<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
TriTeal Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
TRITEAL CORPORATION
2011 PALOMAR AIRPORT ROAD
CARLSBAD, CA 92009
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 1997
TO THE STOCKHOLDERS OF TRITEAL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of TriTeal
Corporation, a Delaware corporation (the "Company"), will be held on Wednesday,
August 27, 1997 at 2:00 p.m. local time at the Hyatt Regency - La Jolla, 3777 La
Jolla Village Drive, San Diego, California, for the following purposes:
1. To elect one director to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Company's 1995 Stock Option Plan, as amended, to, among
other things, (i) increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 1 million shares,
(ii) extend eligibility under the plan to non-employee directors of
the Company and provide for the automatic grant of options to
non-employee directors, and (iii) extend the term of such plan to July
2007.
3. To approve the Company's 1996 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 50,000 shares.
4. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending March 31, 1998.
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on June 30, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/S/ GREGORY J. WHITE
Gregory J. White
Secretary
San Diego, California
July 21, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
TRITEAL CORPORATION
2011 PALOMAR AIRPORT ROAD
CARLSBAD, CA 92009
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
AUGUST 27, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
TriTeal Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on August 27, 1997, at 2:00 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at 2:00 p.m. local time at the Hyatt Regency -
La Jolla, 3777 La Jolla Village Drive, San Diego, California. The Company
intends to mail this proxy statement and accompanying proxy card on or about
July 23, 1997, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on June 30,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on June 30, 1997 the Company had outstanding and entitled to
vote 10,890,710 shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting.
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. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE> 4
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 2011
Palomar Airport Road, Carlsbad, California 92009, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1998 Annual Meeting of Stockholders must be received by the Company
not later than March 25, 1998 in order to be included in the proxy statement and
proxy relating to that Annual Meeting. Stockholders are also advised to review
the Company's By-laws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board of Directors shall be divided into three classes, with each class
having a three-year term. Vacancies on the Board may be filled only by persons
elected by a majority of the remaining directors. A director elected by the
Board to fill a vacancy (including a vacancy created by an increase in the Board
of Directors) shall serve for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's successor is
elected and qualified.
The Board of Directors is presently composed of four members. There is one
director in the class whose term of office expires in 1997. The nominee for
election to this class is currently a director of the Company who was previously
elected by the stockholders. If elected at the Annual Meeting, the nominee would
serve until the 2000 annual meeting and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominee named below. In the event that the nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. The person nominated for election has agreed to serve if elected, and
management has no reason to believe that the nominee will be unable to serve.
Set forth below is biographical information for the person nominated and
for each person whose term of office as a director will continue after the
Annual Meeting.
2
<PAGE> 5
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
ARTHUR S. BUDMAN
Mr. Budman, age 35, joined the Company in November 1994, was appointed
Chief Financial Officer in February 1995 and has served as a director of
the Company since January 1996. From January 1985 to November 1994, he was
employed by Ernst & Young LLP, a public accounting firm, serving most
recently as Senior Manager. Mr. Budman is co-founder of the San Diego
Software Industry Council, a trade association for software companies. Mr.
Budman is a Certified Public Accountant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
JEFFREY D. WITOUS
Mr. Witous, age 36, co-founded the Company and has served as Chief
Executive Offer since April 1995, Chairman of the Board since March 1994
and President since June 1996. From March 1994 to April 1995, Mr. Witous
served as Executive Vice President of Business Development. Prior to
joining the Company, Mr. Witous served as National Business Development
Manager for Sun Microsystems Computer Corporation, a subsidiary of Sun
Microsystems, Inc., a computer hardware, software and services company,
from April 1991 to January 1994.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
DR. TERRY A. STRAETER
Dr. Straeter, age 55, has served as a director of the Company since
February 1996. Since November 1992, Dr. Straeter has served as President,
Chief Executive Officer and a director of GDE Systems, Inc., a manufacturer
of defense electronic systems, which was acquired by Tracor, Inc. in
November 1994. Since November 1994, he has also served as Corporate Vice
President of GDE Systems' parent company, Tracor, Inc., an electronics and
aerospace manufacturer. Dr. Straeter also serves as Chairman and Chief
Executive Officer of Tracor Information Systems which is composed of GDE
Systems, Inc., Cordant, Inc., Quality Systems, Inc. and the Software Center
of Excellence. From 1991 to 1992, Dr. Straeter served as Corporate Vice
President and General Manager for General Dynamics Corporation, Electronics
Division, a manufacturer of defense electronic systems.
GARY A. WETSEL
Mr. Wetsel, age 51, has served as a director of the Company since February
1996. Mr. Wetsel has served as Executive Vice President and Chief Operating
Officer for Wyse Technology, Inc., a computer hardware manufacturer, since
November 1996. He served as Chief Executive Officer and a director of
Borland International Inc., a software company, from December 1995 until
July 1996 and as President and a director from January 1995 until July
1996. From November 1994 to January 1995, Mr. Wetsel served as Senior Vice
President and Chief Financial Officer of Borland. From 1990 to 1994, Mr.
Wetsel served as Executive Vice President and Chief Financial Officer of
Octel Communications Corporation, a telecommunications company.
3
<PAGE> 6
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 31, 1997, the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee consists of Dr. Straeter and Mr. Wetsel. The Audit
Committee, which meets periodically with management and the Company's
independent auditors, reviews the internal accounting procedures of the Company
and consults with and reviews the services provided by the Company's independent
auditors. The Audit Committee met three times during fiscal 1997.
The Compensation Committee consists of Dr. Straeter and Mr. Wetsel. The
Compensation Committee reviews and recommends to the Board the compensation and
benefits of all officers of the Company and reviews general policy relating to
compensation and benefits of employees of the Company. The Compensation
Committee also administers the issuance of stock options and other stock awards
under the Company's 1995 Stock Option Plan. The Compensation Committee met five
times during fiscal 1997.
During fiscal 1997, each Board member attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he served, held
during the period for which he was a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF 1995 STOCK OPTION PLAN, AS AMENDED
In May 1995, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1995 Stock Option Plan (the "1995 Plan").
Following an amendment of the 1995 Plan adopted in July 1996, there were an
aggregate of 1,350,000 shares of the Company's Common Stock authorized for
issuance under the 1995 Plan.
As of May 31, 1997, options (net of canceled or expired options) covering
an aggregate of 1,046,591 shares of the Company's Common Stock had been granted
under the 1995 Plan, and only 303,409 shares (plus any shares that might in the
future be returned to the plan as a result of cancellations or expiration of
options) remained available for future grant under the 1995 Plan. In July 1997,
the Board approved amendments to the 1995 Plan to enhance the flexibility of the
Board and the Compensation Committee in granting stock options to the Company's
employees, consultants and directors. The amendments, among other things,
increase the number of shares authorized for issuance under the 1995 Plan from a
total of 1,350,000 shares to 2,350,000 shares, permit options and other equity
incentives to be granted under the 1995 Plan to directors who are not also
employees of or consultants to the Company, provide for the automatic grant of
stock options to non-employee directors, extend the term of the 1995 Plan from
May 2005 to July 2007 and effect certain other changes permitted by recent
revisions to Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Board adopted these amendments to
ensure that the Company can continue to grant equity incentives to employees,
consultants and directors at levels and in a form determined appropriate by the
Board and the Compensation Committee.
During the last fiscal year, under the 1995 Plan, the Company granted to
all current executive officers as a group options to purchase 176,600 shares at
exercise prices ranging from $13.25 to $18.375 per share and to all employees
(excluding executive officers) as a group options to purchase
4
<PAGE> 7
337,197 shares at exercise prices ranging from $6.00 to $22.50 per share. During
the last fiscal year, the Company did not grant any options under the 1995 Plan
to current directors who were not also officers of the Company.
