SPANLINK COMMUNICATIONS, INC.
7125 NORTHLAND TERRACE
MINNEAPOLIS, MN 55428
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1999
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Spanlink Communications, Inc., a
Minnesota corporation (the "Company"), will be held on Wednesday, May 12, 1999,
at 4:00 p.m. local time, at the offices of the Company, 7125 Northland Terrace,
Minneapolis, Minnesota for the following purposes:
1) To elect two directors, each to a three-year term;
2) To approve increase of shares under the Company's 1996 Omnibus Stock
Plan from 1,000,000 to 1,300,000.
3) To act upon such other business as may properly come before the Annual
Meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 19, 1999 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
adjournments thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Company's Annual Report for the fiscal year ended
December 31, 1998 also accompanies this Notice.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend, please sign, date and return your proxy in the reply
envelope provided.
By Order of the Board of Directors,
Loren A. Singer, Jr.
Secretary
Minneapolis, Minnesota
Dated: April 12, 1999
<PAGE>
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
SPANLINK COMMUNICATIONS, INC.
7125 NORTHLAND TERRACE
MINNEAPOLIS, MN 55428
PROXY STATEMENT
Annual Meeting of the Shareholders
May 12, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Spanlink Communications, Inc. (the
"Company") of proxies for use at the Annual Meeting of the Shareholders (the
"Meeting") to be held on May 12, 1999, at the offices of the Company, 7125
Northland Terrace, Minneapolis, MN 55428 at 4:00 P.M. local time, and at any
adjournment thereof, for the purposes set forth in the Notice of Annual Meeting
of Shareholders. This Proxy Statement and the accompanying proxy form are
furnished in connection with the proxy solicitation and are first being mailed
to shareholders on or about April 12, 1999.
Shares represented by properly executed and returned proxies will be
voted as specified on the proxies. Shares represented by proxies where no
specification has been made will be voted (i) FOR each nominee for election to
the Board of Directors; (ii) FOR approval of the increase of shares under the
Company's 1996 Omnibus Stock Plan; and (iii) in the discretion of the proxy
holders, as to any other matter that properly comes before the meeting.
A proxy may be revoked at any time prior to its exercise by providing
written notice of revocation or another proxy bearing a later date to the
Secretary of the Company at the address set forth above.
A copy of the Company's Annual Report for the fiscal year ended
December 31, 1998, is enclosed herewith. The Annual Report describes the
financial condition of the Company as of December 31, 1998. The Company will
furnish without charge to any person whose proxy is being solicited a copy of
the Company's Annual Report on Form 10-KSB for fiscal year 1998 as filed with
the Securities and Exchange Commission, including financial statements
therewith, upon written request to Spanlink Communications, Inc. 7125 Northland
Terrace, Minneapolis, MN 55428, Attention: Timothy Briggs - V. P. Finance.
<PAGE>
The Company will pay all expenses incurred in connection with the
solicitation of proxies. Proxies are being solicited by mail and may also be
solicited personally, by telephone, or telegram by directors, officers, and
other employees of the Company without additional compensation to them. The
Company has requested brokerage houses, nominees, custodians, and fiduciaries to
forward solicitation materials to the beneficial owners of Common Stock of the
Company and will reimburse such persons for their expenses. The Company may
reimburse banks, brokerage firms, and other custodians, nominees, and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to beneficial owners of Common Stock.
RECORD DATE AND VOTING
Shareholders of record on March 19, 1999, are the only persons entitled
to vote at the Meeting. As of March 19, 1999, there were issued and outstanding
5,107,739 shares of no par value Common Stock, the only authorized and issued
voting security of the Company. Each shareholder is entitled to one vote for
each share of Common Stock held. As provided in the Articles of Incorporation of
the Company, there is no right of cumulative voting.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The inspectors of election will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
An abstention as to any proposal will therefore have the same effect as a vote
against the proposal. If a broker indicates on the form of proxy that the broker
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will be considered to be present for the purpose
of determining whether a quorum is present, but will not be considered as
present and entitled to vote with respect to that particular matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the information as of March 19, 1999,
regarding beneficial ownership of the Company's Common Stock for (i) each
director, (ii) each executive officer named in the Summary Compensation table
set forth in the "Executive Compensation" section of this proxy statement, (iii)
all directors and executive officers as a group and (iv) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock of the Company.
<PAGE>
SHARES BENEFICIALLY OWNED (1)
-----------------------------------
Name of Beneficial Owner Number Percent
------------------------- ---------- -------
Brett A. Shockley (2) 900,000 17.6%
Loren A. Singer, Jr. (2) 900,000 17.9
Todd A. Parenteau (2) 900,000 17.6
Patrick P. Irestone (3) 387,000(3) 7.1
Stephen H. Bostwick 75,000(4) 1.4
Bruce E. Humphrey 24,500(5) *
Thomas F. Madison 23,000(5) *
Joseph D. Mooney 23,000(5) *
All Current Executive Officers
Directors as a group (10 persons) 2,043,696(6) 38.4%
* Less than 1%.
(1) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days are deemed to be outstanding for purposes of
computing the percentage of shares beneficially owned by the person
holding such options, but are not deemed to be outstanding for purposes
of computing such percentage for any other person. Each person or group
identified has sole voting and investment powers with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) The address of Messrs. Shockley, Singer and Parenteau, is 7125
Northland Terrace, Minneapolis, Minnesota 55428.
(3) Includes currently exercisable options to purchase 318,500 shares of
Common Stock. Includes 67,500 shares owned directly and 1,000 shares
owned indirectly by Mr. Irestone's spouse for the benefit of their
child. The address of Mr. Irestone is 268 Meadowood Lane, Vadnais
Heights, MN 55127.
(4) Includes options to purchase 70,000 shares of Common Stock which are
currently exercisable. Also includes 5,000 shares owned indirectly by
Mr. Bostwick's spouse.
(5) Includes options to purchase 22,000 shares of Common Stock which are
currently exercisable.
(6) Includes options to purchase 220,500 shares of Common Stock which are
either currently exercisable or exercisable within 60 days.
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1 on Proxy Card)
The Bylaws of the Company provide that the number of directors that
constitute the Board of Directors shall be fixed from time to time by the Board
of the Company. The number of directors is currently set at five. The Company's
Articles of Incorporation provide that the Board be classified into three
classes with staggered terms. One class of directors will be elected each year,
and the members of such class will hold office for a three-year term or until
their successors are duly elected and qualified or until their death,
resignation or removal from office. Joseph D. Mooney and Loren A. Singer, Jr.
serve in Class 1 with a term expiring in 2000; Bruce E. Humphrey serves in Class
2 with a term expiring in 2001; and Brett A. Shockley and Thomas F. Madison
serve in Class 3 with a term expiring at the Annual Meeting. The Board of
Directors has nominated Mr. Shockley and Mr. Madison for election to the Board
at the Annual Meeting for a term expiring at the Annual Meeting in 2002. The
other directors of the Company will continue in office for their existing terms.
The persons nominated have agreed to serve if elected, and the Company knows of
no reason why the listed nominees would be unavailable to serve.
Shares represented by proxy will be voted, if authority to do so is not
withheld, for the election of Mr. Shockley and Mr. Madison, unless either such
nominee should become unavailable for election by reason of death or other
unexpected occurrence, in which event such shares shall be voted for the
election of such substitute nominee as the Board of Directors may propose.
Set forth below is information regarding the nominees and the directors
whose terms continue after the Annual Meeting, including information furnished
by them as to their principal occupations for the last five years, certain other
directorships held by them, and their ages as of the date hereof. The nominees
may be contacted at the Company offices.
