SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
POLYCOM, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
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To The Stockholders of Polycom:
Notice is hereby given that the Annual Meeting of Stockholders of Polycom,
Inc., a Delaware corporation (the "Company"), will be held on Thursday, May 20,
1999 at 9:00 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 approve an amendment to the Company's 1996 Stock
Incentive Plan changing the amount and characteristics of options granted
to non-employee directors under the automatic option grant program, and
to ratify and approve the material terms of the Company's 1996 Stock
Incentive Plan.
3. To consider and approve an amendment to the Company's 1996 Stock
Incentive Plan increasing the number of shares of Common Stock reserved
for issuance thereunder from 4,125,000 to 5,625,000 shares, and to ratify
and approve the material terms of the Company's 1996 Stock Incentive
Program.
4. To consider and approve an amendment to the Company's Employee Stock
Purchase Plan increasing the number of shares of Common Stock reserved
for issuance thereunder from 500,000 to 1,000,000 shares, and to ratify
and approve the material terms of the Company's Employee Stock Purchase
Plan.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending January 2, 2000.
6. 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 12, 1999 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. Should you receive more than one
proxy because your shares are registered in different names or addresses, please
sign and return each proxy 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/ ROBERT C. HAGERTY
Robert C. Hagerty
PRESIDENT AND CHIEF EXECUTIVE OFFICER
San Jose, California
April 19, 1999
YOUR VOTE IS IMPORTANT TO THE COMPANY. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE 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
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PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
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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 20,
1999 at 9:00 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 19, 1999, together with the Company's 1998 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 12, 1999 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 32,183,253 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.
Proposals two, three, four and five 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 two,
three, four and five, 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., 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, letter facsimile or other means of communication. No additional
compensation will be paid to directors, officers and employees who participate
in these communications.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors has selected eight 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 19, 1999
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
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Brian L. Hinman.............. 37 Chairman of the Board of Directors
Robert C. Hagerty............ 47 President, Chief Executive Officer and Director
Michael R. Kourey............ 39 Senior Vice President, Finance and Administration, Chief Financial Officer,
Secretary and Director
Betsy S. Atkins.............. 43 Director
Bandel Carano(1)(2).......... 37 Director
Stanley J. Meresman(1)....... 52 Director
John P. Morgridge(1)(2)...... 65 Director
James R. Swartz.............. 56 Director
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(1) Member of Audit Committee
(2) Member of Compensation Committee
BRIAN L. HINMAN is a founder of the Company and has served as the Chairman
of the Board of Directors since January 1997. Mr. Hinman has served as President
and Chief Executive Officer of 2Wire, Inc. since July 1998. Mr. Hinman served as
the Chief Executive Officer of the Company from the Company's inception to July
1998, and as President from the Company's inception until December 1996. Prior
to founding the Company, Mr. Hinman co-founded PictureTel where he served as
Vice President of Engineering from August 1984 to January 1991. He is a
co-founder of the International Multimedia Teleconferencing Consortium, Inc. Mr.
Hinman holds eight U.S. patents in the teleconferencing field. Mr. Hinman holds
a B.S.E.E. from the University of Maryland and an M.S.E.E. from the
Massachusetts Institute of Technology.
ROBERT C. HAGERTY joined the Company in January 1997 as President and Chief
Operating Officer and as a member of the Board of Directors. In July 1998, Mr.
Hagerty was named the Company's Chief Executive Officer. Prior to joining
Polycom, Mr. Hagerty served as President of Stylus Assets, Ltd., a developer of
software and hardware products for fax, document management and Internet
communications. He also held several key management positions with Logitech,
including Operating Committee Member to the Office of the President, and Senior
Vice President/General Manager of Logitech's retail division and worldwide
operations. In addition, Mr. Hagerty's career history includes positions as Vice
President, High Performance Products for Conner Peripherals, Director of
Manufacturing Operations and General Manager for Signal Corporation, and
Operations Manager for Digital Equipment Corporation. Mr. Hagerty holds a B.S.
in Operations Research and Industrial Engineering from the University of
Massachusetts, and an M.A. in Management from St. Mary's College of California.
3
MICHAEL R. KOUREY has been a director of the Company since January 1999. Mr.
Kourey has served as Senior Vice President, Finance and Administration since
January 1999 and as Chief Financial Officer of the Company since January 1995.
Mr. Kourey has served as the Secretary of the Company since June 1993. He also
served as Vice President, Finance and Administration from January 1995 to
January 1999, as Vice President, Finance and Operations from July 1991 to
January 1995 and as the Treasurer of the Company from June 1993 to March 1997.
Prior to joining Polycom, he was Vice President, Operations of Verilink
Corporation. Mr. Kourey holds a B.S. in Managerial Economics from the University
of California, Davis, and an M.B.A. from the University of Santa Clara.
BETSY S. ATKINS has been a director of the Company since April 1999. Ms.
Atkins served as President and Chief Executive Officer of Nellson Candies, Inc.
from 1990 to 1993. From 1989 to 1990, Ms. Atkins was Vice President of Marketing
and Sales for Ascend Communications Corporation. Ms. Atkins is also a director
of Ascend Communications Corporation, Caere Corporation, Olympic Steel, Inc.,
Secure Computing Corporation and a number of private companies. Ms. Atkins holds
a B.A. from the University of Massachusetts.
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, a
venture capital investment firm. Mr. Carano is also a director of Pulsepoint
Communications and a number of private companies. Mr. Carano received both his
B.S. and M.S. 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. 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
holds a B.S. in Industrial Engineering and Operations Research from the
University of California, Berkeley and an M.B.A. from Stanford University.
JOHN P. MORGRIDGE has been a director of the Company since April 1992. Mr.
