<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
DIGITAL LIGHTWAVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(Digital Lightwave, Inc. LOGO)
DIGITAL LIGHTWAVE, INC.
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 33755
T: (813) 442-6677
HTTP://WWW.LIGHTWAVE.COM
April 14, 1998
Dear Stockholder:
You are cordially invited to attend the Company's 1998 Annual Meeting of
Stockholders to be held on Friday, May 15, 1998.
The meeting will begin promptly at 2:00 p.m., local time, at the
Renaissance Vinoy Resort, 501 Fifth Avenue, N.E., St. Petersburg, Florida 33701.
The official Notice of Meeting, Proxy Statement and Proxy Card are included
with this letter. The matters listed in the Notice of Meeting are described in
detail in the Proxy Statement.
The vote of every stockholder is important. Mailing your completed Proxy
Card will not prevent you from voting in person at the meeting if you wish to do
so. Please complete, sign, date and promptly return your Proxy Card in the
enclosed envelope. Your cooperation will be greatly appreciated.
Members of the Company's Board of Directors and management look forward to
greeting personally those stockholders who are able to attend.
Sincerely,
/s/ Bryan J. Zwan
Bryan J. Zwan
Chairman of the Board, Chief
Executive Officer and President
<PAGE> 3
DIGITAL LIGHTWAVE, INC.
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 33775
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 1998
---------------------
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Digital Lightwave, Inc., a Delaware corporation (the "Company"),
will be held at the Renaissance Vinoy Resort, 501 Fifth Avenue, N.E., St.
Petersburg, Florida 33701 on Friday, May 15, 1998, at 2:00 p.m., local time, for
the following purposes:
1. To elect four (4) directors of the Company to hold office until the
1999 Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified;
2. To ratify and approve the adoption of the Digital Lightwave, Inc.
1997 Employee Stock Purchase Plan;
3. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 20, 1998 will
be entitled to notice of and to vote at the Meeting and any adjournments
thereof. Each of these stockholders is cordially invited to be present and vote
at the Meeting in person.
By Order of the Board of Directors,
/s/ Steven H. Grant
Steven H. Grant
Secretary
Clearwater, Florida
April 14, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THIS IS IMPORTANT BECAUSE A
MAJORITY OF THE SHARES MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO
CONSTITUTE A QUORUM AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN
PERSON EVEN THOUGH YOU SEND IN YOUR PROXY CARD NOW. IN ADDITION, YOU MAY REVOKE
THE PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 4
DIGITAL LIGHTWAVE, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 1
SHARES OUTSTANDING AND VOTING RIGHTS........................ 1
PROPOSAL ONE -- ELECTION OF DIRECTORS....................... 5
PROPOSAL TWO -- RATIFICATION AND APPROVAL OF 1997 EMPLOYEE
STOCK PURCHASE PLAN....................................... 19
OTHER BUSINESS.............................................. 21
</TABLE>
i
<PAGE> 5
DIGITAL LIGHTWAVE, INC.
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 33775
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 1998
---------------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the Board of Directors (the
"Board") of Digital Lightwave, Inc., a Delaware corporation (the "Company"), for
use at its Annual Meeting of Stockholders to be held the the Renaissance Vinoy
Resort, 501 Fifth Avenue, N.E., St. Petersburg, Florida 33701 on May 15, 1998 at
2:00 p.m. (the "Meeting"), for the purposes set forth in the accompanying notice
and at any adjournment or postponement of the Meeting. The mailing of this Proxy
Statement and the accompanying Notice of Annual Meeting and form of Proxy Card
(the "Proxy Card") to the stockholders of the Company is expected to commence on
or about April 14, 1998.
The shares of the Company's Common Stock, par value $0.0001 per share
("Common Stock"), represented by proxy will be voted in accordance with the
instructions given on the Proxy Card, subject to the proper execution of the
Proxy Card and its receipt by the Company prior to the close of voting at the
Meeting or any adjournment or postponement thereof. Proxies received by the
Company on which no contrary instruction has been given will be voted "FOR" the
election of the directors to the Board nominated by management, and "FOR" the
ratification and approval of the adoption of the Digital Lightwave, Inc. 1997
Employee Stock Purchase Plan (the "Stock Purchase Plan"). A stockholder giving a
proxy has the power to revoke it at any time before it is exercised by filing
with the Secretary of the Company an instrument revoking it or a duly executed
proxy bearing a later date. The powers of the proxy holders will be suspended if
the person executing the Proxy Card is present at the Meeting and votes in
person.