Under applicable Minnesota law, the election of each nominee to the
Board of Directors requires the affirmative vote of the holders of the greater
of (i) a majority of the voting power of the shares represented in person or by
proxy at the Annual Meeting with authority to vote on such matter, or (ii) a
majority of the voting power of the minimum number of shares that would
constitute a quorum for the transaction of business at the Annual Meeting.
The Board recommends that the shareholders vote FOR the election of
Brett A. Shockley and Thomas F. Madison to the Board of Directors.
Certain biographical information furnished by the Company's Board of
Directors is set forth below:
<PAGE>
BRETT A. SHOCKLEY, age 39, has been the Chief Executive Officer and Chairman of
the Board since 1988 and is a founder of the Company. Mr. Shockley also served
as President from 1988 to September 1994 and since July 1997. Prior to founding
the Company in 1988, Mr. Shockley was a marketing and product management
executive at Onan Corporation, a subsidiary of Cummins Engine Company Inc. From
1982 to 1987, Mr. Shockley was in marketing and product management at ADC
Telecommunications, Inc., a manufacturer of telecommunications equipment.
LOREN A. SINGER, JR., age 43, has been Secretary and a director since 1988 and
is a founder of the Company. Mr. Singer also served as a lead software engineer
from 1988 to June 1997. He currently provides consulting services to the
Company. He has been sole proprietor of Beagle Software since June 1997. Prior
to founding the Company in 1988, Mr. Singer was an Engineering Development
Manager at ADC Telecommunications, Inc. from 1983 to 1987. Mr. Singer was a
design engineer at Porta Systems, Inc. from 1980 to 1983.
THOMAS F. MADISON, age 63, has been a director of the Company since 1996. Mr.
Madison has been the President and Chief Executive Officer of MLM Partners, a
consulting and small business investment company, since January 1993. Since
December 1996, he has been Chairman of Communications Holdings, Inc. From
February 1994 to September 1994, he served as Vice Chairman and Office of Chief
Executive Officer at Minnesota Mutual Life Insurance Company. From June 1987 to
December 1992, Mr. Madison was President of US West Communications Markets, a
division of US West Inc. Mr. Madison was President and Chief Executive Officer
of Northwestern Bell Telephone Company from April 1985 to June 1987. Mr. Madison
also serves on the board of directors of Valmont Industries, Inc., Eltrax
Systems, Inc., Minnegasco Division of Arkla, ACI Telecentrics, Incorporated and
Delaware Group of Funds. He also serves on the Advisory Board of Aon Risk
Services.
JOSEPH D. MOONEY, age 61, has been a director of the Company since 1996. Mr.
Mooney is Chairman and CEO of Greentree Software, Inc. Prior to that he was the
President of Benchmark Computer Systems, Inc. from January 1973, when he founded
the company, to August 1996. In addition, he was a founder of Benchmark Network
Systems, Inc. and served as its President from 1984 to 1995. He was also
President of Benchmark Nursing Home Systems, Inc., a software company, from 1973
to 1994. Mr. Mooney also has served as a director for both Paradata
International, Inc. and Cado Systems, Inc.
BRUCE E. HUMPHREY, age 41, has been a director of the Company since 1996. Mr.
Humphrey has been the President and Chief Executive Officer of CSC Insurance
Center, Inc. since he founded it in December 1982. Mr. Humphrey is also a
director of K-Sun, Inc.
Committees and Meetings of the Board of Directors
The Board has a Compensation Committee composed of Messrs. Madison
(Chairman), Mooney and Humphrey, which committee makes recommendations
concerning executive compensation and incentive compensation for employees of
the Company, subject to ratification by the Board, and administers the Company's
1996 Omnibus Stock Plan. The Board also has an Audit Committee comprised of
Messrs. Humphrey (Chairman) and Madison. The Audit Committee reviews the results
<PAGE>
and scope of the audit and other services provided by the Company's independent
accountants, as well as the Company's accounting principles and its system of
internal controls, and reports the results of its review to the Board. The
Company has no nominating committee.
During fiscal 1998, the Board of Directors met four times. All
directors attended 100 percent of such meetings and the committee meetings on
which such directors served during 1998. The Audit Committee held one meeting in
1998, and the Compensation Committee held two meetings in 1998.
Director Compensation
Members of the Board receive no cash compensation for serving on the
Board except for reimbursement for expenses incurred in attending meetings. The
Company's 1996 Omnibus Stock Plan provides for automatic annual option grants to
purchase 4,000 shares of Common Stock to each director who is not an employee of
the Company ("Outside Director") who is re-elected as a director or whose term
of office continues after a meeting of shareholders at which directors are
elected. Pursuant to the 1996 Plan, the options (i) have an exercise price equal
to 100% of the fair market value of the Company's Common Stock on the date of
grant, (ii) are immediately exercisable and (iii) expire on the ten-year
anniversary of the date of grant. In addition, during 1998, the Outside
Directors each received additional options to purchase 6,000 shares of Common
Stock.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
Brett A. Shockley 39 Chairman of the Board, Chief Executive
Officer, President
Stephen H. Bostwick 60 Vice President of Sales
Timothy E. Briggs 51 Vice President of Finance, Chief Financial
Officer
Jonathan M. Silverman 45 Vice President of Research & Development,
Chief Technology Officer
Bryan Willborg 41 Vice President of Customer Solutions
Brett A. Shockley Biographical information for Mr. Shockley is provided
elsewhere in this Proxy Statement under "Election of
Directors."
Stephen H. Bostwick Mr. Bostwick joined the Company as Vice President of
Sales and Marketing in December of 1996, and became
Vice President of Sales in June 1998. From 1995 to
1996, Mr. Bostwick was Vice President of Sales at
Answersoft in Dallas. From 1993 to 1995, he was in
various sales positions for Intervoice Inc., most
recently as Vice President of Direct Sales. Prior to
that time he held various executive sales and
marketing positions at other telecommunication
companies, including Vice President of Sales at
Teknekron Infoswitch.
<PAGE>
Timothy E. Briggs Mr. Briggs joined the Company as Vice President of
Finance and Chief Financial Officer in October of
1997. From 1985 to 1997, Mr. Briggs held a variety of
positions with Empi, Inc., most recently as Executive
Vice President and Chief Financial Officer. Prior to
joining Empi, he served as Treasurer of Conwed
Corporation.
Jonathan M. Silverman Mr. Silverman joined the Company in September of
1992. Mr. Silverman has held several positions with
the Company and is currently serving as Vice
President of Research and Development. From 1989 to
1992, Mr. Silverman was Director of Software
Development at Racotek, prior to which he was Section
Manager for distributed systems in Honeywell's
Corporate Research Center. Mr. Silverman has
published numerous papers in professional journals
and holds patents on software architecture.
Bryan Willborg Mr. Willborg joined the Company in March 1998. From
February 1997 through February 1999, he was the Vice
President of Re-Engineering for Jostens Corporation.