Morgridge has served as the Chairman of the Board of Cisco Systems, Inc. since
January 1995. Mr. Morgridge also served as President and Chief Executive Officer
of Cisco from October 1988 to January 1995. Mr. Morgridge served as President
and Chief Operating Officer of GRiD Systems Corporation from 1986 to 1988. From
1980 to 1986, Mr. Morgridge was Vice President of Sales, Marketing and Service
for Stratus Computers, Inc. Mr. Morgridge holds a B.B.A. in Marketing and
Finance from the University of Wisconsin and an M.B.A. 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 FVC.Com, Inc., Netopia, Inc., Remedy Corporation and a number of
private companies. Mr. Swartz holds an A.B. in Engineering Sciences and Applied
Physics from Harvard University and an M.S.I.A. from Carnegie Mellon University.
There are no family relationships among any of the directors or executive
officers of the Company. The Company's bylaws authorize the Board of Directors
to fix the number of directors by resolution. The Company currently has
authorized eight 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 eight 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.
4
BOARD AND COMMITTEES MEETINGS
During the fiscal year ended January 3, 1999, the Board of Directors held
five 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. The
Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee, which 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 accountants. The Audit Committee
held four meetings during the last fiscal year.
The Compensation Committee, which 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 five meetings during the last fiscal year.
COMPENSATION OF DIRECTORS
The Company has not in the past paid cash compensation to its directors. In
fiscal 1999, each non-employee director will receive $2,500 for each attended
meeting of the Board of Directors and $2,500 for each attended Board committee
meeting, plus all expenses associated with attendance at such meetings, as their
sole cash compensation.
In addition, 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 fiscal 1998, Messrs. Carano,
Meresman, Morgridge and Swartz each received an option grant under the Automatic
Option Grant Program for 5,000 shares with an exercise price of $15.125 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
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN TO CHANGE THE AMOUNT AND
CHARACTERISTICS OF OPTIONS GRANTED TO NON-EMPLOYEE MEMBERS OF THE BOARD OF
DIRECTORS UNDER THE AUTOMATIC OPTION GRANT PROGRAM
Since 1996, the Company has provided stock options as an incentive 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 the best available personnel for service as outside
directors of the Company and to provide additional incentive to the outside
directors to encourage their continued service on the Board.
PROPOSED AMENDMENT
In January, 1999, the Company's Board of Directors, subject to stockholder
approval, adopted an amendment to the automatic option grant program under the
Company's 1996 Stock Incentive Plan (the "1996 Plan") to (i) eliminate the
one-time automatic grant of a non-statutory option to purchase 20,000 shares of
Common Stock to new non-employee members of the Board, (ii) increase the annual
number of options granted to each non-employee Board member that continues to
serve as a director of the Company from 5,000 shares on the date of each annual
stockholders meeting to 15,000 shares (3,750 of which will be granted on the
date of each annual stockholders meeting and 3,750 of which will be granted on
each of the dates three months, six months and nine months following the annual
stockholders meeting), (iii) eliminate the requirement that a non-employee Board
member serve for six months before such a grant is made, (iv) provide that such
options shall be immediately and fully vested upon the date they are granted and
(v) decrease the amount of time before expiration of each such option from ten
years to two years, measured from the option grant date.
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 amendment 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 amendment. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE AUTOMATIC
OPTION GRANT PROGRAM UNDER THE 1996 STOCK INCENTIVE PLAN.
DESCRIPTION OF THE 1996 STOCK INCENTIVE PLAN
The following is a summary of the principal features of the 1996 Plan.
However, the summary does not purport to be a complete description of all the
provisions of the 1996 Plan, which in its current form is filed as Exhibit 99.1
to the Company's Registration Statement on Form S-8 (Registration No.
333-43059).
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.
6
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.
SHARE RESERVE
A total of 4,125,000 shares of Common Stock has been reserved for issuance
over the term of the 1996 Plan, however, Proposal Three, if approved, will raise
the number of shares reserved to 5,625,000 shares. For more information see
"Proposal Three-- Amendment to the 1996 Stock Incentive Plan to Increase the
Number of Shares Reserved For Issuance Thereunder" beginning on page 13. 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.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
places limits on the deductibility for federal income tax purposes on
compensation paid to certain executive officers of the Company. In order to
qualify the compensation income associated with options granted to such persons
as "performance-based" compensation under Section 162(m) of the Code, thereby
preserving the Company's ability to deduct such compensation income, the 1996
Plan provides that 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.
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, 1999, seven executive officers, four non-employee Board
members and approximately 245 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.
7
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, 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 existing Automatic Option Grant Program each individual who first
becomes a non-employee Board member, whether through election by the
stockholders or appointment by the Board, is automatically granted, at the time
of such initial election or appointment, a non-statutory option to purchase
20,000 shares of Common Stock (an "Initial Grant"), provided such individual has
not previously been in the Company's employ. Each Initial Grant has 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 Initial Grant is 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 Grant 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.
8
Proposal Two, if approved by the stockholders, will eliminate the Initial
Grant as it applies to any person who in the future joins the Board as a new
non-employee member. Current non-employee members of the Board will continue to
hold and vest in their Initial Grants pursuant to the original terms of such
grants.
Additionally, under the existing Automatic Option Grant Program, on the date
of each Annual Meeting, each individual who is to continue to serve as a
non-employee Board member is automatically granted a non-statutory option to
purchase 5,000 shares of the Company's Common Stock (a "Recurring Grant"),
provided such individual has served as a non-employee Board member for at least
six (6) months. There is no limit on the number of such Recurring Grants that
any one non-employee Board member may receive over his or her period of Board
service. Each Recurring Grant has 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 Recurring Grant is 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 Recurring Grant 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 the optionee's completion of one
year of Board service measured from the grant date.