Copies of solicitation material will be furnished to brokerage firms,
nominees, fiduciaries and custodians holding shares of Common Stock in their
names which are beneficially owned by others ("record holders") to forward to
such beneficial owners. In addition, the Company may reimburse such persons and
the Company's transfer agent for their reasonable out-of-pocket expenses in
forwarding the solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented, if deemed desirable or
necessary, by either telephone, telegram, facsimile or personal solicitation by
directors, officers or employees of the Company. No additional compensation will
be paid for any such services. The Company reserves the right, if deemed
desirable or necessary, to retain a proxy solicitation firm to deliver
solicitation material to record holders for distribution by them to their
principals and to assist the Company in collecting proxies from such holders.
The costs of these services to the Company, exclusive of out-of-pocket costs, is
not expected to exceed $5,000. Except as described above, the Company does not
intend to solicit proxies other than by mail.
SHARES OUTSTANDING AND VOTING RIGHTS
RECORD DATE AND SHARES OUTSTANDING
Only holders of shares of Common Stock of record as of the close of
business on March 20, 1998 (the "Record Date"), are entitled to vote at the
Meeting. On the Record Date, 26,440,870 shares of Common Stock (collectively,
the "Shares") were issued and outstanding. Each of the Shares is entitled to one
vote on all matters to be voted upon at the Meeting.
<PAGE> 6
QUORUM; BROKER NON-VOTES; ABSTENTIONS
The presence, in person or by proxy duly authorized, of the holders of a
majority of the Shares will constitute a quorum for the transaction of business
at the Meeting and any adjournment or postponement thereof. The Shares that are
voted by proxy "FOR," "AGAINST" or "WITHHELD FROM" a proposal are treated as
being present at the Meeting for purposes of establishing a quorum and are also
treated as shares entitled to vote at the Meeting with respect to such proposal.
Broker non-votes (i.e., Shares held by a broker or nominee which are
represented at the Meeting, but with respect to which such broker or nominee is
not empowered to vote on a particular proposal) will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Meeting, but will not be counted for purposes of determining the number
of votes cast with respect to a particular proposal on which the broker has
expressly not voted. Accordingly, a broker non-vote will not affect the outcome
of the voting on any proposal set forth in this Proxy Statement.
Directors will be elected by a plurality of votes of the Shares present in
person or represented by proxy at the Meeting. Any of the Shares not voted
(whether by abstention, broker non-votes or otherwise) will have no impact on
the election of directors, except to the extent that the failure to vote for one
director nominee results in another nominee receiving a larger portion of votes.
The proposals submitted to the Company's stockholders in the Proxy Card must be
approved by the vote of the holders of a majority of the Shares represented in
person or by proxy and entitled to vote at the Meeting. In determining whether
such proposals have been approved, abstentions and broker non-votes are not
counted as votes "FOR" or "AGAINST" the proposal.
REVOCABILITY OF PROXY
A proxy may be revoked by a stockholder at any time prior to the voting at
the Meeting by written notice to the Secretary of the Company, by submission of
another duly executed proxy bearing a later date or by voting in person at the
Meeting. Such notice or later proxy will not affect a vote on any matter taken
prior to the receipt thereof by the Company or its transfer agent. The mere
presence at the Meeting of the stockholder who has appointed a proxy will not
revoke the prior appointment. If not revoked, the proxy will be voted at the
Meeting in accordance with the instructions indicated on the Proxy Card by the
stockholder or, if no instructions are indicated, will be voted "FOR" the slate
of directors described herein, "FOR" the ratification and approval of the
adoption of the Stock Purchase Plan, and as to any other matter that may be
properly brought before the Meeting, in accordance with the judgment of the
proxy holders.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 9, 1998 by (i) each person who is
known by the Company to own beneficially more than five percent (5%) of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table (the
"Named Executive Officers"), and (iv) all directors and executive officers of
the Company as a group. Unless otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investing power with
respect to their
2
<PAGE> 7
shares of Common Stock, except to the extent authority is shared by spouses
under applicable law, and they may be contacted at 601 Cleveland Street, Fifth
Floor, Clearwater, Florida 33755.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME NUMBER PERCENT
- ---- ---------- -------
<S> <C> <C>
Bryan J. Zwan(2)............................................ 20,000,000 74.06%
William F. Hamilton(3)...................................... 16,666 *
William Jefferson Marshall(3)............................... 16,666 *
William M. Seifert(3)....................................... 16,666 *
Mitchell A. Chancey(5)...................................... 7,642 *
Joseph Fuchs(3)............................................. 3,332 *
Gerald T. Gentile(6)........................................ 27,589 *
Steven H. Grant(7).......................................... 51,430 *
Ali Haider.................................................. 0 *
Kenneth R. Hargrove(3)...................................... 9,999 *
Seth P. Joseph(4)........................................... 384,380 1.42
Denise Licciardi(8)......................................... 27,615 *
Eric A. Mitchell(9)......................................... 20,846 *
Carlos J. Perez............................................. 110 *
Michael W. Tinsley.......................................... 165 *
Thomas V. Williams(10)...................................... 4,999 *
All executive officers and directors as a group (14
persons)(11).............................................. 20,176,146 74.71
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") that deem shares to be
beneficially owned by any person who has or shares voting or investment
power with respect to such shares. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of Common Stock subject to
options that are currently exercisable or exercisable within 60 days of
April 9, 1998 are deemed to be outstanding and 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.