Prior to that, he held the position of Director of
Corporate Quality at Pella Corporation from September
1993 through February 1997. For twelve years prior to
September 1993, Mr. Willborg held a variety of
positions, including software development manager and
site quality manager (for ISO 9000 certification), at
IBM's Rochester, Minnesota location.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information for the past
three years ended December 31, 1998, concerning executive compensation paid or
accrued by the Company to the Company's Chief Executive Officer and the other
executive officers whose salary and bonus compensation earned in 1998 exceeded
$100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------- -------------------------
Restricted All
Other Annual Stock Other
Name and Salary Bonus Compensation Awards Options Compen-
Principal Position Year ($) ($) ($) ($) (#) sation
- -------------------------- --------- --------- -------------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brett A. Shockley 1998 162,000 32,400 -0- -0- 150,000 -0-
Chief Executive 1997 120,667 -0- -0- -0- -0- -0-
Officer 1996 152,175 46,000 12,025 (1) -0- -0- -0-
- -------------------------- --------- --------- -------------- --------------- ----------- ------------- ------------
Stephen H. Bostwick 1998 136,000 15,000 -0- -0- 16,500 -0-
Vice President of 1997 116,500 -0- -0- -0- 100,000 (1) -0-
Sales 1996 8,333 -0- -0- -0- 100,000 -0-
- -------------------------- --------- --------- -------------- --------------- ----------- ------------- ------------
Jonathan M. Silverman 1998 101,640 15,000 -0- -0- 16,500 -0-
Vice President of 1997 89,100 -0- -0- -0- 60,000 (2) -0-
Research & 1996 87,844 4,600 -0- -0- 50,000 -0-
Development, Chief
Technology Officer
- -------------------------- --------- --------- -------------- --------------- ----------- ------------- ------------
Timothy E. Briggs 1998 95,000 14,250 -0- -0- 16,500 -0-
Vice President of 1997 23,750 -0- -0- -0- 75,000 -0-
Finance, Chief
Financial Officer
- -------------------------- --------- --------- -------------- --------------- ----------- ------------- ------------
</TABLE>
(1) The stock option granted in 1996 was repriced in 1997; thus, the option
is deemed regranted in 1997, and the 1997 option replaces the 1996
option, which is deemed cancelled.
(2) Includes a stock option for 50,000 shares granted in 1996 which was
repriced in 1997; thus the option is deemed regranted in 1997 and
replaces the 1996 option, which is deemed cancelled.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (1) Fiscal 1998 Price ($/Sh)(2) Date
- ------------------------------- -------------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Brett A. Shockley 150,000 33.0% $2.75 08-18-08
- ------------------------------- -------------------- -------------------- ----------------------- ------------------
Stephen H. Bostwick 16,500 3.6% $2.75 08-18-08
- ------------------------------- -------------------- -------------------- ----------------------- ------------------
Jonathan M. Silverman 16,500 3.6% $2.75 08-18-08
- ------------------------------- -------------------- -------------------- ----------------------- ------------------
Timothy E. Briggs 16,500 3.6% $2.75 08-18-08
- ------------------------------- -------------------- -------------------- ----------------------- ------------------
</TABLE>
<PAGE>
(1) All stock options were granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant, which was the
closing price of the Common Stock as reported on the Nasdaq SmallCap
Market on such date.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth certain information with respect to
options exercised during fiscal 1998 by the Company's Chief Executive Officer
and the executive officers named in the Summary Compensation Table, and with
respect to unexercised options held by such persons at the end of fiscal 1998.
<TABLE>
<CAPTION>
Value of Unexercised in the
Shares Number of Securities Money Options/SARS
Acquired Underlying Unexercised at FY-End(1)
on Value Options/SARS at FY-End Exercisable Unexercisable
Name Exercise Realized Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
- ------------------------- ------------ ------------ -------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brett A. Shockley -0- -0- -0- 150,000 -0- 168,750
- ------------------------- ------------ ------------ -------------- ----------------- -------------- ----------------
Stephen H. Bostwick -0- -0- 70,000 46,500 131,250 74,813
- ------------------------- ------------ ------------ -------------- ----------------- -------------- ----------------
Jonathan M. Silverman -0- -0- 52,000 24,500 97,500 33,563
- ------------------------- ------------ ------------ -------------- ----------------- -------------- ----------------
Timothy E. Briggs -0- -0- 22,500 69,000 42,188 117,000
- ------------------------- ------------ ------------ -------------- ----------------- -------------- ----------------
</TABLE>
(1) The calculations of the value of unexercised options are based on the
difference between the closing bid price on Nasdaq SmallCap Market of the Common
Stock on December 31, 1998 and the exercise price of each option, multiplied by
the number of shares covered by the option.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and certain shareholders to file
reports of ownership and changes in ownership of the Company's Common Stock with
the Securities and Exchange Commission. To the Company's knowledge, based on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the Company's fiscal
year ended December 31, 1998, all Section 16(a) filing requirements were
complied with.
<PAGE>
CERTAIN TRANSACTIONS
In connection with the employment agreement between the Company and
Patrick P. Irestone as President and Chief Operating Officer of the Company, the
Company loaned an aggregate of $113,500 to Mr. Irestone to pay taxes due as a
result of the grant of 67,500 shares of the Company's Common Stock in February
1996. The loans are evidenced by promissory notes dated (i) December 23, 1996 in
the principal amount of $94,500, with interest accruing at 6.31% per annum, and
(ii) April 17, 1997 in the principal amount of $19,000, with interest accruing
at 5.99% per annum. Pursuant to the original notes, principal and interest were
due one year after the date of the respective notes. Pursuant to the Separation
Agreement and Release dated July 15, 1997, the Company agreed to extend the
loans on an annual basis as they come due through April 14, 2002. The loans are
on a nonrecourse basis and are secured by the 67,500 shares granted to Mr.
Irestone in February 1996.
On February 10, 1998, the Company loaned $25,000 to Brett A. Shockley,
President and Chief Executive Officer of the Company. The loan is evidenced by a
promissory note dated February 10, 1998, which accrues interest at 6% per annum.
The principal and accrued interest are due and payable on February 10, 2003.
The Company has purchased its Property/Casualty and Group Insurance
policy through CSC Insurance Center, Inc. Bruce E. Humphrey, a director of the
Company, owns 70% of the outstanding shares of CSC Insurance Center, Inc. In
addition, CSC Insurance Center, Inc. acts as the agent for the Company's 401(k)
Plan. All transactions with CSC Insurance Center, Inc. and Mr. Humphrey were on
terms no less favorable than could be obtained from an unaffiliated third party.
The Company did not make any payments directly to Mr. Humphrey.
During the first quarter of fiscal year 1999, in order to bridge
short-term capital needs, Timothy E. Briggs, the Company's Vice President of
Finance/CFO loaned the Company approximately $250,000. The loans are unsecured
and the Company has agreed to pay Mr. Briggs interest at the annual rate of six
percent (6%).
The Company believes that the foregoing transactions are on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties. Such actions have been ratified by a majority of the independent
outside members of the Company's Board of Directors who do not have an interest
in the transactions. All future transactions, including loans, loan guarantees
or forgiveness of loans, with directors, officers or shareholders holding more
than 5% of the Company's outstanding shares, or affiliates of any such persons,
will be on terms no less favorable than could be obtained from an unaffiliated
third party and will be approved by a majority of the independent outside
directors who do not have an interest in the transactions.
<PAGE>
APPROVAL OF INCREASE OF SHARES
UNDER THE 1996 OMNIBUS STOCK PLAN
(Proposal 2 on Proxy Card)
On February 23, 1999, the Board of Directors increased the shares
reserved under the Company's 1996 Omnibus Stock Plan (the "1996 Plan") from
1,000,000 to 1,300,000, which increase is subject to approval by the Company's
shareholders. The 1996 Plan provides for the granting of "incentive" stock
options intended to meet the requirements of Internal Revenue Code ("I.R.C.")