Proposal Two, if approved by the stockholders, will (i) increase the number
of shares under the Recurring Grant from 5,000 to 15,000 (3,750 of which will be
granted each quarter), (ii) eliminate the requirement that a non-employee Board
member serve for six months before a Recurring Grant is made, (iii) reduce the
maximum term before expiration of a specific grant from ten years to two years,
measured from the grant date and (iv) provide that the options granted pursuant
to the Recurring Grants will be immediately and fully vested upon the date they
are granted.
Under the existing plan, and as proposed to be amended pursuant to Proposal
Two, should the optionee cease to serve as a Board member, the optionee
generally has 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. Under the existing plan, the shares
subject to each automatic option grant 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.
9
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.
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
10
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.
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).
11
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 amendment to the Automatic Option Grant Program under the 1996 Stock
Incentive Plan is approved, each non-employee Board member will receive an
annual grant of an option to purchase 15,000 shares of the Common Stock of the
Company (3,750 of which will be granted each quarter). 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 2, 2000
pursuant to the Automatic Option Grant Program will be 56,250. 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 January 3, 1999, options to purchase
an aggregate of 465,000 shares of Common Stock of the Company were granted to
executive officers as a group at a weighted average exercise price of
approximately $9.61, and options to purchase an aggregate of 815,750 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 $13.09.
12
PROPOSAL THREE
AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
Since 1991, the Company has provided stock options as an incentive to its
employees to promote increased stockholder value. Management believes that stock
options are one of the prime ways to attract and retain key personnel
responsible for the continued development and growth of the Company's business,
and to motivate all employees to increase stockholder value. In addition, stock
options are considered a competitive necessity in the high technology industries
in which the Company competes.
The Company currently grants options to all employees upon initial hire, and
periodically to key employees or in recognition of achievement of certain
performance criteria. In the recent fiscal year, the Company experienced revenue
growth from $46.6 million in fiscal 1997 to $111.7 million in fiscal 1998.
Critical hires were made in all functional areas. Consequently, the number of
employees during fiscal 1998 grew from 175 to 243 at fiscal year end. As a
result of the increase in number of employees during fiscal 1998 and the desire
to give further incentive to current employees and officers, options to purchase
1,300,750 shares were granted from the 1996 Plan and consequently as of December
31, 1998, there were 286,354 shares available for issuance under the 1996 Plan,
not including the 1,500,000 shares subject to shareholder approval at this
Annual Meeting.
PROPOSED AMENDMENT
In January 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to the 1996 Plan to increase the number of shares
reserved for issuance thereunder from 4,125,000 to 5,625,000 shares.
Stockholders are being asked at the Annual Meeting to approve the increase in
shares reserved under the 1996 Plan.
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 amendment to the 1996 Plan. The effect
of an abstention is the same as a vote against approval of the amendments to 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 1996 Plan in effect until there are no
remaining shares available for issuance pursuant to the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
1996 STOCK INCENTIVE PLAN INCREASING THE NUMBER OF SHARES RESERVED THEREUNDER.
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
For a description of the 1996 Stock Option Plan, please see "Proposal
Two--Amendment To The 1996 Stock Incentive Plan To Change the Amount and
Characteristics of Options Granted To Non-Employee Members Of The Board Of
Directors Under the Automatic Option Grant Program--Description of the 1996
Stock Incentive Plan" beginning on page 6.
13
PROPOSAL FOUR
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
Since 1996, the Company has provided an Employee Stock Purchase Plan
("ESPP") as an incentive to its employees to promote increased stockholder
value. Management believes that the ESPP is one of the prime ways to attract and
retain key personnel responsible for the continued development and growth of the
Company's business, and to motivate all employees to increase stockholder value.
In addition, an ESPP is considered a competitive necessity in the high
technology industries in which the Company competes. As of December 31, 1998,
there were 327,299 shares available for issuance under the ESPP.
PROPOSED AMENDMENT
In January 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to the ESPP to increase the number of shares reserved for
issuance thereunder from 500,000 to 1,000,000 shares. Stockholders are being
asked at the Annual Meeting to approve the increase in shares reserved under the
ESPP.
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 amendment to the ESPP. The effect of an
abstention is the same as a vote against approval of the amendment to the ESPP.
Should such stockholder approval not be obtained, then the number of shares
reserved for issuance under the ESPP will remain unchanged, and purchase rights
will continue to be made pursuant to the ESPP in effect until the available
shares are exhausted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN INCREASING THE NUMBER OF SHARES RESERVED
THEREUNDER.
DESCRIPTION OF THE ESPP
The following is a summary of the principal features of the ESPP. However,
the summary does not purport to be a complete description of all the provisions
of the ESPP, which in its current form is filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-2296). The purpose of
the ESPP is to provide employees with an opportunity to purchase Common Stock of
the Company through payroll deductions.
ADMINISTRATION
The ESPP is administered by the Board of Directors or a committee appointed
by the Board (the "Administrator"). All questions of interpretation or
application of the ESPP are determined by the Board or its appointed committee,
and its decisions are final, conclusive and binding upon all participants.
ELIGIBILITY
Each employee of the Company (including officers), whose customary
employment with the Company is at least twenty hours per week and more than five
months in any calendar year, is eligible to participate in the ESPP; provided,
however, that no employee shall be granted a purchase right under the ESPP (i)
to the extent that, immediately after the grant, such employee would own 5% of
either the voting power or value of the stock of the Company, or (ii) to the
extent that his or her rights to purchase stock under all employee stock
purchase plans of the Company accrues at a rate which exceeds $25,000 worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year.
14
OFFERING PERIOD
The ESPP is implemented through offering periods, which may not exceed
twenty-four months in duration. Each offering period is comprised of a series of
successive six-month purchase intervals. To participate in the ESPP, each
eligible employee must authorize payroll deductions pursuant to the ESPP. Such
payroll deductions may not exceed 10% of a participant's compensation.