Stockholders are requested in this Proposal 2 to approve the 1995 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to approve the 1995 Plan, as amended. Abstentions will be
counted toward the tabulation of votes cast on the proposal and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum but
are not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the 1995 Plan, as amended, are outlined below:
GENERAL
The 1995 Plan provides for the grant of both incentive and nonstatutory
stock options as well as stock bonuses and rights to purchase restricted stock.
Incentive stock options granted under the 1995 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the 1995 Plan are intended not to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of incentive and nonstatutory stock options, as well as stock
bonuses and rights to purchase restricted stock.
PURPOSE
The 1995 Plan is intended to provide a means by which selected officers,
directors and employees of, and consultants to, the Company and its affiliates
may be given an opportunity to purchase stock in the Company, to assist in
retaining the services of such persons holding key positions, to secure and
retain the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company. All of the Company's approximately 130 employees and consultants are
eligible to participate in the 1995 Plan.
ADMINISTRATION
The 1995 Plan is administered by the Board of Directors of the Company
unless the Board delegates authority to a committee. The Board has the authority
to select the persons to whom rights under the 1995 Plan will be granted (a
"Stock Award"), to determine whether a Stock Award will be an incentive stock
option (within the meaning of Section 422 of the Code), a nonqualified stock
option, a stock bonus, a right to purchase restricted stock, or a combination of
the foregoing, to specify the type of consideration, if any, to be paid to the
Company upon exercise of a Stock Award and to determine the time or times when a
person will be permitted to purchase or receive stock pursuant to a Stock Award.
The Board is authorized to delegate administration of the 1995 Plan to a
committee or committees composed of members of the Board, who may be
non-employee directors. The Board has generally delegated administration of the
1995 Plan to the Compensation Committee of the Board (the "Compensation
Committee") and has delegated limited authority with respect to the grant of
Stock Awards to employees who are not executive officers to a committee composed
of one director. As used herein with respect to the 1995 Plan, the term "Board"
refers to the Compensation Committee and to any
5
<PAGE> 8
other committees to which the Board has delegated authority to administer the
1995 Plan as well as to the Board of Directors.
The 1995 Plan permits the Board, in its discretion, to limit the directors
serving on the Compensation Committee to "outside directors" within the meaning
of Section 162(m) of the Code. Section 162(m) imposes an annual corporate tax
deduction limitation of $1 million on the compensation of certain executive
officers, except for certain qualified compensation. One of the requirements
under Section 162(m) is that each director who serves as a member of the
Compensation Committee must be an "outside director" in order for compensation
to be qualified for exclusion. Such limitation would exclude from the
Compensation Committee (i) current employees of the Company, (ii) former
employees of the Company receiving compensation for past services (other than
benefits under a tax-qualified pension plan), (iii) current and former officers
of the Company, (iv) directors currently receiving direct or indirect
remuneration from the Company in any capacity (other than as a director), unless
any such person is otherwise considered an "outside director" for purposes of
Section 162(m). The Compensation Committee currently consists of two members,
both of whom are currently "outside directors" within the meaning of the Section
162(m) regulations. See "Federal Income Tax Information - Potential Limitation
on Company Deductions."
ELIGIBILITY
Subject to certain limitations, under the 1995 Plan, as amended, incentive
stock options may be granted only to employees of the Company, while Stock
Awards other than incentive stock options may be granted to employees and
directors of, and consultants to, the Company.
No incentive stock option or restricted stock purchase award may be granted
under the 1995 Plan to any person who, at the time of the grant, owns or is
deemed to own stock possessing more than 10% of the total combined voting power
of the Company or any affiliate of the Company, unless the option exercise price
is at least 110% of the fair market value of the stock subject to the option on
the date of grant, and the term of the option does not exceed five years from
the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least equal to the fair market value of such stock at the
date of the grant. To the extent that the aggregate fair market value
(determined at the time of grant) of stock with respect to which incentive stock
options are exercisable for the first time by any holder of such options during
any calendar year under all plans of the Company and its affiliates exceeds
$100,000, the options or portions thereof which exceed such limit shall be
treated as nonstatutory stock options, according to the order in which they were
granted.
Pursuant to the 1995 Plan, no person shall be eligible to be granted stock
options covering more than 500,000 shares of the Company's Common Stock in any
calendar year, subject to the adjustment provisions under the 1995 Plan. The
purpose of this limitation is generally to permit the Company to continue to be
able to deduct for tax purposes the compensation attributable to the exercise of
options granted under the 1995 Plan.
STOCK SUBJECT TO THE 1995 PLAN
If options granted under the 1995 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the 1995 Plan.
6
<PAGE> 9
TERMS OF OPTIONS
The following is a description of the permissible terms of options granted
under the 1995 Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1995 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant (except with respect
to options assumed or substituted under the Code) and, in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory stock options under the 1995 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant (except with respect to options assumed or
substituted under the Code). However, if options are granted with exercise
prices below market value, tax deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m) of the Code. See
"Federal Income Tax Information." Under the 1995 Plan, the Board has the
authority to reprice any outstanding stock options.
The exercise price of options granted under the 1995 Plan must be paid
either: (i) in cash at the time the option is exercised; (ii) at the discretion
of the Board, by delivery of other common stock of the Company, or pursuant to a
deferred payment arrangement; or (iii) in any other form of legal consideration
acceptable to the Board.
Option Exercise. Options granted under the 1995 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1995 Plan typically vest over a
four-year period with 25% of the shares vesting one year from the date of grant
and 1/36th of the remaining shares vesting monthly thereafter. Shares covered by
options granted in the future under the 1995 Plan may be subject to different
vesting terms. The Board has the power to accelerate the time during which an
option may be exercised.
To the extent provided by the terms of an option, an optionee may satisfy
any federal, state or local tax withholding obligation relating to the exercise
of such option by a cash payment upon exercise, by authorizing the Company to
withhold a portion of the stock otherwise issuable to the optionee, by
delivering already-owned stock of the Company or by a combination of these
means.
Options granted under the 1995 Plan may permit exercise prior to full
vesting of the stock option. Any unvested shares so purchased may be subject to
a repurchase right in favor of the Company or to any other restriction the Board
determines to be appropriate.
The Board has the authority to include as part of any option agreement a
provision entitling the optionee to a further option (a "Re-Load Option") in the
event the optionee exercises the stock option evidenced by the option agreement,
in whole or in part, by surrendering other shares of common stock in accordance
with the 1995 Plan and the terms and conditions of the option agreement. To
date, the Company has not granted any Re-Load Options.
Term. The maximum term of options under the 1995 Plan is 10 years, except
that in certain cases (see "Eligibility"), the maximum term is five years. Upon
termination of the optionee's employment relationship with the Company, whether
by death, disability or termination of employment, as defined in the 1995 Plan,
options under the 1995 Plan terminate upon the earlier of (i) such period of
time as is determined by the Board or (ii) the expiration of the term of the
option as set forth in the
7
<PAGE> 10
option agreement. The option term may also be extended in the event that
exercise of the option within these periods is prohibited for specified reasons.
Generally, currently outstanding options under the 1995 Plan terminate 30 days
after termination of the optionee's employment or relationship as a consultant
or director of the Company or any affiliate of the Company, unless (a) such
termination is due to such person's disability, in which case options may be
exercised at any time within one year of such termination; (b) the optionee dies
while employed by or serving as a consultant or director of the Company or any
affiliate of the Company, in which case the option may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within
one year of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship. The option
term may also be extended in the event that exercise of the option within these
periods is prohibited for specified reasons. Options granted in the future may
have different terms.
AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
The 1995 Plan, as amended, provides for the automatic grant of stock
options to the Company's non-employee directors. Upon approval of the 1995 Plan,
as amended, by the stockholders, each current non-employee director will be
granted an option to purchase 10,000 shares of Common Stock of the Company.