Section 422, nonqualified stock options, stock appreciation rights ("SARs"),
restricted stock awards and reload options (collectively referred to as
"Awards"). Awards may be granted in any one or a combination of these forms. No
Awards will be granted under the 1996 Plan after January 31, 2006, which is ten
years after the effective date of the 1996 Plan. To date, all Awards awarded
under the 1996 Plan have been stock options. As of April 1, 1999, options to
purchase an aggregate of 1,038,630 shares are outstanding under the 1996 Plan,
including options to purchase an aggregate of 134,500 shares of Common Stock
granted to executive officers, the vesting of which is subject to approval of
this proposal by the Company's shareholders. The outstanding options have an
average exercise price of $2.90 per share. Options to purchase 11,360 shares
under the 1996 Plan have been exercised as of April 1, 1999. In addition,
options to purchase an aggregate of 295,000 shares at an average exercise price
of $2.495 were granted outside of the 1996 Plan and were outstanding as of April
1, 1999. The 1996 Plan provides for the automatic annual grants of nonqualified
stock options to "Outside Directors" as described above in "Election of
Directors - Director Compensation."
The Company has historically used stock options to provide a long-term
incentive to its officers and key employees, and stock options will continue to
be a primary form of long-term incentive to the Company's officers and key
employees; however, the availability of other types of Awards under the 1996
Plan afford the Committee greater flexibility in designing the most appropriate
type of incentive package for the Company and each individual.
The Company adopted the 1996 Plan primarily to afford officers,
directors, advisors, consultants and key employees, upon whose judgment,
initiatives and efforts the Company is largely dependent for the successful
conduct of its business, the opportunity to obtain a proprietary interest in the
growth and performance of the Company. All officers, directors, advisors,
consultants and key employees of the Company or any of the Company's
subsidiaries are eligible to receive awards under the 1996 Plan. The Company
currently has approximately 102 officers, directors and full-time employees. The
Company has five executive officers (one of whom is also a director) and three
Outside Directors, all of whom are eligible to participate under the 1996 Plan.
A general description of the basic features of the 1996 Plan follows,
but such description is qualified in its entirety by reference to the full text
of the 1996 Plan, a copy of which may be obtained without charge upon written
request to the Company's Chief Financial Officer.
<PAGE>
Administration and Types of Awards
The 1996 Plan is administered by the Compensation Committee of the
Board of Directors. With the exception of the stock options automatically issued
on an annual basis to Outside Directors described in "Election of Directors -
Director Compensation" above, the Committee must approve options and Awards
granted under the 1996 Plan. The Committee has broad powers to administer and
interpret the 1996 Plan, including the authority to: (i) establish rules for the
administration of the 1996 Plan; (ii) select the participants in the 1996 Plan;
(iii) determine the types of Awards to be granted and the number of shares (if
any) covered by such Awards; (iv) set the terms and conditions of such Awards;
and (v) determine under what circumstances Awards may be cancelled or suspended.
All determinations and interpretations of the Committee will be binding on all
interested parties.
The total number of shares and the exercise price per share of Common
Stock (if any) that may be issued pursuant to outstanding Awards will be subject
to adjustment by the Board of Directors upon the occurrence of stock dividends,
stock splits or other recapitalizations, or because of mergers, consolidations,
reorganizations, or similar transactions in which the Company receives no
consideration. The Board may also provide for the protection of participants in
the event of a merger, liquidation, reorganization, divestiture (including a
spin-off) or similar transaction after which the Company is not the surviving
corporation.
Options. Options granted under the 1996 Plan may be either "incentive"
stock options within the meaning of I.R.C. ss.422 or "nonqualified" stock
options that do not qualify for special tax treatment under Section 422 or
similar provisions of the I.R.C. No incentive stock option may be granted with a
per share exercise price less than the fair market value of a share of the
underlying Common Stock on the date the incentive stock option is granted. For
nonqualified stock options, the option price ordinarily will also be the fair
market value of a share of the underlying Common Stock on the date the
nonqualified stock option is granted but can never be less than 85% of such fair
market value. The option exercise price may be paid in cash, shares of Common
Stock or a combination of cash and shares. The closing price of the Company's
Common Stock as reported by the Nasdaq SmallCap Market on April 1, 1999 was
$3.375 per share.
The Committee may, in its discretion, modify or impose additional
restrictions on the term of exercisability of an option. The Committee may also
determine the effect that an optionee's termination of employment with the
Company or a subsidiary may have on the exercisability of such option. The
Committee may impose additional or alternative conditions and restrictions on
incentive or nonqualified stock options granted pursuant to the 1996 Plan;
however, each incentive stock option must contain such limitations and
restrictions upon its exercise as are necessary to ensure that the option will
be an incentive stock option as defined under I.R.C. Section 422. Following a
"change of control" as described below, all options granted under the 1996 Plan
will become immediately exercisable and any conditions restricting the
exercisability of the options shall be deemed satisfied, unless doing so would
preclude a "pooling of interests" transaction. Options may not be transferred by
the optionee except by will or by the laws of descent and distribution.
<PAGE>
Reload Options. The Committee may authorize reload options concurrently
with the award of an incentive or nonqualified stock option to any participant.
The number of shares subject to the reload option must equal (i) the number of
shares used to exercise the underlying incentive or nonqualified stock option
(which shares must have been held by the participant for at least twelve months)
and (ii) to the extent authorized by the Committee, the number of shares used to
satisfy any tax withholding requirement incident to the exercise of the
underlying incentive or nonqualified stock options. The per share exercise price
for a reload option will not be less than the fair market value of a share of
the underlying Common Stock on the date the reload option is granted. Reload
options will always be nonqualified stock options.
Restricted Stock Awards. The Committee is also authorized to grant
awards of restricted stock. Each restricted stock award granted under the 1996
Plan will be for a number of shares as determined by the Committee. The
Committee, in its discretion, may establish performance or other conditions that
must be satisfied in order for the restrictions on transferability to lapse. In
addition, the participant must remain in continuous employment of the Company in
order for the forfeiture and transfer restrictions to lapse. The Committee, in
its discretion, may waive any restrictions applicable to all or any portion of
the shares subject to an outstanding restricted stock award. While restrictions
on transferability remain in effect, the participant will have the right to vote
the shares of Common Stock and to receive any dividends or distributions with
respect thereto. If the participant's employment terminates before the
restrictions lapse, shares subject to such restrictions ordinarily will be
forfeited to the Company. Following a "change of control" as described below,
all restrictions on restricted stock awarded under the 1996 Plan will
immediately lapse.
SARs. The Committee is also authorized to grant awards of stock
appreciation rights ("SARs") in tandem with incentive, nonqualified or reload
stock options previously or concurrently granted to the participant (the
"related option"). Each SAR entitles the participant to elect, in lieu of
exercising the related option, to a payment equal to the appreciation on the
related option. For each SAR exercised, the participant will receive the
difference between the per share fair market value of the Company's Common Stock
on the exercise date and the per share fair market value on the date the related
option was granted or became effective. The payment may be made in cash or in
shares of the Common Stock. SARs shall be exercisable only to the same extent
and subject to the same conditions as the related option, and may be subject to
such other conditions prescribed by the Committee. The exercise of any SARs also
cancels an equal number of shares subject to the related option. Following a
"change of control" as described below, all outstanding SARs will become
immediately exercisable.
Change of Control Provisions
In the event of an acquisition of the Company through the sale of
substantially all of the Company's assets and the consequent discontinuance of
its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company ("change of control"), all outstanding Awards shall become immediately
vested. The acceleration of the vesting of outstanding Awards may be limited,
<PAGE>
however, if the acquiring party seeks to account for the change of control
transaction on a "pooling of interests" basis which would be precluded if such
options are accelerated. The Board may also decide to take certain additional
actions, such as termination of the 1996 Plan, providing cash or stock valued at
the amount equal to the excess of the fair market value of the stock over the
exercise price, or allow exercise of the Awards for stock of the succeeding
company.
