, target
incentives and total cash compensation. In addition, the Peer Companies'
practices concerning stock option grants were reviewed and compared.
BASE SALARY. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at the Peer Companies.
VARIABLE INCENTIVE AWARDS. To reinforce the attainment of Company goals,
the Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive pool set aside for executive officers is determined on the
basis
20
of the Company's achievement of the financial performance targets established at
the beginning of the fiscal year, a range for the executive's contribution, and
a measure of customer satisfaction. The incentive plan requires a threshold
level of Company performance based on both revenue and profit before interest
and taxes that must be attained before any incentives are awarded. Once the new
fiscal year's threshold is reached, specific formulas are in place to calculate
the actual incentive payment for each officer. A target is set for each
executive officer based on targets for comparable positions at the Peer
Companies. In fiscal 1997, the Company did not meet its performance targets. No
awards were therefore paid in fiscal 1997.
LONG-TERM, EQUITY-BASED INCENTIVE AWARDS. The goal of the Company's
long-term equity-based incentive awards is to align the interests of executive
officers with stockholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The Committee determines the size of
long-term, equity-based incentives according to each executive's position within
the Company and sets a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Committee takes into account
an individual's recent performance, his or her potential for future
responsibility and promotion, comparable awards made to individuals in similar
positions with the Peer Companies, and the number of unvested options held by
each individual at the time of the new grant. The relative weight given to each
of these factors varies among individuals at the Committee's discretion.
During fiscal 1997, the Committee made option grants to Messrs. Hagerty,
Kourey and Falaki under the Company's 1996 Stock Incentive Plan. Each grant
allows the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the market price on the grant date) over a specified period of
time. Generally, each option granted under the 1996 Stock Incentive Plan vests
in periodic installments over a five year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return only if the officer remains with the Company and only if the
market price appreciates over the option term.
CEO COMPENSATION. The annual base salary for Mr. Hinman for the 1997 fiscal
year was based on an evaluation of his personal performance and the salary
levels paid to chief executive officers of the Peer Companies. Mr. Hinman's 1997
fiscal year incentive compensation was based on the actual financial performance
of the Company relative to corporate objectives and a measure of customer
satisfaction. Mr. Hinman's incentive compensation provided no dollar guarantees.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). As a result of
Section 162(m) of the Internal Revenue Code, which was enacted into law in 1993,
the Company will not be allowed a Federal income tax deduction for compensation
paid to certain officers to the extent that compensation exceeds one million
dollars per officer in any one year. This limitation will apply to all
compensation which is not considered to be performance based. Compensation which
does qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation.
The cash compensation paid to the Company's executive officers during fiscal
1997 did not exceed the one million dollar limit per officer, nor is the cash
compensation to be paid to the Company's executive officers for the 1998 fiscal
year expected to reach that level. Because it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this decision should the individual
compensation of any executive officer ever approach the one million dollar
level.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Company Stock Performance Graph (set forth below) will not be
incorporated by
21
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
THE COMPENSATION COMMITTEE
Bandel Carano
John P. Morgridge
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States (Section 16 of the Securities
Exchange Act of 1934, as amended), the Company's directors, executive officers
and any persons holding more than 10% of the Company's Common Stock are required
to report initial ownership of the Company's Common Stock and any subsequent
changes in ownership to the Securities and Exchange Commission ("SEC"). Specific
due dates have been established by the SEC, and the Company is required to
disclose in this Proxy Statement any failure to file by these dates. Based
solely upon (i) the copies of Section 16(a) reports that the Company received
from such persons for their 1997 fiscal year transactions and (ii) the written
representations received from certain of such persons that no reports were
required to be filed for them for the 1997 fiscal year, the Company believes
that there has been compliance with all Section 16(a) filing requirements
applicable to such officers, directors and 10% beneficial owners for such fiscal
year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in January 1995 and is
currently composed of Messrs. Carano and Morgridge. No interlocking relationship
exists between any member of the Company's Board of Directors or Compensation
Committee and any member of the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. No member of the Compensation Committee is or was formerly an officer or
an employee of the Company or its subsidiaries
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has agreed to pay certain Named Executive Officers severance pay
in the event that they are terminated without cause or in certain other
specified circumstances. The amount of such severance payment is the executive's
salary and benefits for a period of three to six months.
COMPARISON OF STOCKHOLDER RETURN(1)
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock with the cumulative total returns of the Nasdaq National Stock
Market Index and the Hambrecht & Quist Technology Index. The graph covers the
period from April 29, 1996, the date the Company's initial public offering
commenced, through the fiscal year ended December 28, 1997.