Thereafter, on the date of each annual meeting of stockholders of the Company,
beginning with the 1998 Annual Meeting, each non-employee director who has been
a non-employee director for at least six months will be granted an option to
purchase an additional 10,000 shares of Common Stock of the Company. These
grants will vest ratably on a monthly basis over 12 months from the date of
grant. In addition, each person who first becomes a non-employee director after
the approval of the 1995 Plan, as amended, upon the date of initial appointment
or election to be a non-employee director, will be granted an option to purchase
30,000 shares of Common Stock of the Company. Initial grants to new non-employee
directors will vest ratably on a monthly basis over 48 months from the date of
grant. The exercise price of non-employee director options will be the fair
market value of the Common Stock on the date of grant, payable in cash at the
time of exercise or pursuant to specified cashless exercise programs that comply
with regulations promulgated by the Federal Reserve Board. Such options have a
term of 10 years; however, the options will terminate in three months following
termination of status as an employee, director or consultant (for any reason
other than death or disability) and one year following termination of status as
an employee, director or consultant as a result of death or disability.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The following is a description of the permissible terms of stock bonus or
restricted stock purchase agreements under the 1995 Plan. Individual agreements
may be more restrictive as to any or all of the permissible terms described
below.
Purchase Price; Payment. The purchase price in each restricted stock
purchase agreement under the 1995 Plan may not be less than 85% of the stock's
fair market value on the date such award is made. Notwithstanding the foregoing,
the Board may determine that eligible participants in the 1995 Plan may be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
8
<PAGE> 11
The purchase price of shares of stock acquired in a restricted stock
purchase transaction under the 1995 Plan must be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment arrangement; or (iii) in any other form of legal consideration
acceptable to the Board.
Repurchase Option. Shares of stock sold or awarded under the 1995 Plan may
be subject to a repurchase option in favor of the Company in accordance with a
vesting schedule determined by the Board. The Board has the power to accelerate
the time during which a stock award or any part thereof will vest.
Term. In the event of termination of a person's employment or relationship
as a consultant or director of the Company or any of its affiliates, the Company
may repurchase or otherwise reacquire any or all of the shares of stock held by
that person that have not vested as of the date of termination under the terms
of the stock bonus or restricted stock purchase agreement between the Company
and such person.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1995 Plan or subject to
any Stock Award granted under the 1995 Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
that does not involve the receipt of consideration by the Company), the Plan
will be appropriately adjusted in the class(es) and maximum number of shares
subject to the Plan and the maximum number of shares subject to award to any
person during any calendar year, and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company."
EFFECT OF CERTAIN CORPORATE EVENTS
The 1995 Plan provides that in the event of a dissolution, liquidation or
specified type of merger or acquisition, then (i) with respect to Stock Awards
held by persons then performing services as employees, directors or consultants,
the vesting and, if applicable, exercisability of such Stock Awards shall be
accelerated prior to such event and any Stock Awards requiring exercise shall be
terminated if not exercised after such acceleration and at or prior to such
event, and (ii) with respect to any other Stock Awards outstanding under the
1995 Plan, such Stock Awards shall be terminated if not exercised prior to such
event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1995 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1995 Plan, as amended, will terminate in July 2007.
The Board may also amend the 1995 Plan at any time and from time to time.
However, under the 1995 Plan, as amended, no amendment will be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the 1995 Plan, as modified by the
9
<PAGE> 12
amendment, to satisfy the requirements of Section 422 of the Code (including an
increase in the number of shares reserved for issuance under the 1995 Plan) or
other legal requirements. The Board may submit any other amendment to the 1995
Plan for stockholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1995 Plan, an incentive stock option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the incentive stock option
is granted only by such person. Nonstatutory stock options granted under the
1995 Plan may, but need not, include provisions allowing for the transfer of
such options. However, for both incentive stock options and nonstatutory stock
options, the 1995 Plan provides that the person to whom the option is granted
may designate in writing a third party who may exercise the option in the event
of the death of the optionee.
No rights under a stock bonus or restricted stock purchase agreement shall
be transferable except by will or the laws of descent and distribution or, if
provided by the terms of the stock bonus or restricted stock purchase agreement,
pursuant to a domestic relations order within the meaning of Rule 16a-12 under
the Exchange Act, so long as stock awarded under such agreement remains subject
to the terms of the agreement.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1995 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum capital gains rate for federal income tax purposes is currently 28%
while the maximum ordinary income rate is effectively 39.6% at the present time.
Proposed tax legislation currently pending in Congress could result in a change
to such maximum tax rates, if enacted. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
10
<PAGE> 13
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1995 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 1995 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long- or short-term depending on whether the
stock was held for more than one year from the date ordinary income is measured.
Slightly different rules may apply to persons who acquire stock subject to
forfeiture.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, Congress amended the Code to add Section 162(m),
which denies a deduction to any publicly held corporation for compensation paid
to certain employees in a taxable year to the extent that compensation exceeds
$1 million for a covered employee. It is possible that compensation attributable
to awards granted in the future under the 1995 Plan, when combined with all
other types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
11
<PAGE> 14
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee composed solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders. For compensation attributable to stock
bonuses and restricted stock to qualify as performance-based compensation, the
award must be granted by "outside directors," the award must be subject to the
attainment of an objective performance goal established and certified in writing
by the compensation committee as described in (ii) above and the material terms
of the performance goal, including the class of employees eligible for such
awards, the business criteria on which the performance goal is based, and the
maximum amount (or formula used to calculate the amount) payable to any employee
upon attainment of the performance goal, must be approved by the stockholders.
The following table presents certain information with respect to options to
be granted under the 1995 Plan, as amended, to all non-employee directors as a
group, effective upon approval of the 1995 Plan, as amended, by the
stockholders.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1995 Stock Option Plan
-----------------------------------------
Number of Shares
Dollar Value (1) Subject to Options
------------------ ------------------
<S> <C> <C>
All Non-Employee Directors as a group
(2 persons) $ 205,000 20,000
------------------ ------------------
</TABLE>
(1) Number of shares underlying the options multiplied by the estimated
exercise price (calculated, for the purpose hereof, on the basis of the
closing sales price reported by the Nasdaq National Market for July 15,
1997.
12
<PAGE> 15
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In June 1996, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") authorizing the issuance of 250,000 shares of the
Company's Common Stock. At July 15, 1997, an aggregate of 36,628 shares had been
issued under the Purchase Plan and 213,372 shares remained for the grant of
future rights under the Purchase Plan. In July 1997, the Board of Directors of
the Company approved an amendment to the Purchase Plan to increase the number of
shares authorized for issuance under the Purchase Plan from 250,000 shares to
300,000 shares. This amendment is intended to afford the Company greater
flexibility in providing employees with stock incentives and ensures that the
Company can continue to provide such incentives at levels determined appropriate
by the Board.
During fiscal 1997, 2,503 shares were purchased under the Purchase Plan by
all current executive officers as a group, and 34,125 shares were purchased by
all employees (excluding executive officers) as a group. All such shares were
purchased at a price of $6.80 per share.
Stockholders are requested in this Proposal 2 to approve the Purchase Plan,
as amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Purchase Plan, as amended. Abstentions will be
counted toward the tabulation of votes cast on the proposal and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum,
but are not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
The essential features of the Purchase Plan are outlined below:
PURPOSE
The purpose of the Purchase Plan is to assist the Company in retaining the
services of its employees, to secure and retain the services of the new
employees, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board is authorized to delegate
administration of the Purchase Plan to a committee composed of not fewer than
two members of the Board. The Board has delegated administration of the Purchase
Plan to the Compensation Committee of the Board. As used herein with respect to
the Purchase Plan, the term "Board" refers to the Compensation Committee as well
as to the Board of Directors.
13
<PAGE> 16
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Each such offering has a maximum of 27
months' duration.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for the minimum period of time designated by the Board (which period may not
exceed two years).