Compensation is defined as base straight time gross earnings and commissions
and, to the extent they are paid in cash, payments for overtime, shift premium,
incentive compensation, bonuses and other compensation. Once an employee becomes
a participant in the ESPP, Common Stock will automatically be purchased under
the ESPP at the end of each six month purchase interval, unless the participant
withdraws or terminates employment earlier and, the employee will automatically
participate in each successive purchase interval until such time as the employee
withdraws from the ESPP or the employee's employment with the Company
terminates.
PURCHASE PRICE
The purchase price per share at which shares will be sold in an offering
under the ESPP is the lower of (i) 85% of the fair market value of a share of
Common Stock on the day the participant enters the offering period or (ii) 85%
of the fair market value of a share of Common Stock on the last day of each
purchase interval. The fair market value of the Common Stock on a given date is
generally the closing sale price of the Common Stock as reported on the Nasdaq
National Market for such date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
throughout each purchase interval during the offering period. The number of
shares of Common Stock a participant may purchase at each offering period is
determined by dividing the total amount of payroll deductions withheld from the
participant's compensation during that offering period by the purchase price;
provided, however, that a participant may not purchase more than 750 shares for
each purchase interval. During the offering period, a participant may
discontinue his or her participation in the ESPP, and may decrease or increase
the rate of payroll deductions in an offering period within limits set by the
Administrator.
All payroll deductions made for a participant are credited to the
participant's account under the ESPP, are withheld in whole percentages only and
are included with the general funds of the Company. Funds received by the
Company pursuant to purchases under the ESPP are also used for general corporate
purposes. A participant may not make any additional payments into his or her
account.
WITHDRAWAL
A participant may terminate his or her participation in the ESPP at any time
prior to the next scheduled purchase date in the offering period by giving the
plan administrator a written notice of withdrawal on the appropriate form. In
such event, the payroll deductions credited to the participant's account will be
returned, without interest, to such participant. Payroll deductions will not
resume unless a new subscription agreement is delivered in connection with a
subsequent offering period.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including death,
cancels his or her participation in the ESPP. In such event the payroll
deductions credited to the participant's account will be returned without
interest to such participant, his or her designated beneficiaries or the
executors or administrators of his or her estate.
15
AMENDMENT AND TERMINATION
The Board may at any time and for any reason amend or terminate the ESPP,
which amendment or termination would become effective immediately following the
close of any offering period. Stockholder approval is required for several types
of amendments, including an increase in the number of shares issuable under the
ESPP. Any such amendment to the ESPP shall be obtained in such a manner and to
such a degree as required to comply with all applicable laws or regulations. The
ESPP will terminate in 2006 unless terminated earlier by the Board in accordance
with the ESPP.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following brief summary of the effect of federal income taxation upon
the participant and the Company with respect to the shares purchased under the
ESPP does not purport to be complete and does not discuss the tax consequences
of a participant's death or the income tax laws of any state or foreign country
in which the participant may reside.
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
shares purchased under the ESPP are sold or otherwise disposed of. Upon sale or
other disposition of the shares, the participant will generally be subject to
tax in an amount that depends upon the holding period. If the shares are sold or
otherwise disposed of more than two years from the participant's entry date into
the applicable offering period and one year from the applicable date of
purchase, the participant will recognize ordinary income measured as the lesser
of (a) the excess of the fair market value of the shares at the time of such
sale or disposition over the purchase price, or (b) an amount equal to 15% of
the fair market value of the shares as of the participant's entry date into the
applicable offering period. Any additional gain will be treated as long-term
capital gain. If the shares are sold or otherwise disposed of before the
expiration of these holding periods, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company generally is not
entitled to a deduction for amounts taxed as ordinary income or capital gain to
a participant except to the extent of ordinary income recognized by participants
upon a sale or disposition of shares prior to the expiration of the holding
periods described above.
16
PARTICIPATION IN THE ESPP
Eligible employees participate in the ESPP voluntarily and each such
employee determines his or her level of payroll deductions. Accordingly, future
purchases under the ESPP are not determinable. The following table sets forth
certain information regarding shares purchased under the ESPP during the
Company's fiscal year ended January 3, 1999 by (i) each of the officers named in
the Summary Compensation Table, (ii) all executive officers as a group, and
(iii) all other employees (excluding executive officers) as a group:
DOLLAR VALUE NUMBER OF SHARES
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION $(1) PURCHASED
- ----------------------------------------------------------------------------- ---------------- -----------------
Robert Hagerty............................................................... 17,625 1,500
President and Chief Executive Officer
Michael R. Kourey............................................................ 3,777 321
Senior Vice President, Finance/Administration, Chief Financial Officer
Craig B. Malloy.............................................................. -- --
Senior Vice President/General Manager Videoconferencing
Alan Hagedorn................................................................ 17,625 1,500
Senior Vice President, Manufacturing
Dale A. Bastian.............................................................. 4,871 293
Senior Vice President, Worldwide Sales and Service
Brian L. Hinman.............................................................. -- --
Chairman and former Chief Executive Officer
All executive officers as a group (8 persons)................................ 73,992 5,864
All other employees (excluding executive officers) as a group................ 934,540 74,106
- ------------------------
(1) Represents the market value of the shares on the date of purchase. The
purchase price paid by each participant in the ESPP is at least 15% below
the market value on the date of purchase.