The graph assumes that $100 was invested on April 29, 1996 in the Company's
Common Stock and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock.
22
COMPANY STOCK PRICE PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
POLYCOM, INC. NASDAQ INDEX H&Q TECHNOLOGY
4/96 $100 $100 $100
6/96 $77.78 $99.88 $94.11
9/96 $68.06 $103.43 $99.91
12/96 $54.17 $108.51 $107.13
3/97 $44.44 $102.63 $102.11
6/97 $58.33 $121.44 $122.91
9/97 $59.72 $141.99 $148.96
12/97 $60.42 $133.16 $125.60
- ------------------------
(1) The stock price performance shown on the graph is not indicative of future
price performance. Information used on the graph was obtained from sources
believed to be reliable, but the Company is not responsible for any errors
or omissions in such information.
OTHER MATTERS
The Company 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 proxy card to vote the shares
they represent as the Board of Directors may recommend. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
It is important that your shares be represented at the meeting, regardless
of the number of shares that you hold. You are therefore urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
OF POLYCOM, INC.
San Jose, California
April 21, 1998
23
EXHIBIT A:
AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF POLYCOM, INC.,
A DELAWARE CORPORATION
Polycom, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
FIRST: That the name of this corporation is Polycom, Inc., and that this
corporation was originally incorporated on December 13, 1990 under the name
Polycom Corporation.
SECOND: That the Board of Directors of this corporation as of February 27,
1998 duly adopted resolutions proposing to amend and restate the Restated
Certificate of Incorporation of the corporation (the "Certificate"), declaring
said amendment and restatement to be advisable and in the best interests of the
corporation and its stockholders and authorizing the appropriate officers of the
corporation to solicit the consent of the stockholders therefor which
resolution, setting the proposed amendment and restatement is as follows:
"RESOLVED, that the Restated Certificate of Incorporation of this corporation
(the "Certificate") be amended and restated to read in its entirety as follows:
ARTICLE I
The name of this corporation is Polycom, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, County of New Castle, Wilmington, Delaware, 19805.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
Fifty-Five Million (55,000,000) shares. Fifty Million (50,000,000) shares shall
be Common Stock, with a par value per share of $.0005, and Five Million
(5,000,000) shares shall be Preferred Stock, with a par value share of $.001.
(B) PREFERRED STOCK. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such privileges, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
on case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
(C) COMMON STOCK.
(1) DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(2) REDEMPTION. The Common Stock is not redeemable.
(3) VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Certificate, in furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind any or all of the
Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders.
ARTICLE VII
Election of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
2
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as the same may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE X
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
THIRD: The amendment to the Restated Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law by (a) the Board of Directors of the Corporation having duly
adopted a resolution setting forth such amendment and declaring its advisability
and submitting it to the stockholders of the Corporation for their approval, and
(b) the stockholders of the Corporation having duly adopted such amendment by
vote of the holders of a majority of the outstanding stock entitled to vote
thereon at a special meeting of stockholders called and held upon notice in
accordance with Section 222 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this certificate on May
21, 1998.
POLYCOM, INC.
/s/ BRIAN L. HINMAN
-----------------------------------------
Brian L. Hinman
PRESIDENT
/s/ MICHAEL R. KOUREY
-----------------------------------------
Michael R. Kourey
SECRETARY
3
APPENDIX A
POLYCOM, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF POLYCOM, INC.
PROXY - The undersigned stockholder of Polycom, Inc., a Delaware
corporation, hereby acknowledges receipt of the 1997 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and the Proxy
Statement, each dated April 21, 1998, for the Annual Meeting of Stockholders
of Polycom, Inc. to be held on May 21, 1998 at 10:00 a.m., local time at
Polycom, Inc.'s facilities and revoking all prior proxies, hereby appoints
Brian L. Hinman and Michael R. Kourey, and each of them, as proxies and
attorneys-in-fact, each with full power of substitution, and to represent and
to vote, as designated on the reverse side, all shares of Common Stock of
Polycom, Inc. held on record by the undersigned on April 3, 1998 at the
Annual Meeting to be held on May 21, 1998, or any postponement or adjournment
thereof.
The Board of Directors recommends a vote FOR the election of directors and
proposals 2, 3 and 4.
SEE REVERSE SIDE
Please mark votes as in this example /X/
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR THE PROPOSALS IN ITEMS 2, 3
AND 4.