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or any
affiliate of the Company (including any stock which such employee may purchase
under all outstanding rights and options), nor will any employee be granted
rights that would permit him to buy more than $25,000 worth of stock (determined
at the fair market value of the shares at the time such rights are granted)
under all employee stock purchase plans of the Company in any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 15% of such
employees' earnings paid during the purchase period for such offering.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan is the lesser of (i) 85% of the fair market value of a share
of Common Stock on the date of commencement of the offering, or (ii) 85% of the
fair market value of a share of Common Stock on the purchase date, as defined in
the Purchase Plan.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during the purchase period, a participant may
reduce or terminate payroll deductions. A participant may increase or begin such
payroll deductions after the beginning of any purchase period only as provided
for under the terms of the specific offering. All payroll deductions made for a
participant are credited to a participant's account under the Purchase Plan and
deposited with the general funds of the Company. A participant may make
additional payments into such account only if specifically provided for in the
particular offering and only if the participant has not had the maximum amount
withheld during the offering.
14
<PAGE> 17
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board specifies a maximum number of shares any
employee may be granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by all participants.
If the aggregate number of shares to be purchased upon exercise of rights
granted in the offering exceeds the maximum aggregate number of shares available
for purchase, the Board will make a pro rata allocation of shares available in a
uniform and equitable manner. Unless the employee's participation is
discontinued, shares automatically are purchased upon the designated purchase
date or dates during the offering at the applicable price. See "Withdrawal"
below.
WITHDRAWAL
An employee may withdraw from a given offering by terminating his or her
payroll deductions and by delivering to the Company a notice of withdrawal from
such offering. Such withdrawal may be elected at any time prior to the end of
the applicable offering period.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions, without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will automatically be terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable by a
participant other than by will or the laws of descent and distribution, or by
certain beneficiary designation, and may be exercised only by the person to whom
such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend, terminate or amend the Purchase Plan at any time.
Any amendment of the Purchase Plan must be approved by the stockholders within
12 months before or after its adoption by the Board if the amendment would (i)
increase the number of shares of Common Stock reserved for issuance under the
Purchase Plan, (ii) modify the requirements relating to eligibility for
participation in the Purchase Plan, or (iii) modify any other provision of the
Purchase Plan if such modification requires stockholder approval in order for
the Purchase Plan to obtain employee stock purchase plan treatment under Section
423 of the Code or to comply with the requirements of Rule 16b-3.
15
<PAGE> 18
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted, except as necessary to
ensure that the Purchase Plan and the rights granted thereunder comply with
Section 423 of the Code.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of the Company, or specified
type of merger or acquisition, then, as determined by the Board in its sole
discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
offering terminated.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the actual purchase price or (ii) the
excess of the fair market value of the stock as of the beginning of the offering
period over the purchase price (determined as of the beginning of the offering
period) will be treated as ordinary income. Any further gain or any loss will be
taxed as a long-term capital gain or loss. Capital gains currently are generally
subject to lower tax rates than ordinary income. The maximum capital gains rate
for federal income tax purposes is 28% while the maximum ordinary rate is
effectively 39.6% at the present time. Proposed tax legislation currently
pending in Congress could result in a change to such maximum tax rates, if
enacted.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be long- or short-term
depending on whether the stock has been held for more than one year.
16
<PAGE> 19
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending March 31, 1998 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's financial statements since March 31, 1994. Representatives
of Ernst & Young LLP are expected to be present at the Annual Meeting. They will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4
17
<PAGE> 20
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of May 31,
1997 by (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Company's Common Stock; (ii)
each of the Company's directors; (iii) each of the executives named in the
Summary Compensation Table; and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-------------------------------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS NUMBER OF SHARES PERCENT OF TOTAL
- ---------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Mellon Bank, N.A (2)................................ 1,230,000 11.3%
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258-001
Jeffrey D. Witous (3)............................... 947,000 8.7
TriTeal Corporation
2011 Palomar Airport Road
Carlsbad, CA 92009
Gregory J. White (4)................................ 990,000 9.1
TriTeal Corporation
2011 Palomar Airport Road
Carlsbad, CA 92009
Oran M. Thomas (5).................................. 905,000 8.3
TriTeal Corporation
2011 Palomar Airport Road
Carlsbad, CA 92009
Arthur S. Budman (6)................................ 105,021 *
Robert D. Ruhe (7).................................. 24,416 *
Rand R. Schulman (8)................................ 149,285 *
Armando Viteri (9).................................. 136,770 *
Dr. Terry A. Straeter (10).......................... 31,993 *
Gary A. Wetsel (11)................................. 17,708 *
All directors and executive officers as a group
(13 persons)(12).................................... 3,376,394 30.9
</TABLE>
- ------------------------
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders of the Company and Schedules 13D or 13G filed with
the Commission. 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.
Except as indicated by footnote, and subject to community property laws
where applicable, to the best of the Company's knowledge, the persons named
18
<PAGE> 21
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them. Options to
purchase shares of Common Stock that are exercisable within 60 days of May
31, 1997 are deemed to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Applicable percentage of
beneficial ownership is based on 10,852,064 shares of Common Stock
outstanding as of May 31, 1997.
(2) Mellon Bank, N.A. is the trustee of the Company's employee benefit plan
(the "Plan"), which is subject to ERISA. Includes all shares held of record
by Mellon Bank, N.A., as trustee of the Plan which have not been allocated
to the individual accounts of employee participants in the Plan. Mellon
Bank, N.A. disclaims beneficial ownership of all shares that have been
allocated to the individual accounts of employee participants in the Plan
for which directions have been received and followed. This information is
based on a Schedule 13G filed with the Commission.
(3) Includes 200,000 shares of Common Stock held by JMK Enterprises, L.P., in
which Jeffrey D. Witous and his wife, Julie E. Witous, are general
partners.
(4) Includes 350,000 shares of Common Stock held by the Valley Oaks Family
Partnership in which Gregory J. White and his wife, Teri L. White, are
general partners.
(5) All shares are held by Oran M. Thomas and his wife, Deborah L. Einhorn, as
trustees of the Thomas-Einhorn Family Trust U/T/A dated November 8, 1996.
(6) Includes 34,000 shares of Common Stock subject to repurchase by the Company
and 15,458 shares of Common Stock issuable pursuant to options exercisable
within 60 days of May 31, 1997.
(7) Includes 3,333 shares of Common Stock subject to repurchase by the Company
and 9,416 shares of Common Stock issuable pursuant to options exercisable
within 60 days of May 31, 1997.
(8) Includes 58,334 shares of Common Stock subject to repurchase by the Company
and 3,166 shares of Common Stock issuable pursuant to options exercisable
within 60 days of May 31, 1997.
(9) Includes 44,666 shares of Common Stock subject to repurchase by the
Company, 2,770 shares of Common Stock issuable pursuant to options
exercisable within 60 days of May 31, 1997, 1,500 shares of Common Stock
held by Armando Viteri as trustee of the Maria Viteri Irrevocable Trust and
1,500 shares of Common Stock held by Mr. Viteri as Trustee of the Scott
Viteri Irrevocable Trust.
(10) Includes 17,708 shares of Common Stock issuable pursuant to options
exercisable within 60 day of May 31, 1997.
(11) Includes 17,708 shares of Common Stock issuable pursuant to options
exercisable within 60 days of May 31, 1997.
(12) Includes 141,333 shares of Common Stock subject to repurchase by the
Company and 76,171 shares of Common Stock issuable pursuant to options
exercisable within 60 days of May 31, 1997. See notes (3) through (11)
above.
19
<PAGE> 22
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities to file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with, except that Mr. White amended his
initial report of ownership to correct the number of shares beneficially owned.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors currently do not receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings.