(2) Dr. Zwan is Chairman of the Board, Chief Executive Officer, President and a
Director of the Company.
(3) Consists of shares of Common Stock issuable pursuant to stock options that
may be exercised within 60 days of April 9, 1998.
(4) As of February 15, 1998, Mr. Joseph no longer serves as either a director
or employee of the Company. The shares listed above include 10,000 shares
beneficially owned by Mr. Joseph's spouse. Mr. Joseph owns 374,151 shares
of common stock issuable pursuant to stock options that may be exercised
within 60 days of April 9, 1998.
(5) The number of shares includes 350 shares owned by Mr. Chancey's family
members and 6,666 shares of Common Stock issuable pursuant to stock options
that may be exercised within 60 days of April 9, 1998.
(6) The number of shares includes 25,000 shares of Common Stock issuable
pursuant to stock options that may be exercised within 60 days of April 9,
1998.
(7) The number of shares includes 50,000 shares of Common Stock issuable
pursuant to stock options that may be exercised with 60 days of April 9,
1998.
(8) As of February 11, 1998 Ms. Licciardi resigned from the Company. The number
of shares includes 2,615 shares of Common Stock owned by Ms. Licciardi's
spouse and 20,000 shares of Common Stock issuable pursuant to stock options
that may be exercised within 60 days of April 9, 1998.
(9) The number of shares includes 64 shares of Common Stock and 249 shares of
Common Stock issuable pursuant to stock options that may be exercised
within 60 days of April 9, 1998, both owned by
3
<PAGE> 8
Mr. Mitchell's sister, and 19,998 shares of Common Stock pursuant to stock
options held directly by Mr. Mitchell that may be exercised within 60 days
of April 9, 1998.
(10) The number of shares includes 4,999 shares of Common Stock issuable
pursuant to stock options that may be exercised within 60 days of April 9,
1998.
(11) Includes shares of Common Stock issuable pursuant to employee stock options
held by executive officers and directors that may be exercised within 60
days of April 9, 1998.
4
<PAGE> 9
PROPOSAL ONE
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The Company's Bylaws provide that the Board can fix the authorized number
of directors form time to time between one and nine. The Board currently
consists of four (4) directors which is the authorized number currently fixed by
the Board. All four (4) directors are to be elected to the Board at the Meeting.
Each director nominee elected at the Meeting will hold office until the next
annual meeting of stockholders of the Company, or until his successor is duly
elected and qualified, unless he resigns or his seat on the Board becomes vacant
due to his death, removal or other cause in accordance with the Bylaws of the
Company. Management knows of no reason why any of these nominees would be unable
or unwilling to serve; but, in the event that any director nominee is unable or
unwilling to serve, the proxies will be voted for the election of such other
person(s) for the office of director as management may recommend in the place of
such nominee. THE BOARD RECOMMENDS VOTING "FOR" THE FOUR (4) NOMINEES BELOW
LISTED.