1. Election of all nominees listed below to the Board of Directors to serve
until the next Annual Meeting and until their successors have been duly
elected and qualified, except as noted (write the names, if any, of
nominees for whom you withhold authority to vote).
NOMINEES: Brian L. Hinman, Robert C. Hagerty, Bandel Carano,
Stanley J. Meresman, John P. Morgridge, James R. Swartz
/ / FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES
2. To approve a correcting amendment and restatement of the Company's
Amended and Restated Certificate of Incorporation that will allow the
Company's Board of Directors to determine the rights, preferences,
privileges and restrictions of the Company's undesignated Preferred
Stock.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Company's 1996 Stock Incentive Plan
increasing the number of shares granted to non-employee Directors under
the Automatic Option Grant Program.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the fiscal year ending January 3, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion, the proxies and attorneys-in-fact are authorized to
vote upon such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
/ / Mark here for address change and note below
--------------------------------------------
--------------------------------------------
(This Proxy should be dated, signed by the stockholder(s) exactly as his or
her name(s) appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate.)
Signature: Date:
---------------------------- ----------------
Signature: Date:
---------------------------- ----------------
APPENDIX B
POLYCOM, INC. 1996 STOCK INCENTIVE PLAN
(AS AMENDED THROUGH FEBRUARY 27, 1998)
The following constitute the provisions of the 1996 Stock Incentive Plan
(herein called the "Plan") of Polycom, Inc. (herein called the "Corporation").
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of
Polycom, Inc., a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain
in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three (3) separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The Discretionary Option Grant and Stock Issuance Programs became
effective immediately upon the Plan Effective Date, and the Automatic Option
Grant Program became effective upon the Underwriting Date.
C. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the Discretionary
Option Grant and Stock Issuance Programs were administered by the Board.
Beginning with the Section 12(g) Registration Date, the Primary Committee
shall have sole and exclusive authority to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in those
programs may, at the Board's discretion, be vested in the Primary Committee
or a Secondary Committee, or the Board may retain the power to administer
those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are also Employees.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed
by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs
and to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction
or any stock option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as
Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
-2-
1. Employees,
2. non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
3. consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, (i) with respect to the option
grants under the Discretionary Option Grant Program, which eligible persons
are to receive option grants, the time or times when such option grants are
to be made, the number of shares to be covered by each such grant, the status
of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding and (ii) with respect to
stock issuances under the Stock Issuance Program, which eligible persons are
to receive stock issuances, the time or times when such issuances are to be
made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration to be
paid for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to participate in the Automatic Option
Grant Program shall be limited to (i) those individuals serving as
non-employee Board members on the Underwriting Date, (ii) those individuals
who first become non-employee Board members after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (iii) those individuals who continue to serve as
non-employee Board members through one or more Annual Stockholders Meetings
held after the Underwriting Date. A non-employee Board member shall not be
eligible to receive an initial option grant under the Automatic Option Grant
Program on the Underwriting Date if such individual has previously been in
the employ of the Corporation (or any Parent or Subsidiary) or has otherwise
received a prior stock option grant from the Corporation. A non-employee
Board member who first joins the Board after the Underwriting Date shall not
be eligible to receive an initial option grant under the Automatic Option
Grant Program if such individual has previously been in the employ of the
Corporation (or any Parent or Subsidiary). Non-employee Board members who
have previously been in the employ of the Corporation (or any Parent or
Subsidiary) or who have previously received a stock option grant from the
Corporation shall, however, be eligible to receive one or more annual option
grants under the Automatic Option Grant Program over their period of
continued Board service.
-3-
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed approximately
4,125,000 shares. Such authorized share reserve is comprised of (i) the
number of shares estimated to remain available for issuance, as of the Plan
Effective Date, under the Predecessor Plan as last approved by the
Corporation's stockholders, including the shares subject to the outstanding
options hereby incorporated into the Plan, (ii) an additional increase of
2,300,000 shares authorized by the Board and approved by the stockholders on
March 7, 1996, plus (iii) an additional increase of 1,000,000 shares
authorized by the Board on March 5, 1997, subject to stockholder approval at
the 1997 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 300,000 shares of Common Stock in the aggregate per calendar
year, beginning with the 1996 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the
options (including any options incorporated from the Predecessor Plan) expire
or terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article
Two. In addition, any unvested shares issued under the Plan and subsequently
repurchased by the Corporation, at the option exercise or direct issue price
paid per share, pursuant to the Corporation's repurchase rights under the
Plan shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan. However, should the exercise price of an option under the Plan
(including any option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or
the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which
any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances per calendar year, (iii) the
number and/or class of securities for which automatic option grants are to be
made subsequently per Eligible Director under the Automatic Option Grant
Program and (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option
-4-
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five
and the documents evidencing the option, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state
and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
-5-
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for
such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the
personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration
of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for
-6-
that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the
expiration date of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more additional installments in
which the Optionee would have vested under the option had the
Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall
be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However,
Non-Statutory Options may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions
of Articles One, Two and Five shall be applicable to Incentive Options.
Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or
-7-
Subsidiary) may for the first time become exercisable as Incentive Options
during any one (1) calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options
as Incentive Options shall be applied on the basis of the order in which such
options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share
of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to such option.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent those repurchase rights are to be assigned
to the successor corporation (or parent thereof) in connection with such
Corporate Transaction.
C. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed (or those repurchase rights
are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
-8-
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction, (ii) the exercise price payable
per share under each outstanding option, PROVIDED the aggregate exercise
price payable for such securities shall remain the same and (iii) the maximum
number and/or class of securities for which any one person may be granted
stock options, separately exercisable stock appreciation rights and direct
stock issuances under the Plan per calendar year.
F. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in whole or in part should the Optionee's Service subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed twelve (12) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do
not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the EARLIER of (i) the expiration
of the option term or (ii) the expiration of the one (1)-year period measured
from the effective date of the Involuntary Termination. In addition, the
Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at
the time of such Involuntary Termination shall immediately terminate in whole
or in part, and the shares subject to those terminated rights shall
accordingly vest.
G. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in whole or in part should the Optionee's Service subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed twelve (12) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
-9-
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same
or different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new
grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
-10-
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option
to the Corporation, to the extent the option is at the time exercisable
for vested shares of Common Stock. In return for the surrendered option,
the Optionee shall receive a cash distribution from the Corporation in
an amount equal to the excess of (A) the Take-Over Price of the shares
of Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the
limited stock appreciation right is granted, the subsequent exercise of
that right in accordance with the terms of the grant and the provisions
of this Section V.C. No additional approval of the Plan Administrator or
the Board shall be required at the time of the actual option surrender
and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement
which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
-11-
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule, shall be determined by the Plan Administrator and incorporated
into the Stock Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares
is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to
one or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
-12-
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other
assets attributable thereto) which would otherwise occur upon the cessation
of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock
as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation rights
under the Stock Issuance Program shall terminate automatically, and all the
shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed twelve (12)
months) following the effective date of any Corporate Transaction in which
those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed twelve (12)
months) following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends
on the certificates evidencing those unvested shares.
-13-
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual serving as a non-employee Board member on the
Underwriting Date was automatically granted, on that date, a Non-Statutory
Option to purchase 20,000 shares of Common Stock, provided such individual
(i) had not previously been in the employ of the Corporation (or any Parent
or Subsidiary) and (ii) had not otherwise received a prior stock option grant
from the Corporation.
2. Each individual who is first elected or appointed as a
non-employee Board member after the Underwriting Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 20,000 shares of Common Stock, provided such individual
has not previously been in the employ of the Corporation (or any Parent or
Subsidiary).
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the
employ of the Corporation (or any Parent or Subsidiary) or who have otherwise
received a stock option grant from the Corporation prior to the Underwriting
Date shall be eligible to receive one or more such annual option grants over
their period of continued Board service.