Non-employee directors are eligible to receive options to purchase Common
Stock of the Company under the 1995 Plan. With respect to current directors, the
1995 Plan, as amended, provides for the nondiscretionary grant of options to
non-employee directors upon adoption of the Plan, as amended, by the
stockholders. In addition, the 1995 Plan, as amended, provides for the
nondiscretionary grant of options upon election to the Board of Directors of a
new non-employee director. Following the initial grant of options, each
non-employee director who has been a non-employee director for at least six
months will be granted an option at each annual meeting of stockholders of the
Company. See "Proposal 2 -- Approval of 1995 Stock Option Plan, as Amended."
20
<PAGE> 23
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended March 31, 1996
and March 31, 1997, the compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer and the four other most highly compensated
executive officers whose salary and bonus were in excess of $100,000 for
services rendered to the Company during the fiscal year ended March 31, 1997
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS (2)
-------------------------------------------- ------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) ($) OPTIONS(#)
- --------------------------- ---- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jeffrey D. Witous ....................................... 1997 $ 155,565 $ 90,088 -- --
President, Chief Executive Officer and 1996 $ 120,000 $ 60,314 -- --
Chairman of the Board
Arthur S. Budman ........................................ 1997 $ 132,004 $ 39,810 -- 20,000
Chief Financial Officer 1996 $ 85,000 $ 34,298 -- 40,000
Robert D. Ruhe (3) ...................................... 1997 $ 125,220 $ 51,179 $ 25,000 60,500
Executive Vice President, Worldwide 1996 $ 92,231 $ 34,554 -- 23,000
Field Operations
Rand R. Schulman ........................................ 1997 $ 135,763 $ 34,538 -- 1,000
Executive Vice President 1996 $ 110,000 $ 42,566 -- 8,000
Armando Viteri (4) ...................................... 1997 $ 111,972 $ 52,530 -- --
Vice President, Corporate Development 1996 $ 110,000 $ 51,933 -- 7,000
</TABLE>
- --------------------
(1) In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers which are available
generally to all salaried employees of the Company, and certain perquisites
and other personal benefits received by the Named Executive Officers which
do not exceed the lesser of $50,000 or 10% of any such officer's salary and
bonus disclosed in this table.
(2) At the end of fiscal 1997, the aggregate restricted stock holdings of the
Named Executive Officers and the value thereof at year-end, based on the
then-current fair market value of $11.75 (the closing sales price as
reported on the Nasdaq National Market for March 31, 1997), without giving
effect to the diminution of value attributable to the restrictions on such
stock, were as follows: Mr. Schulman, $685,425 (58,334 shares); Armando
Viteri, $524,826 (44,666 shares); Arthur Budman, $399,500 (34,000 shares);
and Robert Ruhe, $78,337 (6,667 shares). To date, the Company has not paid
any dividends and does not anticipate paying any dividends on its Common
Stock in the foreseeable future.
(3) The Company paid Mr. Ruhe $25,000 in relocation expenses in fiscal 1997.
(4) Mr. Viteri has served as Vice President, Corporate Development, since
September 1996. From November 1994 to September 1996, he served as Vice
President, Worldwide Sales for the Company.
21
<PAGE> 24
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, for the fiscal year ended March 31, 1997,
certain information regarding options granted to each of the Named Executive
Officers under the 1995 Plan:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN EXERCISE TERM (4)($)
GRANTED FISCAL PRICE EXPIRATION ---------------------------
NAME (#)(1) YEAR (2) ($/SH)(3) DATE 5% 10%
---------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey D. Witous....... -- -- -- -- -- --
Arthur S. Budman........ 20,000 3.9% $18.375 12/10/06 $231,119 $ 585,700
Robert Ruhe............. 55,000 10.7% $13.250 8/21/06 $458,307 $ 1,161,440
5,500 1.0% $18.375 12/10/06 $ 63,558 $ 161,068
Rand R. Schulman........ 1,000 0.2% $18.375 12/10/06 $ 11,556 $ 29,285
Armando Viteri.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options have a maximum term of 10 years measured from the date of grant,
subject to earlier termination upon the optionee's cessation of service
with the Company. These options vest at the rate of 25% of the shares
subject to the option on the first anniversary of the date of grant and
vest ratably on a monthly basis over a three-year period after the first
anniversary of the date of grant.
(2) Based on options to purchase 513,797 shares granted to employees in fiscal
1997, including the Named Executive Officers.
(3) The exercise price is equal to the fair market value of the Common Stock on
the date of grant, based on the closing sales price as reported on the
Nasdaq National Market.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.
22
<PAGE> 25
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the Named Executive Officers as of March 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END ($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey D. Witous .... -- -- --/-- --/--
Arthur S. Budman ..... 1,000 $ 19,500 12,125/46,875 $130,156/$288,594
Robert Ruhe .......... -- -- 7,500/76,000 $79,375/$163,375
Rand R. Schulman ..... -- -- 2,500/6,500 $23,125/$50,875
Armando Viteri ....... -- -- 2,187/4,813 $20,230/$44,520
</TABLE>
- --------------
(1) Based on the fair market value per share of Common Stock (the closing sales
price reported by the Nasdaq National Market) at the date of exercise, less
the exercise price.
(2) Based on the fair market value per share of Common Stock ($11.75) at March
31, 1997, less the exercise price, multiplied by the number of shares
underlying the option.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee is
appointed by the Board and is composed of two non-employee directors, Dr. Terry
A. Straeter and Gary A. Wetsel. The Compensation Committee has responsibility
for evaluating the performance of management and determining all compensation
matters concerning the Company's executive officers.
COMPENSATION PHILOSOPHY
The Company's executive compensation philosophy is to (i) link the
compensation of management with the performance of the Company, and (ii)
attract, motivate and retain senior management capable of leading the Company to
fulfillment of its business objectives by providing competitive compensation
opportunities that are consistent with Company performance and reward individual
contribution. Accordingly, the Company's executive compensation policies
include:
- Base salaries that reflect such factors as level of responsibility,
individual performance and competitive pay practices of high
technology and software companies of comparable size;
- -------------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the Commission, and is not to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as amended
(the "Securities Act") or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
23
<PAGE> 26
- Quarterly incentive cash bonus awards that are designed to encourage
executives to focus on achievement of short-term strategic goals as
well as quarterly and annual financial objectives; and
- Long-term incentive opportunities, generally in the form of stock
options, designed to align the interests of management and the
Company's stockholders and to ensure that management is appropriately
rewarded for benefits which they achieve for the Company's
stockholders.
The following is a discussion of each of the elements of the Company's
executive compensation program, including a description of the decisions and
actions taken by the Compensation Committee with respect to compensation in
fiscal 1997 for the Chief Executive Officer and all executive officers as a
group.
MANAGEMENT COMPENSATION PROGRAM
Compensation paid to the Company's executive officers for fiscal 1997
consisted of base salary and cash bonuses and, in some cases, included stock
options granted under the 1995 Plan.
BASE SALARY
In October 1996, following completion of the Company's initial public
offering, the Compensation Committee commenced an evaluation of the Company's
executive compensation program in comparison to those of other publicly traded
companies. As part of its evaluation, the Compensation Committee engaged an
independent compensation consultant, reviewed an independent industry
compensation survey, focusing particularly on compensation paid to executives of
high technology and software companies with annual revenues of less than $40
million, and reviewed other publicly available information, gathered informally
by the Company, pertaining to compensation packages paid to the management of
companies of comparable size in the software industry. Based on this competitive
compensation information and taking into consideration a variety of subjective
factors, including the executive's level of responsibility and prior experience,
the increased responsibilities of management as executives of a newly public
company, as well as individual performance, the Compensation Committee adjusted
the base salary of its executive officers, effective as of October 1, 1996 by an
average increase of 16.0%. Generally, the Committee targeted compensation to
result in base salaries and total compensation packages that were at the
mid-range of competitive salary levels and total compensation packages.