INFORMATION REGARDING DIRECTOR NOMINEES
The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of the four (4) director nominees
at the Meeting, each of whom is currently a director of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE DIRECTOR
NAME AGE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------- --------
<S> <C> <C> <C>
Dr. Bryan J. Zwan...................... 50 Dr. Zwan founded the Company in October 1990 1990
and has served as Chairman of the Board, Chief
Executive Officer and a Director since the
Company's inception and served as its
President from inception until March 1996
and since October 1996. From 1987 to 1991,
Dr. Zwan was Chief Executive Officer of
Digital Photonics, Inc. ("DPI"), a SONET
multiplexer manufacturer which he founded in
1987. DPI was purchased in December 1990 by
Digital Transmission Systems, Inc., a
manufacturer of digital cross-connect
equipment and DS1 modems. From 1985 to 1987,
Dr. Zwan was Vice President, Optical
Products at DSC Communications Corporation,
a global provider of telecommunication
transmission, cross-connect and network
access equipment. Dr. Zwan was a member of
the Research Facility Staff at the
Massachusetts Institute of Technology for
two years, and holds a Ph.D. in Space
Physics from Rice University and B.S.
degrees in Physics and Chemistry from the
University of Houston.
Dr. William F. Hamilton................ 59 Dr. Hamilton is the Landau Professor of 1997
Management and Technology at the Wharton
School of the University of Pennsylvania and
has been a professor at the University of
Pennsylvania since July 1967. He is also a
director of the following public companies:
Centocor, Inc., Hunt Manufacturing Co.,
Marlton Technologies, Inc. and Neose
Technologies, Inc.
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE DIRECTOR
NAME AGE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------- --------
<S> <C> <C> <C>
William Jefferson Marshall............. 42 Mr. Marshall is currently the Managing Partner 1997
of the Vantage Point Venture Partners, a
venture capital fund established in 1997.
Prior to this he served as a Senior Managing
Director and the Chief Technical Officer of
Bear, Stearns & Co., Inc., responsible for
its telecommunications and information
technology operations, and was employed with
Bear, Stearns & Co., Inc. from September
1986. He is a co-founder of the ATM Forum.
William Seifert........................ 48 Mr. Seifert is currently an 1997
entrepreneur/engineer. Prior to this he served
as Chief Executive Officer of Agile
Networks, Inc., a wholly-owned subsidiary of
Lucent Technologies, Inc. from 1991 to 1997.
Prior to founding Agile Networks, Inc. in
1991, Mr. Seifert was also the founder of
Wellfleet Communications, now Bay Networks.
</TABLE>
VOTE REQUIRED AND BOARD RECOMMENDATION
The four (4) nominees for director receiving the highest number of
affirmative votes of the Shares present in person or represented by proxy at the
Meeting and entitled to be voted for them shall be elected as directors of the
Company. Votes withheld from any director nominee are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no other legal effect under Delaware law. Stockholders do not have the
right to cumulate their votes in the election of directors. THE BOARD RECOMMENDS
A VOTE "FOR" THE NOMINEES ABOVE LISTED.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
the date of this Report are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Bryan J. Zwan...................... 50 Chairman of the Board, Chief Executive
Officer, President and Director
Dr. William F. Hamilton(1)............. 58 Director
William Jefferson Marshall(2).......... 42 Director
William Seifert(1)(2).................. 48 Director
Mitchell A. Chancey.................... 36 Vice President, Business Development
Joe Fuchs.............................. 47 Vice President, Quality Management
Gerald T. Gentile...................... 37 Vice President, Research and
Development
Steven H. Grant........................ 38 Executive Vice President, Finance,
Chief Financial Officer and Secretary
Ali Haider............................. 47 Vice President, Customer Service and
Support
Kenneth R. Hargrove.................... 47 Vice President, North American Sales
Eric A. Mitchell....................... 38 Vice President, National Sales
Carlos J. Perez........................ 47 Vice President, International Sales
Michael W. Tinsley..................... 41 Controller
Thomas V. Williams..................... 46 Vice President, Manufacturing
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
6
<PAGE> 11
A description of the background of each of the Company's current directors
has been provided above under "Information Concerning Director Nominees."
Following is a description of the background of each of the Company's executive
officers other than Dr. Zwan:
Mr. Chancey currently serves as Vice President, Business Development
and joined the Company in April 1997. Prior to joining the Company, Mr.
Chancey has worked at Premisys Communications, from November, 1996 until
April, 1997 and Lucent Technologies (formerly known as AT&T -- Bell
Laboratories) from August 1980 through November 1996. Mr. Chancey has over
18 years of global telecommunications experience.
Mr. Fuchs currently serves as Vice President, Quality Management and
joined the Company in January 1997. Prior to joining the Company, Mr. Fuchs
was a System Lead/Project Manager at AT&T Paradyne from 1992 through 1997.