17
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending January 2, 2000. PricewaterhouseCoopers LLP has audited the
Company's financial statements since 1991. A representative of
PricewaterhouseCoopers LLP 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 accountants 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 accountants. In
the event that the stockholders do not approve the selection of
PricewaterhouseCoopers LLP, the appointment of the independent accountants will
be reconsidered by the Board of Directors. The Board of Directors may direct the
appointment of a different independent accounting 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 PRICEWATERHOUSECOOPERS, LLP, AS INDEPENDENT ACCOUNTANTS
FOR THE COMPANY'S FISCAL YEAR ENDING JANUARY 2, 2000.
18
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 10, 1999 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 21 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
FMR Corp.(3)............................................................................ 3,596,300 11.2%
Pilgrim Baxter & Associates, Ltd.(4).................................................... 3,125,250 9.8%
Minnesota Mining and Manufacturing Company(5)........................................... 3,020,476 9.4%
DIRECTORS
Betsy S. Atkins......................................................................... -- *
Bandel Carano(6)........................................................................ 142,032 *
Brian K. Hinman(7)...................................................................... 834,317 2.6%
Stanley J. Meresman(8).................................................................. 49,000 *
John P. Morgridge(9).................................................................... 69,538 *
James R. Swartz(10)..................................................................... 268,796 *
NAMED EXECUTIVE OFFICERS
Dale A. Bastian(11)..................................................................... 25,593 *
Alan D. Hagedorn(12).................................................................... 91,390 *
Robert C. Hagerty(13)................................................................... 79,000 *
Michael R. Kourey(14)................................................................... 221,351 *
Craig B. Malloy(15)..................................................................... 296,659 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(12 persons)(16)...................................................................... 2,220,167 6.8%
- ------------------------
* 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 securities. Shares of
Common Stock subject to options which are currently exercisable or which
will become exercisable within sixty (60) days after March 10, 1999 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) The address of FMR Corp. is 82 Devonshire Street, Boston, MA 02109.
(4) The address of Pilgrim Baxter & Associates, Ltd. is 825 Duportail Road,
Wayne, PA 19087.
19
(5) The address of Minnesota Mining and Manufacturing Company is 3M Center,
Building 224-5S-28, St. Paul, MN 55144.
(6) Includes 114,364 shares owned by Oak Investment Partners VI, L.P. ("Oak
VI") and 2,668 shares held by Oak VI Affiliates Fund, L.P. ("Oak VI
Affiliates"). Mr. Carano, a director of the Company, is a General Partner
of Oak VI and Oak VI Affiliates. Mr. Carano disclaims beneficial ownership
of the shares owned by these entities except to the extent of his pecuniary
interest therein arising from his general partnership interests in Oak VI
and Oak VI Affiliates. The shares beneficially owned by Mr. Carano include
options to purchase 25,000 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. The address of Oak Investment Partners VI, L.P. is 525
University Avenue, Suite 1300, Palo Alto, CA 94301.
(7) Includes 6,667 shares owned by Mr. Hinman in the form of immediately
exercisable options.
(8) Includes 5,500 unvested shares owned by Mr. Meresman that are subject to a
repurchase right of the Company that lapses over time and 9,000 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.
(9) Includes 9,000 shares of common stock owned by Mr. Morgridge 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.
(10) Includes 166,100 shares owned by Accel Japan, L.P. ("Accel Japan"). Mr.
Swartz, a director of the Company, is a general partner of Accel Japan.
Mr. Swartz disclaims beneficial ownership of the shares owned by Accel
Japan except to the extent of his pecuniary interest therein arising from
his general partnership interests in Accel Japan. The shares beneficially
owned by Mr. Swartz include 6,190 shares held by the Swartz Family
Partnership L.P. and 25,000 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. The address of Accel Japan is One Palmer Square,
Princeton, NJ 08542.
(11) Includes 12,500 shares owned by Mr. Bastian in the form of immediately
exercisable options.
(12) Includes 57,164 shares owned by Mr. Hagedorn in the form of immediately
exercisable options.
(13) Includes 75,000 shares owned by Mr. Hagerty in the form of immediately
exercisable options. Mr. Hagerty is also a director of the Company.
(14) Includes 141,667 shares owned by Mr. Kourey in the form of immediately
exercisable options. Mr. Kourey is also a director of the Company.
(15) Includes 191,760 unvested shares owned by Mr. Malloy that are subject to a
repurchase right of the Company that lapses over time.
(16) Includes options to purchase 504,082 shares of common stock, 28,000 of
which, if exercised and issued, would be unvested, and 197,260 shares of
unvested common stock. Unvested shares are subject to a repurchase right
of the Company that lapses over time.
20
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 $100,000 during the last fiscal year, information concerning
compensation paid for services to the Company in all capacities during the last
three fiscal years. The individuals in the table will be collectively referred
to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
-------------
-------------------- SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS(#) ($)(2)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
Robert C. Hagerty(3)................................. 1998 194,346 167,428 200,000 4,721
President and 1997 159,539 -- 300,000 4,254
Chief Executive Officer 1996 -- -- -- --
Michael R. Kourey.................................... 1998 189,279 115,933 75,000 18,312(4)
Senior Vice President, Finance and 1997 186,029 -- 200,000 15,012(4)
Administration and Chief Financial Officer 1996 135,000 -- 106,667 3,824
Craig B. Malloy(5)................................... 1998 152,361 97,131 -- 4,683
Senior Vice President/General Manager 1997 129,095 -- -- 5,519
Videoconferencing 1996 25,417 -- -- 903
Alan D. Hagedorn(6).................................. 1998 145,808 79,097 50,000 4,544
Senior Vice President, Manufacturing 1997 130,000 -- -- 4,094
1996 32,500 -- 130,000 3,688
Dale A. Bastian(7)................................... 1998 173,558 139,503 -- 4,697
Senior Vice President, Worldwide Sales 1997 71,923 -- 150,000 61,736(8)
and Service 1996 -- -- -- --
Brian L. Hinman(9)................................... 1998 122,115 -- -- 4,704
Chairman and former Chief Executive 1997 150,000 -- -- 4,238
Officer 1996 150,000 -- 6,667 3,818
- ------------------------
(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) Includes health, life, and disability insurance premiums paid by the Company
pursuant to employee benefit programs available to all employees.