The Compensation Committee does not make individual salary decisions based
on any single criterion and does not ascribe relative weights to the factors it
considers, but rather considers a mix of factors and evaluates Company and
individual performance against that mix. In the future, annual adjustments in
base salaries will be made effective at the beginning of the fiscal year for
which they are intended to apply and, therefore, will reflect the prior year's
business and individual performance achievements.
EXECUTIVE BONUS ARRANGEMENT
The Company's Compensation Committee approved a bonus arrangement for the
Company's executive officers which was effective for fiscal 1997. Under the
arrangement, the Company's executive officers were eligible to receive target
bonus amounts ranging from $30,000 to $100,000. The targets were established by
the Committee on the basis of an executive officer's responsibilities and total
24
<PAGE> 27
compensation package relative to those paid to officers in similar positions at
companies of comparable size in the software industry. Determinations of the
amount of cash bonus to be awarded to each officer were based on the achievement
of corporate quarterly and cumulative financial performance targets established
by the Board and reflected in the Company's operating plan, and achievement of
individual performance targets. The bonus arrangement also had an over-goal
component based on earnings-per-share targets. To the extent that the Company's
performance exceeded quarterly and cumulative earnings-per-share targets, the
executive officers' bonus payments were subject to increase at the same
percentage rate as the percentage rate at which the Company exceeded its
earnings-per-share target, except that such over-goal payment percentage could
not exceed 30% of over-target profit. In accordance with the bonus arrangement,
the executives were paid an aggregate of $400,681 or 93% of the targeted bonus
amount, including the over-goal achievement of performance targets in the third
quarter offset by performance below the targeted level in the fourth quarter.
In June 1997, the Compensation Committee approved a Performance Incentive
Plan for fiscal 1998 based entirely on the financial performance of the Company.
1995 EQUITY INCENTIVE PLAN
The long-term incentive element of the Company's executive compensation
program provides for the grant of stock awards, which may include incentive
stock options, nonstatutory stock options, stock bonuses or rights to purchase
restricted stock. The Company has used the grant of options under its 1995 Plan
to align the interests of stockholders and management. Options granted to
executive officers are intended to provide a continuing financial incentive to
maximize long-term value to stockholders and to help make the executive's total
compensation opportunity competitive. In addition, because stock options
generally become exercisable over a period of several years, options encourage
executives to remain in the long-term employ of the Company. In determining the
size of an option to be granted to an executive officer, the Committee takes
into account an officer's position and level of responsibility within the
Company, the officer's existing stock and unvested option holdings and the
potential reward to the officer if the stock price appreciates in the public
market.
In fiscal 1997, the Compensation Committee granted options to purchase an
aggregate of 176,600 shares of Common Stock to seven executive officers at
levels ranging from 1,000 shares to 65,000 shares. These grants include two
substantial grants made as part of an initial compensation package and in
connection with a promotion. The stock options become exercisable over a
four-year period, with 25% of the shares vesting on the first anniversary of the
date of grant and the remaining shares vesting ratably on a monthly basis over a
three-year period after the first anniversary of the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
In October 1996, the Committee evaluated Mr. Witous' compensation package
in connection with its evaluation of the Company's executive compensation
program. The Committee increased Mr. Witous' base salary by 43% to $200,000,
reflecting in part the Committee's evaluation of Mr. Witous' contribution to the
performance of the Company. In particular, the Committee took into account the
successful completion of the Company's initial public offering in August 1996,
the continued success of the Company's new product development, significant
sales growth and the recruitment of additional senior management personnel. In
addition, in light of the substantial disparity between Mr. Witous' base salary
and that paid to chief executive officers of companies of comparable size in the
software industry, the Committee sought to align Mr. Witous' compensation with
compensation paid to such chief
25
<PAGE> 28
executive officers. Accordingly, the Committee adjusted Mr. Witous' compensation
to levels approaching the mid-range of compensation paid in the industry survey.
Mr. Witous' bonus award for fiscal 1997 was earned under the bonus
arrangement approved by the Compensation Committee for fiscal 1997. As the
senior corporate executive officer, Mr. Witous was awarded a bonus of $90,088.
This bonus (approximately 90% of his target) for fiscal 1997 reflected the
performance of the Company in relation to established corporate financial
performance targets determined on the same basis as the other executive
officers, as well as, to a lesser extent, achievement of certain short-term
strategic goals, including, in addition to the achievements discussed above, the
successful completion of a follow-on equity offering in February 1997 and the
launch and completion of strategic partnerships for the Company's SoftNC
technology. After reviewing Mr. Witous' existing stock holdings, the
Compensation Committee determined not to grant stock options to Mr. Witous in
fiscal 1997.
SECTION 162(M) OF THE CODE
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." However,
pursuant to Section 162(m), the Company's 1995 Plan permits compensation from
options granted thereunder at no less than 100% of fair market value to be
excluded from the Section 162(m) limitations.
Submitted by the Compensation Committee of the Board of Directors:
Dr. Terry A. Straeter
Gary A. Wetsel
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until June 1996, the Company did not have a Compensation Committee of the
Board of Directors, and the entire Board participated in all compensation
decisions. In June 1996, the Board of Directors appointed Dr. Straeter and Mr.
Wetsel to serve as the Compensation Committee. No member of the Compensation
Committee was, at any time during the fiscal year ended March 31, 1997, or at
any other time, an officer or employee of the Company. Each of the Company's
directors, other than Mr. Wetsel, has acquired shares of the Company's Common
Stock. See "Certain Transactions."
26
<PAGE> 29
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total returns for the
Company, the CRSP Computer and Data Processing Index for the Nasdaq National
Market and the CRSP Total Return Index for the Nasdaq National Market for the
period that commenced August 7, 1996 (the date on which the Company's Common
Stock was first traded on the Nasdaq National Market) and ended on March 31,
1997. The graph assumes that all dividends have been reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURNS
[GRAPH]
ASSUMES $100 INVESTED ON AUGUST 7, 1996
ASSUMES REINVESTMENT OF ALL DIVIDENDS
FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
CRSP COMPUTER AND
DATA PROCESSING INDEX CRSP TOTAL RETURN
FOR THE NASDAQ INDEX FOR THE NASDAQ
DATE TRITEAL CORPORATION NATIONAL MARKET NATIONAL MARKET
---- ------------------- --------------------- --------------------
<S> <C> <C> <C>
8/7/1996 100.00 100.00 100.00
8/30/1996 170.15 95.47 99.82
9/30/1996 173.13 105.90 107.46
10/31/1996 159.70 104.04 106.27
11/29/1996 185.07 111.51 112.84
12/31/1996 253.73 110.27 112.72
1/31/1997 220.90 120.26 120.71
2/28/1997 197.01 110.52 114.05
3/31/1997 140.30 102.36 106.62
</TABLE>
- -------------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act or the Exchange Act whether made before or
after the date hereof and irrespective of any general incorporation
language in any such filing.
27
<PAGE> 30
CERTAIN TRANSACTIONS
In June 1996, the Company completed a private placement pursuant to which
the Company issued 566,164 shares of its Series C Preferred Stock at a purchase
price of $7.00 per share. In connection with such financing, Dr. Terry A.
Straeter, a director of the Company, purchased 14,285 shares of Series C
Preferred Stock, and John E. Witous and Joanne M. Witous, the parents of Jeffrey
D. Witous, a director and executive officer of the Company, purchased 7,142
shares of Series C Preferred Stock.
The Company has entered into indemnification agreements with each of its
executive officers and directors providing that the Company will indemnify its
executive officers and directors to the fullest extent permitted by law.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/S/ GREGORY J. WHITE
Gregory J. White
Secretary
July 21, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1997 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO: GREGORY J. WHITE, SECRETARY, TRITEAL
CORPORATION, 2011 PALOMAR AIRPORT ROAD, CARLSBAD, CALIFORNIA 92009.