Amendment
The Board of Directors may terminate, modify or amend the 1996 Plan
(including the above-described provisions regarding a "change of control") at
any time prior to a "change of control," except that the terms of Awards then
outstanding may not be adversely affected without the consent of the individual;
provided, however, no amendment shall be effective unless and until the same is
approved by shareholders of Company if the failure to obtain such approval would
adversely affect compliance with Rule 16b-3, the I.R.C. and other laws. After a
"change of control," neither the Board of Directors nor the Committee may
terminate or amend the 1996 Plan to deny participants the change of control
benefits stated in the 1996 Plan.
Federal Income Tax Matters
Options. "Nonqualified" stock options and reload options granted under
the 1996 Plan are not intended to and do not qualify for the favorable tax
treatment available to "incentive" stock options under I.R.C. ss.422. Generally,
no tax results upon the grant of a nonqualified stock option or reload option
under the 1996 Plan. However, in the year that a nonqualified stock option or
reload option is exercised, the participant must recognize compensation taxable
as ordinary income equal to the difference between the option price and the fair
market value of the shares on the date of exercise. The Company normally will
receive a deduction equal to the amount of compensation the participant is
required to recognize as ordinary income, and the Company must comply with any
applicable federal and state withholding requirements.
"Incentive" stock options granted under the 1996 Plan are intended to
qualify for favorable tax treatment under I.R.C. ss.422. Under Section 422, a
participant realizes no taxable income when an incentive stock option is
granted. Further, the participant generally will not realize any taxable income
when the incentive stock option is exercised if he or she has at all times from
the date of the option's grant until three months before the date of exercise
been an employee of the Company. The Company ordinarily is not entitled to any
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the participant if he or she does
not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the grant of the option and one year from
the receipt of the shares.
Restricted Stock. Generally, participants who receive restricted stock
awards are not required to recognize compensation taxable as ordinary income in
the year that the shares of Common Stock underlying the restricted stock award
are granted. Instead, participants will recognize compensation taxable as
ordinary income for the year in which the transfer restrictions lapse in an
<PAGE>
amount equal to the fair market value of the shares at that time. Any dividends
paid with respect to restricted stock awards prior to the time the restrictions
lapse ordinarily will be treated as compensation income. The Company will
receive a deduction equal to the amount of compensation income the participant
is required to recognize as ordinary income, and the Company must also comply
with any applicable federal and state withholding requirements.
SARs. A participant who receives SARs will also recognize compensation
income (and the Company will be entitled to a tax deduction) in the year in
which the SARs are exercised, equal to the amount of the payment received. The
Company must also comply with any applicable federal and state withholding
requirements.
Plan Benefits
Because future grants of Awards are subject to the discretion of the
Committee, the future benefits under the 1996 Plan cannot be determined at this
time, except for the automatic stock option grants to Outside Directors
described herein. The table below shows the total number of shares underlying
stock options that have been granted under the 1996 Plan as of April 1, 1999 to
the named executive officers and the groups set forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received
Brett A. Shockley 0 (1)
Chief Executive Officer and Chairman
Stephen H. Bostwick 16,500 (2)
Vice President of Sales
Jonathan M. Silverman 76,500
Vice President of Research & Development,
Chief Technology Officer
Timothy E. Briggs 91,500
Vice President of Finance, Chief Financial Officer
Current Executive Officers 269,500
as a Group (5 persons)
Current Directors who are not 76,000
Executive Officers as a Group (4 persons)
Current Employees who are not Executive 693,130
Officers or Directors as a Group (93 persons)
(1) Does not include options to purchase 150,000 shares granted outside of
the 1996 Plan.
(2) Does not include options to purchase 100,000 shares granted outside of
the 1996 Plan.
Vote Required. The Board of Directors recommends that the shareholders
approve the amendment to the 1996 Plan to provide for the increase of the number
of shares reserved for issuance under the 1996 Plan from 1,000,000 to 1,300,000.
Under applicable Minnesota law, approval of the amendment to the 1996 Plan
<PAGE>
requires the affirmative vote of the holders of the greater of (i) a majority of
the voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP has served as the Company's independent
auditors since 1996. A representative of PricewaterhouseCoopers is expected to
be present at the Annual Meeting and will be given an opportunity to make a
statement regarding financial and accounting matters of the Company, if he or
she so desires, and will be available to respond to appropriate questions from
the Company's shareholders.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Any shareholder proposals for the Company's annual meeting to be held
in the year 2000 must be received by the Company by December 18, 1999, in order
to be included in the proxy statement. Shareholder proposals intended to be
presented at the annual meeting in the year 2000 but not be included in the
proxy materials sent to shareholders will not be considered timely unless
received by the Company by February 26, 2000. The proposals also must comply
with all applicable statutes and regulations.
At the time this Proxy Statement was mailed, the Board was not aware of
any matters to be presented for action at the Annual Meeting other than those
discussed in this Proxy Statement. If other matters properly come before the
meeting, the proxy holders have discretionary authority -- unless it is
expressly revoked -- to vote all proxies in accordance with their unanimous
discretion; if the proxy holders are divided on a particular matter to be voted
on with respect to their discretionary voting, the shares subject to such proxy
shall not be voted.
BY ORDER OF THE BOARD OF DIRECTORS
Loren A. Singer, Jr., Secretary
April 12, 1999
<PAGE>
SPANLINK COMMUNICATIONS, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
For the Annual Meeting of Shareholders
May 12, 1999
The undersigned hereby appoints Brett A. Shockley and Timothy E. Briggs, or
either of them, proxies with full power of substitution to vote all shares of
stock of Spanlink Communications, Inc. of record in the name of the undersigned
at the close of business on March 19, 1999, at the Annual Meeting of
Shareholders to be held at the offices of the Company in Minneapolis, Minnesota
at 4:00 p.m. on May 12, 1999, or at any adjournment or adjournments thereof,
hereby revoking all former proxies:
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS. [ ] FOR nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the to vote for nominees listed below
contrary)
(INSTRUCTIONS: To withhold authority to vote for a nominee, strike a line through the nominee's name below.)
Brett A. Shockley
Thomas F. Madison
2. PROPOSAL TO APPROVE INCREASE OF SHARES UNDER THE 1996 OMNIBUS STOCK PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, UPON ANY OTHER MATTERS COMING BEFORE THE MEETING.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE MATTERS SUMMARIZED
ABOVE UNLESS OTHERWISE SPECIFIED.
Dated: ____________________________, 1999
____________________________________________
____________________________________________
Please sign name(s) exactly as shown at
left. When signing as executor,
administrator, trustee or guardian, give
full title as such; when shares have been
issued in names of two or more persons, all
should sign.
</TABLE>
<PAGE>
SPANLINK COMMUNICATIONS, INC.
1996 OMNIBUS STOCK PLAN
(As Amended Through February 23, 1999)
1. Purpose.
The purpose of the 1996 Omnibus Stock Plan (the "Plan") is to advance
the interests of Spanlink Communications, Inc. (the "Company") and its
stockholders by providing an incentive to certain employees of the Company and
its subsidiaries and to certain other key individuals who perform services for
the Company and its subsidiaries, to contribute significantly to the strategic
and long-term performance objectives and growth of the Company and its
subsidiaries. This purpose is expected to be achieved by affording employees and
other key individuals who perform services for the Company an opportunity to
acquire a proprietary interest in the Company through the grant of Incentive
Stock Options, Nonqualified Stock Options, Restricted Stock, Stock Appreciation
Rights and Reload Options (individually an "Award" and collectively "Awards") as
provided herein. Subject to such limits as may be imposed by the Plan, a single
Award or any combination of Awards may be granted to an eligible individual.
2. Effective Date.
The effective date of the Plan shall be January 31, 1996, subject to
approval of the Plan by the stockholders of the Company within twelve months
thereof.