(3) Mr. Hagerty joined the Company in January 1997.
(4) Includes imputed interest of 5.44% on Mr. Kourey's interest free loan issued
by the Company in 1997.
(5) Mr. Malloy joined the Company in January 1998. Compensation amounts for
previous years reflect the compensation he received while employed at
ViaVideo Communications, Inc. prior to its merger with the Company. Mr.
Malloy joined ViaVideo in September 1996.
(6) Mr. Hagedorn joined the Company in September 1996.
(7) Mr. Bastian joined the Company in July 1997.
(8) Includes $60,000 of relocation assistance paid to Mr. Bastian.
(9) Mr. Hinman resigned as Chief Executive Officer in July 1998.
21
OPTION GRANTS IN THE 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
January 3, 1999. No stock appreciation rights were granted to the Named
Executive Officers during such fiscal year.
OPTION GRANTS IN FISCAL 1998
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%
- ----------------------------------- ----------- ----------------- ---------- ----------- ---------- ------------
Robert C. Hagerty.................. 200,000 16% $ 5.375 1/08 $ 676,061 $ 1,713,273
Michael R. Kourey.................. 75,000 6% $ 20.5625 12/08 $ 969,873 $ 2,457,850
Craig B. Malloy.................... -- -- -- -- -- --
Alan Hagedorn...................... 50,000 4% $ 20.5625 12/08 $ 646,582 $ 1,638,566
Dale A. Bastian.................... -- -- -- -- -- --
Brian L. Hinman.................... -- -- -- -- -- --
- ------------------------
(1) All options in this table are incentive stock options to extent permissible
by IRS limitations with the remainder being non-qualified options, 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 four-year period at the rate of one-fourth at
the end of one year from the date of grant and 1/36th each month thereafter,
with the exception of the options granted Mr. Hagerty, whose options 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. 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 1,280,750 shares of
Common Stock to employees in fiscal 1998.
(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.
22
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 January 3, 1999 and the number of shares subject to exercisable stock
options as of January 3, 1999. 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 31, 1998 (the last trading day of fiscal 1998) which
was $22.25 per share.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE EXERCISABLE FISCAL YEAR END
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ---------- ----------- ------------- ------------ -------------
Robert C. Hagerty.............. 75,000 $ 929,688 40,000 385,000 $ 732,500 $ 6,762,813
Michael R. Kourey.............. -- -- 118,333 263,334 $ 2,103,119 $ 3,577,616
Craig B. Malloy................ -- -- -- -- -- --
Alan D. Hagedorn............... 10,000 $ 116,250 48,500 121,500 $ 782,063 $ 1,237,313
Dale A. Bastian................ 10,000 $ 107,500 32,500 107,500 $ 552,500 $ 1,827,500
Brian L. Hinman................ -- -- 6,667 -- $ 116,673 --
CERTAIN TRANSACTIONS
In 1997, the Company issued a $250,000 interest free loan to Michael R.
Kourey, Senior 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 17,900 shares of Common Stock of the
Company owned by Mr. Kourey. As of December 31, 1998, the total amount
outstanding was approximately $250,000.
In 1998, the Company issued a $250,000 loan to Craig B. Malloy, Senior Vice
President and General Manager, Videoconferencing. The loan is due in April 1999
and bears interest at an annual rate of 5.44%. The loan is secured by 25,000
shares of common stock of the Company owned by Mr. Malloy. As of December 31,
1998, the total amount outstanding was approximately $260,000, including accrued
interest. Mr. Malloy repaid the loan in full in March 1999.
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
23
results, individual contributions and a measure of customer satisfaction. Within
this overall philosophy, the Committee's objectives are to:
1. 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.
2. 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.
3. Align the financial interests of executive officers with those of
stockholders by providing significant equity-based, long-term incentives.
COMPENSATION PROCESS AND COMPONENTS
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, included in the
Performance Graph for this Proxy Statement (see "Comparison of Stockholder
Return"). Certain companies not included in this Index were also taken into
account as Peer Companies because the Company competes for executive talent with
those firms. The positions of the Company's Chief Executive Officer and other
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.
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.
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 importance 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 of the Company's achievement of the financial performance targets
established at the beginning of the fiscal year and a range for the executive's
contribution. 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 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 1998, the
Company met many of its performance targets. Consequently the variable incentive
awards were accrued in 1998 and paid out in January 1999.
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,
24
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 1998, the Committee made option grants to Messrs. Hagerty,
Kourey and Hagedorn 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 four or 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.
CHIEF EXECUTIVE OFFICER COMPENSATION. The annual base salary for Mr.
Hagerty for the 1998 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. Hagerty's 1998 fiscal year incentive compensation was based on
the actual financial performance of the Company relative to corporate
objectives. Mr. Hagerty'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
1998 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 1999 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 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
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.
25
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. In addition, pursuant
to the merger with ViaVideo Communications, Inc., the Company entered into a
three-year employment contract with Mr. Malloy, Senior Vice President and
General Manager, Videoconferencing. In the event Mr. Malloy is terminated
without "good cause," the Company has agreed to pay him severance in an amount
equal to what would have been paid to him in salary over the remaining balance
of the three-year term up to a maximum of eighteen 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 January 3, 1999. The graph assumes that
$100 was invested on April 30, 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.