28
<PAGE> 31
TRITEAL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 1997
The undersigned hereby appoints JEFFREY D. WITOUS and ARTHUR S. BUDMAN, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of TriTeal Corporation which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders of
TriTeal Corporation to be held at the Hyatt Regency - La Jolla, 3777 La Jolla
Village Drive, San Diego, California, on Wednesday, August 27, 1997 at 2:00 p.m.
(local time), and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEE LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
[SEE REVERSE SIDE]
<PAGE> 32
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
<S> <C> <C> <C>
PROPOSAL 1:
To elect one [ ] [ ] NOMINEE: Arthur S. Budman
director to hold
office until the
2000 Annual
Meeting of
Stockholders.
</TABLE>
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR LISTED ABOVE.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
PROPOSAL 2: To approve the Company's 1995 Stock [ ] [ ] [ ]
Option Plan, as amended, to among other things, (i)
increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 1
million shares, (ii) extend eligibility under the plan to
non-employee directors of the Company and provide for
the automatic grant of options to non-employee directors,
and (iii) extend the term of such plan to July 2007.
PROPOSAL 3: To approve the Company's 1996 Employee [ ] [ ] [ ]
Stock Purchase Plan, as amended, to increase the aggre-
gate number of shares of Common Stock authorized for
issuance under such plan by 50,000 shares.
PROPOSAL 4: To ratify the selection of ERNST & YOUNG [ ] [ ] [ ]
LLP as independent auditors of the Company for its fiscal
year ending March 31, 1998.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
</TABLE>
SIGNATURE(S) ____________________________________________ DATED _______________
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
<PAGE> 33
TRITEAL CORPORATION
1995 STOCK OPTION PLAN
AMENDED AND RESTATED JULY 15, 1997
APPROVED BY STOCKHOLDERS __________, 1997
1. INTRODUCTION; PURPOSES.
(A) This 1995 Stock Option Plan ("Plan") was originally adopted by the
Board of Directors of the Company on May 15, 1995 and approved by the
stockholders of the Company on May 6, 1996. Subsequent amendments were adopted
by the Board on June 11, 1996 and approved by stockholders on July 26, 1996.
This amendment and restatement of the Plan was adopted by the Board on July 15,
1997 (the "Amendment Date") and approved by the stockholders on ______________,
1997 (the "Stockholder Approval Date").
(B) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, and (iv) rights to purchase restricted
stock, all as defined below.
(C) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(D) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
1
<PAGE> 34
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
(D) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(E) "COMPANY" means TriTeal Corporation, a Delaware corporation.
(F) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(G) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
an individual's continuation as a provider of services to the Company, whether
through employment or as a Director or Consultant (and notwithstanding any
changes in such capacities), without interruption or termination. The Board or
the Chief Executive Officer of the Company, in its or his or her discretion, may
determine whether Continuous Status as an Employee, Director or Consultant shall
be considered interrupted in the case of: (i) any leave of absence approved by
the Company, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(H) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(I) "DIRECTOR" means a member of the Board.
(J) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(K) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(L) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market of The Nasdaq Stock Market, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Company's common stock) on
the last market trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the Board deems reliable;
(2) If the common stock is quoted on The Nasdaq Stock Market (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
2
<PAGE> 35
(M) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(N) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(O) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(P) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(Q) "OPTION" means a stock option granted pursuant to the Plan.
(R) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(S) "OPTIONEE" means a person who holds an outstanding Option.
(T) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(U) "PLAN" means this TriTeal Corporation 1995 Stock Option Plan.
3
<PAGE> 36
(V) "RULE 16B-3" means Rule 16b-3 under the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(W) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, and any right to purchase restricted stock.
(X) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(A) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(B) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4
<PAGE> 37
(C) The Board may delegate administration of the Plan to a committee
of the Board composed of not fewer than two (2) members (the "Committee"), all
of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
4. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate two million three hundred fifty thousand
(2,350,000) shares of the Company's common stock. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(A) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(B) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise
5
<PAGE> 38
price of such Incentive Stock Option is at least one hundred ten percent (110%)
of the Fair Market Value of such stock at the date of grant and the Incentive
Stock Option is not exercisable after the expiration of five (5) years from the
date of grant.
(C) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than five hundred thousand (500,000) shares of the Company's
common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(A) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(B) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of a Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, including,
at the discretion of the Board or Committee, pursuant to a cashless exercise of
Options as described in Regulation T promulgated by the Federal Reserve Board,
subject to applicable securities law restrictions, or (ii) at the discretion of
the Board or the Committee exercised at the time of grant of the Option, (A) by
delivery to the Company of other common stock of the Company having a Fair
Market Value at the time of exercise equal to the option exercise price
(provided that such shares have been held for a period of at least six (6)
months), (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the Optionee, or (C) in any other form of
legal consideration that may be acceptable to the Board.
6
<PAGE> 39
In the case of any deferred payment arrangement, (i) interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement, and (ii) the "par value" of the common stock (as defined in
the Delaware General Corporation Law) shall be paid by the Participant in cash.
(D) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit the transfer of a Nonstatutory Stock
Option, the Nonstatutory Stock Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(E) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(F) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
the earlier of (i) such period of time as is determined by the Board or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate,
7
<PAGE> 40
and the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act.
(G) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within the earlier of (i) such period of time as is
determined by the Board or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(H) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the earlier of (i) such period of time as is determined by the
Board or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(I) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a
8
<PAGE> 41
repurchase right in favor of the Company or to any other restriction the Board
determines to be appropriate.
(J) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of the
Company's common stock in accordance with this Plan and the terms and conditions
of the Option Agreement. Any such Re-Load Option (i) shall be for a number of
shares equal to the number of shares surrendered as part or all of the exercise
price of such Option; (ii) shall have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) shall have an exercise price which is equal to one
hundred percent (100%) of the Fair Market Value of the common stock subject to
the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(b)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
9
<PAGE> 42
(A) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(B) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if provided by the terms of the Stock Award Agreement,
pursuant to a domestic relations order within the meaning of Rule 16a-12 under
the Exchange Act and any administrative interpretations or pronouncements
thereunder, so long as stock awarded under such agreement remains subject to the
terms of the agreement.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold,
except that payment of the common stock's "par value" (as defined in the
Delaware General Corporation Law) shall not be made by deferred payment or other
arrangement; or (iii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(D) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(E) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
(A) Each individual who, on the Stockholder Approval Date, is a
Director and is not an Employee of the Company (a "Non-Insider Director") shall
automatically be granted, on the Stockholder Approval Date, a Nonstatutory
Option to
10
<PAGE> 43
purchase ten thousand (10,000) shares of the Company's common stock (a "1997
Director Option"). Each individual who first becomes a Non-Insider Director of
the Company (and was not already a Director) after the Stockholder Approval Date
shall automatically be granted, upon his or her election or appointment as a
Non-Insider Director, a Nonstatutory Option to purchase thirty thousand (30,000)
shares of the Company's common stock (an "Initial Option"). In addition, at the
time of each of the Company's annual meetings of stockholders, beginning with
the Company's 1998 annual meeting, each Non-Insider Director who has been a
Director for at least six (6) months as of the date of such meeting shall
automatically be granted a Nonstatutory Option to purchase ten thousand (10,000)
shares of the Company's common stock (an "Annual Option"). The number of shares
of common stock to be covered by Options granted pursuant to this Section 8
shall be subject to adjustment pursuant to Section 13 hereof.
(B) The date of grant for each 1997 Director Option shall be the
Stockholder Approval Date. The date of grant for each Initial Option shall be
the date of the Non-Insider Director's election or appointment to the Board.
The date of grant for each Annual Option shall be the first business day
following the date of the Company's 1998 annual meeting of stockholders and each
annual meeting of stockholders thereafter, as long as such Non-Insider Director
is then serving as a Non-Insider Director of the Company.
(C) The exercise price of Options granted pursuant to this Section 8
shall be the Fair Market Value of the Company's common stock on the date of
grant.