3. Administration of the Plan.
The Plan shall be administered by a committee (the "Committee"), whose
members will be appointed by and serve at the pleasure of the Board of Directors
of the Company (the "Board"). All option grants and awards under the Plan to
officers, directors and others who are subject to Section 16 under the
Securities Exchange Act of 1934, as amended, and the rules of the Securities and
Exchange Commission promulgated thereunder, shall be made exclusively by the
Committee. The Committee shall be composed solely of three or more members of
the Board of Directors who (i) are not an officer or other employee of the
Company (or its parent or subsidiary); (ii) do not receive compensation from the
Company (or its parent or subsidiary) other than as a director, except for an
amount that would not exceed the dollar amount requiring disclosure under Reg.
S-K, Item 404(a) under the Securities Exchange Act of 1934; and (iii) do not
have any interest or relationship requiring disclosure under Reg. S-K, 404(a) or
404(b) of the Securities Exchange Act of 1934.
A majority of the members of the Committee shall constitute a quorum
for any meeting at which a quorum is present or the acts unanimously approved in
writing by all members of the Committee shall be the acts of the Committee. The
decision of the Committee on any matter relating to the Plan shall be deemed
<PAGE>
final and binding upon all persons. No member of the Board or of the Committee
shall be liable for any action or determination taken or made in good faith with
respect to the Plan or any option granted hereunder. Committee members may be
reimbursed for out-of-pocket expenses reasonably incurred in the administration
of the Plan.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, (i) to designate the individuals eligible
to participate in the Plan; (ii) to grant Awards provided in the Plan in such
form and amount as the Committee shall determine, (iii) to impose such
limitations, restrictions and conditions upon any such award as the Committee
shall deem appropriate, and (iv) to interpret the Plan, adopt, amend and rescind
rules and regulations relating to the Plan, and make all other determinations
and take all other action necessary or advisable for the implementation and
administration of the Plan.
4. Stock Subject to the Plan.
Subject to adjustment as provided in this Plan, the total number of
shares of common stock of the Company ("Common Stock") to be issued shall not
exceed 1,300,000 shares. If any Award granted hereunder terminates, expires
unexercised, does not vest, is exchanged for options without the issuance of
shares of Common Stock, or is cancelled, the shares of Common Stock reserved for
issuance shall again be available for issuance under the Plan, to the extent of
any such termination or nonuse. Any shares issued by the Company in connection
with the assumption or substitution of outstanding grants from any acquired
corporation shall not reduce the shares available for issuance under the Plan.
Shares of Common Stock that may be issued hereunder may be authorized and
unissued stock, or may be treasury stock purchased for or held by the Company as
such, or a combination thereof. Proportionate adjustments in the number of
shares of Common Stock that may be available for issuance under the Plan, in the
number of shares of Common Stock subject to outstanding Awards, and in the
exercise price of any Award, shall be made by the Committee to give effect to
adjustments made in the number of shares of Common Stock of the Company through
any merger, consolidation, recapitalization, reclassification, combination,
stock dividend, stock split or other similar change in the corporate structure
of the Company affecting its capitalization, or a sale by the Company of all or
part of its assets or any distribution to stockholders other than a normal cash
dividend.
5. Eligibility.
Except as provided in Section 8.C, the granting of Awards to employees
and other key individuals who perform services for the Company, or any
subsidiary, is solely at the discretion of the Committee. In making this
selection, the Committee shall consider any factors deemed relevant. 6. Duration
of the Plan.
<PAGE>
The Plan shall remain in effect until all shares reserved for issuance
pursuant to the Plan shall have been purchased pursuant to options granted under
the Plan, provided that Awards under the Plan must be granted not later than ten
years after the effective date of the Plan.
7. General Terms of Awards.
A. Date of Grant and Term. An Award agreement shall specify the date of
grant, which shall be the date on which the Committee grants an Award or any
later date which the Committee specifically designates and the term of each
Award as determined by the Committee.
B. Number of Shares of Common Stock. An Award agreement shall, specify
the number of shares of Common Stock to which it pertains.
C. Transferability and Exercisability.
(i) The Committee shall have the authority to determine
whether an Award shall specify periods after the date of grant during
which the Award or any portion thereof may not yet be exercisable,
including provisions applicable to persons subject to Section 16 of the
Exchange Act.
(ii) Except as otherwise specifically provided in this Plan or
an Award agreement, Awards granted to an individual ("Holder") may be
exercised only by the Holder and only while an employee of the Company
or a subsidiary of the Company or otherwise performing services for the
Company or a subsidiary and only if the Holder has been continuously so
employed or engaged since the date such Awards were granted; provided,
however, that in the event of disability of a Holder, Awards may be
exercised by the Holder not later than the earlier of the date the
Award expires or one year after the date such employment or performance
of services ceases by reason of disability, but only with respect to an
Award exercisable at the time such employment or performance of
services ceases.
(iii) Absence from the Company due to leave or any other
interruption in the performance of services by a Holder shall, if
approved by the Committee, not be deemed a cessation or interruption of
employment or services for the purposes of the Plan.
(iv) Except as otherwise specifically provided in an Award
agreement, no Award shall be assignable or transferable by a Holder to
whom it is granted except that it may be transferable by will or the
laws of descent and distribution. An option so transferred may be
exercised after the death of the Holder to whom it is granted only by
<PAGE>
such Holder's legal representatives, heirs or legatees, not later than
the earlier of the date the option expires or one year after the date
of death of such Holder and only with respect to an Award exercisable
at the time of death.
(v) In no event shall any Award be exercisable at any time
after its expiration date unless extended by the Committee. When an
Award is no longer exercisable, it shall be deemed to have lapsed or
terminated.
D. Methods of Exercise. Subject to the terms and conditions of the Plan
and the terms and conditions of an Award agreement, an Award may be exercised in
whole or in part from time to time, by delivery to the Company at its principal
office a written notice of exercise specifying the number of shares with respect
to which the Award is being exercised, accompanied by payment in full of the
exercise price for shares to be purchased at that time. Payment may be made (i)
in cash, (ii) in shares of Common Stock valued at the Fair Market Value of the
Common Stock on the date of exercise or (iii) in a combination of cash and
Common Stock. The Committee may also, in its sole discretion, permit Holders to
deliver a notice of exercise of options and simultaneously to sell the shares of
Common Stock thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by proper officers of the Company, which approval will not
be unreasonably withheld, using the proceeds from such sale as payment of the
exercise price. No shares of Common Stock shall be issued until full payment
therefor has been made.
E. Rights as a Stockholder. A Holder shall have no rights as a
stockholder with respect to any Common Stock covered by an Award until exercise
of such Award and issuance of shares of Common Stock. Except as otherwise
expressly provided in the Plan, no adjustments shall be made for dividends or
other rights for which the record date is prior to issuance of the Common Stock.
F. General Restriction. Each Award shall be subject to the requirement
that, if at any time the Board shall determine in its discretion that the
listing, registration or qualification of the Common Stock subject to such Award
on any securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of Common Stock thereunder, such Award may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions unacceptable to the
Board.