Stockholder approval of this 1997 Restatement at the 1997 Annual
Stockholders Meeting shall constitute pre-approval of each option granted
under this Article Four on or after the date of that Annual Meeting and the
subsequent exercise of that option in accordance with the provisions of this
Article Four.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
-14-
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder
is utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation,
at the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 20,000-share grant
shall vest, and the Corporation's repurchase right shall lapse, in a series
of four (4) successive equal annual installments over the Optionee's period
of continued service as a Board member, with the first such installment to
vest upon the Optionee's completion of one (1) year of Board service measured
from the option grant date. Each annual 5,000-share grant shall vest, and
the Corporation's repurchase right shall lapse, in two (2) successive equal
annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant
date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall,
-15-
immediately upon the Optionee's cessation of Board service for any
reason other than death or Permanent Disability, terminate and cease to
be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation
of the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Change in Control, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such
fully-vested option shares until the expiration or sooner termination of the
option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to the surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the
Corporation. Stockholder approval of this 1997 Restatement at the 1997 Annual
Stockholders Meeting shall constitute pre-approval of each option granted
with such a surrender provision on or after the date of that Annual Meeting
and the subsequent surrender of that option in accordance with the provisions
of this Section II.C. No additional approval of the Plan Administrator or
the Board shall be required at the time of the actual option surrender and
cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
-16-
E. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. RREMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms
of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price
or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee
or the Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options or stock appreciation rights or upon the
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in
connection
-17-
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) STOCK DELIVERY: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest,
one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective with respect to the Discretionary Option
Grant and the Stock Issuance Programs immediately upon the Plan Effective
Date. The Automatic Option Grant Program under the Plan became effective on
the Underwriting Date. Options may be granted under the Discretionary Option
Grant Program at any time on or after the Plan Effective Date. In addition,
the initial option grants under the Automatic Option Grant Program were made
on the Underwriting Date to each Eligible Director at that time.
B. The Plan was amended and restated by the Board on March 5, 1997 (the
"1997 Restatement") to effect the following changes: (i) increase the
maximum number of shares of Common Stock authorized for issuance over the
term of the Plan from 3,125,000 shares to 4,125,000 shares, (ii) render the
non-employee Board members who are serving as Plan Administrator eligible to
receive option grants and direct stock issuances under the Discretionary
Option Grant and Stock Issuance Programs in effect under the Plan, (iii)
allow unvested shares issued under the Plan and subsequently repurchased by
the Corporation at the option exercise price or direct issue price paid per
share to be reissued under the Plan, (iv) remove certain restrictions on the
eligibility of non-employee Board members to serve as Plan Administrator, and
(v) effect a series of additional changes to the provisions of the Plan
(including the stockholder approval requirements, the transferability of
Non-Statutory Options and the elimination of the six (6)-month holding
requirement as a condition to the exercise of stock appreciation rights) in
order to take advantage of the recent amendments to Rule 16b-3 of the
Securities and Exchange Commission which exempts certain officer and director
transactions under the Plan from the short-swing liability provisions of the
federal securities laws. The 1997 Restatement is subject to stockholder
approval at the 1997 Annual Meeting, and no option grants made on the basis
of the 1,000,000-share increase shall become exercisable in whole or in part
unless and until the 1997 Restatement is approved by the stockholders. Should
such stockholder approval not be obtained, then any options granted on the
basis of the 1,000,000-share increase shall terminate without ever becoming
exercisable for those
-18-
shares, and no further option grants or direct stock issuances shall be made
on the basis of such share increase. However, option grants and direct stock
issuances may continue to be made pursuant to the provisions of the Plan as
in effect immediately prior to the 1997 Restatement. All option grants and
direct stock issuances made prior to the 1997 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the 1997
Restatement shall be deemed to modify or in any way affect those outstanding
options or issuances. Subject to the foregoing limitations, the Plan
Administrator may make option grants and direct stock issuances under the
Plan at any time before the date fixed herein for the termination of the Plan.
C. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding
under the Predecessor Plan as of such date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with
respect to their acquisition of shares of Common Stock.
D. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
E. The Plan shall terminate upon the EARLIEST of (i) December 31, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Upon
such Plan termination, all outstanding stock options and unvested stock
issuances shall continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect any rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at
the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance
-19-
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs are held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease
to be outstanding and (ii) the Corporation shall promptly refund to the
Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short-Term Federal Rate) for the period the
shares were held in escrow, and such shares shall thereupon be automatically
canceled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by
each, to terminate such person's Service at any time for any reason, with or
without cause.
-20-
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Polycom, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Polycom, Inc. which shall by appropriate action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per
share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, taking into account such factors as it deems appropriate.
-2-
M. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
-3-
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for the purposes of the
Automatic Option Grant Program, Permanent Disability or Permanently Disabled
shall mean the inability of the non-employee Board member to perform his or
her usual duties as a Board member by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Board, the Primary Committee or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with
respect to the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean March 5, 1996, the date on which the
Plan was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's existing 1991 Stock
Option Plan.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AB. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AC. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock was first registered under Section 12(g) of the 1934 Act.
-4-
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
AE. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AI. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
AJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
AK. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or
the vesting of those shares.
AL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
AM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
-5-
AN. UNDERWRITING DATE shall mean April 29, 1996, the date on which the
Underwriting Agreement was executed and priced in connection with an initial
public offering of the Common Stock.
-6-