COMPANY STOCK PRICE PERFORMANCE GRAPH(1)
COMPARISON OF 32 MONTH CUMULATIVE TOTAL RETURN
AMONG POLYCOM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
4/96 6/96 9/96 12/29/96 3/97 6/97 9/97 12/28/97 3/98 6/98
POLYCOM, INC. 100 79 69 52 45 59 61 58 116 170
NASDAQ INDEX 100 100 103 108 103 121 142 133 156 160
H&Q TECHNOLOGY 100 94 100 107 102 123 149 126 152 156
9/98 1/3/99
POLYCOM, INC. 149 251
NASDAQ INDEX 145 187
H&Q TECHNOLOGY 138 195
- ------------------------------
(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.
26
COMPLIANCE WITH SECTION 16 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 1998 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 1998 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, except that Mr. Malloy did not file a Form 4 for a stock sale in April
1998, which sale was subsequently reported on the Form 5 for 1998 and Mr.
Bastian did not file a Form 4 for stock purchases made by his spouse in May 1998
and August 1998, which purchases were subsequently reported on a Form 4 filed in
March 1999.
STOCKHOLDER PROPOSALS FOR THE 2000 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 included in the proxy statement and proxy card for the
Company's 2000 Annual Meeting of Stockholders must be received by the Company no
later than December 21, 1999 in order to be considered for inclusion in such
proxy materials. In addition, a stockholder who intends to present a proposal at
the Company's 2000 Annual Meeting of Stockholders without inclusion of the
proposal in the Company's proxy materials must provide written notice of such
proposal to the Company's Secretary no later than March 5, 2000. Discretionary
authority with respect to stockholder proposals submitted beyond March 5, 2000
is granted by the execution of the enclosed proxy. Further, the Company reserves
the right to reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with the foregoing requirements and
other requirements of the proxy rules promulgated by the Securities and Exchange
Commission. In order to avoid any dispute as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their proposals
by certified mail, return receipt requested.
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 are represented at the meeting, regardless
of the number of shares that you own. We therefore urge you to execute and
return the accompanying proxy card in the envelope which has been enclosed for
your convenience.
THE BOARD OF DIRECTORS
San Jose, California
April 19, 1999
27
SKU # 1513-PS-99
APPENDIX A
PROXY
POLYCOM, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 20, 1999
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 1998 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and the Proxy
Statement, each dated April 19, 1999, for the Annual Meeting of Stockholders
of Polycom, Inc. to be held on May 20, 1999 at 9:00 a.m., local time at
Polycom, Inc.'s facilities and revoking all prior proxies, hereby appoints
Robert C. Hagerty 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 12, 1999 at the
Annual Meeting to be held on May 20, 1999, or any postponement or adjournment
thereof.
The Board of Directors recommends a vote FOR the election of directors and
proposals 2, 3, 4 and 5.
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, 4 AND 6.
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, Michael R. Kourey,
Betsy S. Atkins, Bandel Carano, Stanley J. Meresman, John
P. Morgridge and James R. Swartz
[ ] FOR ALL NOMINEES
[ ] WITHHELD FROM ALL NOMINEES
[ ]________________________________
For all nominees except as noted above
2. To approve an amendment to the Company's 1996 Stock Incentive Plan
changing the amount and characteristics of options granted to
non-employee directors under the automatic option grant program,
and to ratify and approve the material terms of the Company's 1996
Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Company's 1996 Stock Incentive Plan
increasing the number of shares reserved for issuance thereunder
from 4,125,000 to 5,625,000 shares, and to ratify and approve the
material terms of the Company's 1996 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve an amendment to the Company's Employee Stock Purchase
Plan increasing the number of shares reserved for issuance
thereunder from 500,000 to 1,000,000 shares, and to ratify and
approve the material terms of the Company's Employee Stock Purchase
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year ending
January 2, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. 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 JANUARY 26, 1999)
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:
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.
B-2
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.
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
5,625,000 shares.
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 (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.
B-3
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.
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.
B-4
(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 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.
B-5
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 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).
B-6
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
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.
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.
B-7
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.
(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.
B-8
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).
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.
B-9
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.
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.
B-10
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. 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 3,750 shares of Common Stock. Additionally,
each Eligible Director shall be automatically granted an option to purchase
3,750 shares of Common Stock on each of the dates three (3) months, six (6)
months and nine (9) months following each Annual Stockholders Meeting,
subject to such non-employee Board member's continuing Board service on such
dates. There shall be no limit on the number of such 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 such option grants over their period of continued
Board service.
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.
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 granted on or after [January 26, 1999] shall
have a term of two (2) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option granted on or after
[January 26, 1999] shall be fully vested and immediately exercisable on the
option grant date for any or all of the option shares. However, any shares
purchased under an option granted prior to [January 26, 1999] 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 share grant upon appointment or election to the
Board made prior to [January 26, 1999] 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. With respect to annual share grants made prior to [January 26, 1999],
such options 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.
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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;
provided, however, in no event shall the option be exercised later
than the option term provided in 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,
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.
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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.
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. REMAINING 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 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.
B-13
(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 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.
C. 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.
D. 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
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
B-14
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.
B-15
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.
B-16
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.
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
B-17
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.
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.
B-18
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(g) REGISTRATION DATE shall mean the date on which the Common
Stock was first registered under Section 12(g) of the 1934 Act.
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.
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.
B-19
APPENDIX C
POLYCOM, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN. This Employee Stock Purchase Plan is intended
to promote the interests of Polycom, Inc. by providing eligible employees
with the opportunity to acquire a proprietary interest in the Corporation
through participation in a payroll-deduction based employee stock purchase
plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN. The Plan Administrator shall have full
authority to interpret and construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it may deem
necessary in order to comply with the requirements of Code Section 423.
Decisions of the Plan Administrator shall be final and binding on all parties
having an interest in the Plan.
III. STOCK SUBJECT TO PLAN.
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased 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
one million (1,000,000) shares.