8. Stock Options.
A. General. It is intended that certain options granted under the Plan
shall be incentive stock options ("Incentive Stock Options") and shall meet the
applicable requirements of and contain or be deemed to contain all provisions
<PAGE>
required under Section 422 of the Code or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such options are granted;
that other options shall not meet such requirements and shall be nonqualified
stock options ("Nonqualified Options"); and that any ambiguities in construction
shall be interpreted in order to effectuate such intent. Such options shall be
subject to the terms and conditions set forth elsewhere in the Plan. The
exercise price of each option shall be determined by the Committee at the time
the option is granted, provided that in no event can the exercise price be less
than 85% of the Fair Market Value of such shares of Common Stock on the date of
grant of such option; and provided, further, the determination shall take into
account any requirements under the Code and, with respect to individuals to whom
Section 162(m) is applicable, the amount of the exercise price shall be not less
than 100% of the Fair Market Value of such shares of the Common Stock on the
date of grant of such option. In no event shall any option granted under the
Plan be exercisable during a term of more than ten (10) years after the date on
which it is granted. The written Award Agreement evidencing an option granted
under the Plan shall give the Holder the right to exercise the option at the
rate of at least 20% per year over a five-year period from the date on which the
option was granted. In the event of the termination of employment or other
relationship of a Holder of an option by reason of death or disability, such
Holder shall have at least six (6) months after the date of termination, or such
longer period as may be provided in the Award Agreement evidencing the option
(but in no event later than the expiration date of the term of the option) to
exercise the option to the extent it was exercisable on the date of termination
of employment or other relationship. In the event of the termination of
employment or other relationship of a Holder of an option for any reason other
than death or disability, such Holder shall have at least thirty (30) days after
the date of termination, or such longer period as may be provided in the Award
Agreement evidencing the option (but in no event later than the expiration date
of the term of the option) to exercise the option to the extent it was
exercisable on the date of termination of employment or other relationship. To
the extent the Holder was not entitled to exercise the option at the date of
termination of employment or other relationship, or if the Holder fails to
exercise the option within the time specified in the Award Agreement, the option
shall terminate.
B. Incentive Stock Options.
(i) The term of any Incentive Stock Option shall meet the
requirements of Section 422 of the Code. Any Incentive Stock Option
shall be treated as "outstanding" until it is exercised in full or
expires by reason of lapse of time. In no event shall the exercise
price of an Incentive Stock Option be less than 100% of the Fair Market
Value of such shares of the Common Stock on the date of grant of such
option or such other amount required by the Code.
(ii) If an option is granted to an individual who owns,
directly or indirectly, Common Stock or other capital stock of the
Company possessing more than 10% of the total combined voting power of
all classes of stock of the Company or a subsidiary immediately after
such option is granted, the amount of the exercise price shall be equal
to 110% of the Fair Market Value of such, shares of Common Stock on the
date of grant and such option shall expire five years from the date of
grant.
(iii) To the extent that the aggregate Fair Market Value of
Common Stock (determined at the time of grant of the Incentive Stock
Option) with respect to which Incentive Stock Options are exercisable
for the first time by a Holder during any calendar year (under all such
plans of the Company and its parent and subsidiary corporations)
exceeds $100,000 or such other limit as may be imposed by the Code,
such options shall be treated as options which are not Incentive Stock
Options. In applying the foregoing limitation, options shall be taken
into account in the order in which they were granted.
C. Outside Director Options.
(i) At the 1996 Annual Meeting of Shareholders each person who
is serving as a director of the Company, but who is not an employee of
the Company (an "Outside Director') shall be granted, by virtue of
serving as an Outside Director of the Company, a Nonqualified Option
for 6,000 shares. In addition, at each subsequent Annual Meeting of
Shareholders each Outside Director shall be granted by virtue of
serving as an Outside Director of the Company, a Nonqualified Option
for 4,000 shares.
(ii) Each option granted to an Outside Director (a "Director
Option") shall vest and become immediately exercisable. Director
Options shall expire at the 10-year anniversary of the date of grant.
(iii) The purchase price of each share subject to a Director
Option shall be 100% of the Fair Market Value of a share as of the date
of grant. Notwithstanding anything to the contrary stated in this Plan,
each Director Option shall be deemed conclusively to have been granted
prior to close of the applicable securities exchange or system on the
date of grant. An Outside Director may exercise a Director Option using
as payment any form of consideration provided for in the Plan, which
form of payment shall be within the sole discretion of the Outside
Director.
(iv) Director Options shall be evidenced by an agreement
signed on behalf of the Company by an officer thereof which only
incorporates by reference the terms of this Plan.
(v) Unless the Director Option shall have expired, in the
event of an Outside Directors death, the Director Option granted to
<PAGE>
such Outside Director shall be transferable to the beneficiary, if any,
designated by the Outside Director in writing to the Company prior to
the Outside Directors death and such beneficiary shall succeed to the
rights of the Outside Director to the extent permitted by law. If no
such designation of a beneficiary has been made, the Outside Director's
legal representative shall succeed to the Director Option, which shall
be transferable by will or pursuant to the laws of descent and
distribution.
9. Reload Options.
A. Authorization of Reload Options. Concurrently with the award of
Nonqualified Options or the award of Incentive Stock Options to any participant
in the Plan, the Committee may authorize reload options ("Reload Options") to
purchase for cash or shares a number of shares of Common Stock. The number of
Reload Options shall equal:
(i) the number of shares of Common Stock used to exercise the
underlying Nonqualified Options or Incentive Stock Options and
(ii) to the extent authorized by the Committee, the number of
shares of Common Stock used to satisfy any tax withholding requirement
incident to the exercise of the underlying Nonqualified Options or
Incentive Stock Options. The grant of a Reload Option will become
effective upon the exercise of underlying Nonqualified Options,
Incentive Stock Options or Reload Options through the use of shares of
Common Stock held by the optionee for at least 12 months.
Notwithstanding the fact that the underlying option may be an Incentive
Stock Option, a Reload Option is not intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code
of 1986.
B. Reload Option Amendment. Each Nonqualified Option Agreement and
Incentive Stock Option Agreement shall state whether the Committee has
authorized Reload Options with respect to the underlying Nonqualified Options or
Incentive Stock Options. Upon the exercise of an underlying Nonqualified Option,
Incentive Stock Option or other Reload Option, the Reload Option will be
evidenced by an amendment to the underlying Stock Option Agreement or Incentive
Stock Option Agreement.
C. Reload Option Price. The option price per share of Common Stock
deliverable upon the exercise of a Reload Option shall be the Fair Market Value
of a share of Common Stock on the date of grant of the Reload Option; provided,
however, that if a Reload Option is granted to a person owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary, the option price per share
of Common Stock deliverable upon exercise of such Reload Option shall not be
less than one hundred ten percent (110%) of the Fair Market Value of a share of
Common Stock on the date of grant of the Reload Option.
<PAGE>
D. Term. The term of each Reload Option shall be equal to the remaining
option term of the underlying Nonqualified Option or Incentive Stock Option.
E. Termination of Employment. No additional Reload Options shall be
granted to optionees when Nonqualified Options, Incentive Stock Options or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the optionee's employment.
10. Stock Appreciation Rights.
A. Award of Stock Appreciation Rights. The Committee may, subject to
the provisions of the Plan and such other terms and conditions as the Committee
may prescribe, award to the optionee with respect to each share of Common Stock,
a related stock appreciation right ("SAR"), permitting the optionee to be paid
the appreciation on the option in lieu of exercising the option. SARs shall be
evidenced by written agreements in such form as the Committee may from time to
time determine.
B. Exercise. An optionee who has been granted SARs may, from time to
time, in lieu of the exercise of an equal number of options, elect to exercise
one or more SARs and thereby become entitled to receive from the Company payment
in Common Stock the number of shares determined pursuant to Sections 10(D) and
10(E). SARs shall be exercisable only to the same extent and subject to the same
conditions as the options related thereto are exercisable, as provided in this
Plan. The Committee may, in its discretion, prescribe additional conditions to
the exercise of any SARS.
C. Amount of Payment. The amount of payment to which an optionee shall
be entitled upon the exercise of each SAR shall be equal to 100% of the amount,
if any, by which the Fair Market Value of a share of Common Stock on the
exercise date exceeds the fair market value of a share of Common Stock on the
date the option related to said SAR was granted or became effective, as the case
may be.