(D) Each Option granted to a Non-Insider Director pursuant to this
Section 8 shall expire upon the earlier of (i) ten (10) years from the date of
grant, (ii) three (3) months after termination of the Non-Insider Director's
Continuous Status as an Employee, Director or Consultant (other than upon the
Non-Insider Director's death or disability), or (iii) one (1) year after
termination of the Non-Insider Director's Continuous Status as an Employee,
Director or Consultant as a result of death or disability.
(E) Each Initial Option granted pursuant to this Section 8 shall vest
monthly as to one-forty-eighth (1/48th) of the shares subject to such Option
after the date of grant of the Option, until fully vested, provided that the
Optionee's Continuous Status as an Employee, Director or Consultant has not
terminated prior to such monthly vesting date. Upon the vesting of each
installment portion of the Option as provided herein, the Option may be
exercised with respect to the shares represented by that installment. Each 1997
Director Option and each Annual Option shall vest monthly as to one-twelfth
(1/12th) of the shares subject to such Option after the date of grant of the
Option, until fully vested, provided that the Optionee's Continuous Status as an
Employee, Director or Consultant has not terminated prior to such monthly
vesting date. No portion of an
11
<PAGE> 44
Option granted under this Section 8 may be exercised prior to the vesting date
applicable to such Option or portion thereof, as the case may be.
(F) Payment of the exercise price per share of each Option granted
under this Section 8 shall be made (i) in cash (including check) at the time of
exercise, (ii) pursuant to a cashless exercise program that is in compliance
with regulations promulgated by the Federal Reserve Board and which, prior to
the issuance of the shares being purchased, results in either the receipt by the
Company of cash (or check) or irrevocable instructions to a qualified broker
that sufficient shares be sold immediately in order to deliver the aggregate
exercise price to the Company from the sales proceeds, or (iii) by a combination
of the methods specified in (i) and (ii).
(G) No Options granted pursuant to this Section 8 may be exercised
prior to shareholder approval of the amendment of the Plan adding this Section
8.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(A) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options,
(ii) with the consent of any adversely affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than: eighty-five percent (85%) of the Fair Market Value for a Nonstatutory
Stock Option, one hundred percent (100%) of the Fair Market Value in the case of
an Incentive Stock Option or, in the case of an Incentive Stock Option held by a
10% stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which Section 424(a) of the Code applies.
(B) Shares subject to an Option canceled under this Section 9 shall
continue to be counted against the maximum number of shares subject to Options
permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing
of an Option under this Section 9, resulting in a reduction of the exercise
price, shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum number of shares
subject to Options permitted to be granted pursuant to subsection 5(c) of the
Plan. The provisions of this subsection 9(b) shall be applicable only to the
extent required by Section 162(m) of the Code.
12
<PAGE> 45
10. COVENANTS OF THE COMPANY.
(A) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(B) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(A) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(B) Neither an Employee, a Director, a Consultant nor any person to
whom a Stock Award is transferred pursuant to subsection 6(d) or 7(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(C) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director or Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without notice and with or without cause, or
the right of the Company's Board of Directors and/or the Company's stockholders
to remove any Director pursuant to the terms of the Company's By-laws and the
provisions of the Delaware General Corporation Law, or the
13
<PAGE> 46
right to terminate the relationship of any Consultant pursuant to the terms of
such Consultant's agreement with the Company or Affiliate.
(D) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(E) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(F) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the Stock
Award; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company having a Fair Market Value at the time of such
withholding equal to the amount of the withholding obligation (provided that
such shares have been held for a period of at least six (6) months).
14
<PAGE> 47
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(B) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then (a) with respect to Stock Awards held
by persons then performing services as Employees, Directors or Consultants, the
vesting and, if applicable, exercisability of such Stock Awards shall be
accelerated prior to such event and any Stock Awards requiring exercise shall be
terminated if not exercised after such acceleration and at or prior to such
event, and (b) with respect to any other Stock Awards outstanding under the
Plan, such Stock Awards shall be terminated if not exercised prior to such
event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to
15
<PAGE> 48
the extent stockholder approval is necessary for the Plan, as modified by the
amendment, to satisfy the requirements of Section 422 of the Code or Rule 16b-3
under the Exchange Act.
(B) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(C) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(D) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(E) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on July 15, 2007. No Stock Awards
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(B) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN; TERM OF PLAN.
The Plan, as amended and restated by the Board on the Amendment Date
shall be effective on the Amendment Date, provided that no Stock Awards granted
under the Plan that were not provided for under the Plan prior to the Amendment
Date shall be
16
<PAGE> 49
exercised unless and until the Plan, as amended, has been approved by the
stockholders of the Company within twelve (12) months before or after the
Amendment Date.
17
<PAGE> 50
TRITEAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED JULY 15, 1997
APPROVED BY STOCKHOLDERS _________, 1997
1. PURPOSE.
(A) The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of TriTeal Corporation (the "Company"), and
its Affiliates, as defined in subparagraph 1(b), which are designated as
provided in subparagraph 2(b), may be given an opportunity to purchase stock of
the Company.
(B) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(C) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(D) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(A) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(B) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(I) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(II) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
1
<PAGE> 51
(III) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(IV) To amend the Plan as provided in paragraph 13.
(V) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
(C) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate Three Hundred Thousand (300,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or
2
<PAGE> 52
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(A) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be greater than two (2) years. In
addition, unless otherwise determined by the Board or the Committee and set
forth in the terms of the applicable Offering, no employee of the Company or any
Affiliate shall be eligible to be granted rights under the Plan, unless, on the
Offering Date, such employee's customary employment with the Company or such
Affiliate is for at least twenty (20) hours per week and at least five (5)
months per calendar year.
(B) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(I) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(II) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(III) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(C) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
3
<PAGE> 53
(D) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
(E) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(A) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined in subparagraph 7(a)) during the period which
begins on the Offering Date (or such later date as the Board or the Committee
determines for a particular Offering) and ends on the date stated in the
Offering, which date shall be no later than the end of the Offering. The Board
or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(B) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(C) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(I) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(II) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
4
<PAGE> 54
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(A) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's wages (including amounts
thereof elected to be deferred by the employee, that would otherwise have been
paid, under any arrangement established by the Company that is intended to
comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the
Code or that provides non-qualified deferred compensation), which shall include
overtime pay, bonuses and commissions, but shall exclude incentive pay, profit
sharing, other remuneration paid directly to the employee, the cost of employee
benefits paid for by the Company or an Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Company or
an Affiliate under any employee benefit plan, and similar items of compensation,
as determined by the Board or the Committee. The payroll deductions made for
each participant shall be credited to an account for such participant under the
Plan and shall be deposited with the general funds of the Company. A participant
may reduce (including to zero) or increase such payroll deductions, and an
eligible employee may begin such payroll deductions, after the beginning of any
Offering only as provided for in the Offering. A participant may make additional
payments into his or her account only if specifically provided for in the
Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(B) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(C) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
5
<PAGE> 55
(D) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(A) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(B) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(A) During the terms of the rights granted under the Plan, the Company
shall keep
6
<PAGE> 56
available at all times the number of shares of stock required to satisfy such
rights.
(B) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(B) In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, as determined by the Board in its sole discretion (i)
any surviving corporation may assume outstanding rights or substitute similar
rights for those under the Plan, (ii) such rights may continue in full force and
effect, or (iii) participants' accumulated payroll
7
<PAGE> 57
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(I) Increase the number of shares reserved for rights under the Plan;
(II) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or
(III) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(B) Rights and obligations under any rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(A) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
8
<PAGE> 58
(B) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(B) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the day immediately prior to the
effectiveness of the Company's registration statement under the Securities Act
with respect to the initial public offering of shares of the Company's common
stock (the "Effective Date"), but no rights granted under the Plan shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company within twelve (12) months before or after the date the Plan is adopted
by the Board or the Committee, which date may be prior to the Effective Date.
9