B. 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 class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. OFFERING PERIODS.
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in January 1998. The
next offering period shall commence on the first business day in February
1998, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February each year to the last business day in July of
the same year and from the first business day in August each year to the last
business day in January of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in January 1997.
V. ELIGIBILITY.
A. An individual who is an Eligible Employee may enter an offering
period under the Plan on any Quarterly Entry Date within that offering
period, provided he or she remains an Eligible Employee on that date. The
date an individual enters an offering period shall be designated his or her
Entry Date for purposes of that offering period.
B. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the
Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or
its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS.
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Compensation paid to the
Participant during each Purchase Interval within that offering period, up to
a maximum of ten percent (10%). The deduction rate so authorized shall
continue in effect throughout the offering period, except to the extent such
rate is changed in accordance with the following guidelines:
1. The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
2. The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan Administrator.
The new rate (which may not exceed the ten percent (10%) maximum) shall
become effective as of the start date of the first Purchase Interval
following the filing of such form.
B. Payroll deductions shall begin on the first pay day following
the Participant's Entry Date into the offering period and shall (unless
sooner terminated by the Participant) continue through the pay day ending
with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account
under the Plan, but no interest shall be paid on the balance from time to
time outstanding in such account. The amounts collected from the Participant
shall not be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within
the same or a different offering period.
VII. PURCHASE RIGHTS.
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the
right to purchase shares of Common Stock, in a series of successive
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.
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Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of
the Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose
payroll deductions have previously been refunded pursuant to the Termination
of Purchase Right provisions below) on each such Purchase Date. The purchase
shall be effected by applying the Participant's payroll deductions for the
Purchase Interval ending on such Purchase Date to the purchase of whole
shares of Common Stock at the purchase price in effect for the Participant
for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall not be less than eighty-five percent (85%)
of the LOWER of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date. However, for each
Participant whose Entry Date is other than the start date of the offering
period, the clause (i) amount shall in no event be less than the Fair Market
Value per share of Common Stock on the start date of that offering period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for
the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed Seven Hundred Fifty (750) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's
capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they
are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any
payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable by the Participant
on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
1. A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator (or
its designate), and no further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any payroll
deductions collected during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately refunded or held
for the purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be refunded
as soon as possible.
2. The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual must
re-enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into that offering period.
3. Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase
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right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until the
last business day of the Purchase Interval in which such leave commences, to
(a) withdraw all the payroll deductions collected to date on his or her
behalf for that Purchase Interval or (b) have such funds held for the
purchase of shares on his or her behalf on the next scheduled Purchase Date.
In no event, however, shall any further payroll deductions be collected on
the Participant's behalf during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
unless the Participant withdraws from the Plan prior to his or her return.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal
to eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into the offering
period in which such Corporate Transaction occurs or (ii) the Fair Market
Value per share of Common Stock immediately prior to the effective date of
such Corporate Transaction. However, the applicable limitation on the number
of shares of Common Stock purchasable per Participant shall continue to apply
to any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other than the start
date of that offering period, be less than the Fair Market Value per share of
Common Stock on that start date.
The Corporation shall use its best efforts to provide at least ten
(10) days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice,
have the right to terminate their outstanding purchase rights prior to the
effective date of the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis,
and the payroll deductions of each Participant, to the extent in excess of
the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS.
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if
and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan
and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
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1. The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
2. No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already accrued
in the same calendar year the right to acquire Common Stock under one (1) or
more other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN.
A. The Plan was adopted by the Board on March 5, 1996 and shall
become effective at the Effective Time, PROVIDED no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be
issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration
of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission),
all applicable listing requirements of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock is listed for
trading and all other applicable requirements established by law or
regulation. In the event such stockholder approval is not obtained, or such
compliance is not effected, within twelve (12) months after the date on which
the Plan is adopted by the Board, the Plan shall terminate and have no
further force or effect and all sums collected from Participants during the
initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the EARLIEST of (i) the last business day in February 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been sold pursuant to purchase rights exercised under the Plan or (iii)
the date on which all purchase rights are exercised in connection with a
Corporate Transaction. No further purchase rights shall be granted or
exercised, and no further payroll deductions shall be collected, under the
Plan following such termination.
X. AMENDMENT OF THE PLAN. The Board may alter, amend, suspend or
discontinue the Plan at any time to become effective immediately following
the close of any Purchase Interval. However, the Board may not, without the
approval of the Corporation's stockholders, (i) materially increase the
number of shares of Common Stock issuable under the Plan or the maximum
number of shares purchasable per Participant on any one Purchase Date, except
for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
XI. GENERAL PROVISIONS.
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
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B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby
expressly reserved by each, to terminate such person's employment at any time
for any reason, with or without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
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SCHEDULE A
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CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Polycom, Inc.
APPENDIX
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The following definitions shall be in effect under the Plan:
A. CASH COMPENSATION shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan, plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Corporation or any Corporate Affiliate,
plus (iii) all of the following amounts to the extent paid in cash: overtime
payments, bonuses, commissions, profit-sharing distributions and other
incentive-type payments. However, Eligible Earnings shall NOT include any
contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any deferred compensation plan or welfare benefit
program now or hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424),
whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(a) 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
(b) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation 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. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Time shall designate
a subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more
than five (5) months per calendar year for earnings considered wages under
Code Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. 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 the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. QUARTERLY ENTRY DATE shall mean the first business day in February,
May, August and November each year on which an Eligible Employee may first
enter an offering period.
N. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
O. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees.
The Participating Corporations in the Plan as of the Effective Time are
listed in attached Schedule A.
P. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
Q. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
R. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be January 31, 1996.
S. PURCHASE INTERVAL shall mean each successive six (6) month period
within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
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