D. Form of Payment. The number of shares to be paid shall be determined
by dividing the amount of payment determined pursuant to Section 10(C) by the
Fair Market Value of a share of Common Stock on the exercise date of such SARS.
As soon as practicable after exercise, the Company shall deliver to the optionee
a certificate or certificates for such shares of Common Stock.
E. Effect of Exercise. The exercise of any SARs shall cancel an equal
number of Nonqualified Options, Incentive Stock Options, and Reload Options,
related to said SARS.
<PAGE>
11. Restricted Stock Awards. Awards of Common Stock subject to forfeiture and
transfer restrictions ("Restricted-Stock") shall be evidenced by agreements in
such form as the Committee shall from time to time approve, which agreements
shall be subject to the terms and conditions contained in the Plan and any
additional terms and conditions established by the Committee that are consistent
with the Plan.
A. Grant of Restricted Stock. Each grant of Restricted Stock made under
the Plan shall be for such number of shares of Common Stock as shall be
determined by the Committee and set forth in the agreement containing the terms
of such grant of Restricted Stock. Such agreement shall set forth a period of
time during which the grantee must remain in the continuous employment of the
Company in order for the forfeiture and transfer restrictions to lapse. If the
Committee so determines, the restrictions may lapse during such restricted
period in installments with respect to specified portions of the shares covered
by the Restricted Stock grant. The agreement may also, in the discretion of the
Committee, set forth performance or other conditions that will subject the
shares to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or all
outstanding restricted stock grants.
B. Delivery of Common Stock and Restrictions. At the time of a
Restricted Stock grant, a certificate representing the number of shares of
Common Stock awarded thereunder shall be registered in the name of the grantee.
Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the shares, including the right
to receive dividends and the right to vote such shares, subject to the following
restrictions: (i) the grantee shall not be entitled to delivery of the stock
certificate until the expiration of the restricted period and the fulfillment of
any other restrictive conditions set forth in the restricted stock agreement
with respect to such shares; (ii) none of the shares may be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of during
such restricted period or until after the fulfillment of any such other
restrictive conditions; and (iii) except as otherwise determined by the
Committee, all of the shares shall be forfeited and all rights of the grantee to
such shares shall terminate, without further obligation on the part of the
Company, unless the grantee remains in the continuous employment of the Company
for the entire restricted period in relation to which such Common Stock was
granted and unless any other restrictive conditions relating to the restricted
stock award are met. Any Common Stock, any other securities of the Company and
any other property (except for cash dividends) distributed with respect to the
shares of Common Stock subject to restricted stock awards shall be subject to
the same restrictions, terms and conditions as such restricted shares of Common
Stock.
<PAGE>
C. Termination of Restrictions. At the end of the restricted period and
provided that any other restrictive conditions of the grant of Restricted Stock
are met, or at such earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the grant of Restricted
Stock or in the Plan shall lapse as to the Restricted Stock subject thereto, and
a stock certificate for the appropriate number of shares of Common Stock, free
of the restrictions and the restricted stock legend, shall be delivered to the
grantee or his or her beneficiary or estate, as the case may be.
12. Sale, Merger, Exchange or Liquidation. Unless otherwise provided in the
Award Agreement, in the event of an acquisition of the Company through the sale
of substantially all of the Company's assets and the consequent discontinuance
of its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company (collectively referred to as a "transaction"), all outstanding Awards
shall become immediately vested, whether or not such Awards had become vested
prior to the transaction; provided, however, that if the acquiring party seeks
to have the transaction accounted for on a "pooling of interests" basis and, in
the opinion of the Company's independent certified public accountants,
accelerating the vesting of such Awards would preclude a pooling of interests
under generally accepted accounting principles, the vesting of such Awards shall
not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(i) the complete termination of this Plan and cancellation of
outstanding Awards not exercised prior to a date specified by the Board
(which date shall give Holders a reasonable period of time in which to
exercise the Awards prior to the effectiveness of such transaction);
(ii) that Holders of outstanding Awards shall receive, with
respect to each share of stock subject to such Awards, as of the
effective date of any such transaction, cash in an amount equal to the
excess of the Fair Market Value of such stock on the date immediately
preceding the effective date of such transaction over the exercise
price per share of such Awards; provided, that the Board may, in lieu
of such cash payment, distribute to such Holders shares of stock of the
Company or shares of stock of any corporation succeeding the Company by
reason of such transaction, such shares having a value equal to the
cash payment herein; or
(iii) the continuance of the Plan with respect to the exercise
of Awards which were outstanding as of the date of adoption by the
Board of such plan for such transaction and provide to Holders holding
such Awards the right to exercise their respective Awards as to an
equivalent number of shares of stock of the corporation succeeding the
Company by reason of such transaction.
<PAGE>
The Board may restrict the rights of or the applicability of this Section 12 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an Award pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or dissolve, liquidate, sell or transfer all or any part of its
business or assets.
13. Withholding Taxes. The Company shall have the right to deduct from any
settlement made under the Plan, including the exercise of an option or the sale
of shares of Common Stock, any federal, state or local taxes of any kind,
including FICA taxes, required by law to be withheld with respect to such
payments or to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. If stock is
withheld or surrendered to satisfy tax withholding, such stock shall be valued
at its Fair Market Value on the date the amount of the tax withholding is
determined.
14. Amendment of the Plan. The Plan may be amended, suspended or discontinued
in whole or in part at any time and from time to time by the Board, including an
amendment to increase the number of shares of Common Stock with respect to which
options may be granted, provided however that no amendment shall be effective
unless and until the same is approved by stockholders of the Company where the
failure to obtain such approval would adversely affect the compliance of the
Plan with Rule 16b-3 under the Exchange Act or successor rule and with other
applicable law, including the Code. No amendment or discontinuance of this Plan
shall, without the written consent of the Holder with respect to such Award,
adversely affect any Award theretofore granted to the Holder. Subject to the
foregoing and the requirements of Section 162(m), the Board may, in accordance
with the recommendation of the Committee and without further action on the part
of the stockholders of the Company or the consent of participants, amend the
Plan, to preserve the employer deduction under Section 162(m).
15. Miscellaneous.
A. Use of Proceeds. The proceeds derived from the sale of shares of
Common Stock pursuant to the exercise of options granted under the Plan shall
constitute general funds of the Company.
B. Subsidiary. As used herein with respect to Incentive Stock Options,
the term "subsidiary" shall mean "subsidiary corporation," as defined in Section
424 of the Code.
C. Compliance with Rule 16b-3 and Section 162(m). With respect to
employees subject to Section 16 of the Exchange Act or Section 162(m),
transactions under the Plan are intended to comply with all applicable
<PAGE>
conditions of Rule 16b-3 and avoid loss of the deduction referred to in
paragraph (1) of Section 162(m). Anything in the Plan or elsewhere to the
contrary notwithstanding, to the extent any provision of the Plan or action by
the Committee fails to so comply or avoid the loss of such deduction, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by
the Committee.
D. Fair Market Value. If the Company's Common Stock is traded in the
over-the-counter market or on the NASDAQ Stock Market or similar market, "Fair
Market Value" shall mean the mean average of the bid and asked prices of the
Common Stock as reported in The Wall Street Journal or as quoted by a market
maker; if the Common Stock is listed on an exchange, Fair Market Value shall
mean the mean average of the high and low prices of the Common Stock as reported
in The Wall Street Journal; and if the Common Stock is not so traded or listed
or the Common Stock does not trade on the relevant date, Fair Market Value shall
mean the value determined in good faith by the Board of Directors.
16. Financial Statements. Each Holder shall be provided, not less frequently
than annually, with copies of the audited financial statements of the Company.