Mr. Fuchs was also a System/Test Engineer at AT&T Bell Laboratories from
1985 through 1992. Mr. Fuchs holds a Masters in Electrical Engineering from
Columbia University.
Mr. Gentile currently serves as Vice President, Research and
Development and joined the Company in January 1997. From March 1995 through
January 1997 he served as Engineering and Scientific Manager of the
Microwave Logic Products Division of Tektronix Inc. having previously
served as the Engineering Manager of Microwave Logic, Inc. from April 1990
through March 1995. Mr. Gentile holds a B.S.E.E. from the University of
Massachusetts.
Mr. Grant currently serves as Executive Vice President, Finance, Chief
Financial Officer and Secretary of the Company and joined the Company in
September 1997. Prior to joining the Company, Mr. Grant served as Executive
Vice President, Chief Financial Officer, Treasurer and Corporate Secretary
at Precision Systems Inc. from July 1996 through September 1997. Mr. Grant
also served as Executive Vice President, Chief Financial/Administrative
Officer and Treasurer for Silver King Communications Inc. from December
1992 through July 1996, and as Director of Corporate Finance, Investor
Relations and Assistant Treasurer at Home Shopping Network from February
1989 through December 1992.
Mr. Haider currently serves as Vice President, Customer Service and
Support and joined the Company in September 1997. Prior to joining the
Company, Mr. Haider worked as a Director, Technical Support Center at
AT&T/Paradyne Corporation from 1984 and prior to this at Bell Labs from
1992-1993. Mr. Haider holds a Masters Degree in Electrical Engineering and
a B.S. in Electrical Engineering, Physics, and Math.
Mr. Hargrove currently serves as Vice President, North America Sales
and joined the Company in January 1997. Mr. Hargrove has been involved in
the sale of telecommunications test equipment to the communications
industry since 1979, and has worked for companies such as
Telecommunications Techniques Corporation ("TTC"), Hewlet Packard, TRW and
General Dynamics in various capacities spanning from a District Manager to
Field Engineer.
Mr. Mitchell currently serves as Vice President, National Sales of the
Company and joined the Company in April 1995. From October 1992 to March
1995, Mr. Mitchell was the National Sales Manager and then President of
Crown Herald, Inc., a manufacturer of imprinted corporate products, where
he was initially responsible for various sales and marketing activities and
later for all phases of operations. Prior to that, from March 1989 to
October 1992, Mr. Mitchell was Regional Manager of Penn Corporation, a
manufacturer of imprinted corporate products.
Mr. Perez currently serves as Vice President, International Sales and
joined the Company July 30 1997. Prior to joining the Company, he served as
Director of Sales at Premisys Communications from 1996 to 1997. Prior to
this he worked at AT&T from 1991 through 1996 as Director of International
Sales and Marketing. Mr. Perez has over twenty years of global
telecommunications experience.
Mr. Tinsley, currently serves as Controller of the Company and joined
the Company in August 1997. Prior to joining the Company, Mr. Tinsley was
Controller at US Communications, Inc. from Decem-
7
<PAGE> 12
ber 1996 to August 1997. From December 1995 to November 1996, Mr. Tinsley
was Vice President, Finance at Systems Engineering and Integration and
Network Solutions, BTG, Inc., a total information technology provider
specializing in the manufacture of high-performance personal computers.
Prior to this he served as Corporate Controller for BTG, Inc. from November
1993 through December 1995. Mr. Tinsley holds a B.S. in Business
Administration from Murray State University and is also Certified Public
Accountant in the state of Tennessee since 1980.
Mr. Williams currently serves as Vice President, Manufacturing and
joined the Company in April 1995. Prior to joining the Company, from March
1994 to April 1995, Mr. Williams was an independent consultant to Lockheed
Martin Corporation, a defense contractor. From February 1991 to March 1994,
Mr. Williams was a Program Manager at Group Technologies Corporation, a
manufacturer of computers and electronic products.
BOARD OF DIRECTORS
The Company's Bylaws provide that the Board can fix the authorized number
of directors from time to time between one and nine. The Board currently is
fixed at and consists of four (4) members, Messrs. Zwan, Hamilton, Marshall and
Seifert. The Board intends to establish committees, including executive,
compensation and audit committees, each of which will report to the Board.
Executive officers are appointed by, and serve at, the discretion of the
Board. There are no family relationships among any of the directors or executive
officers of the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1997 ("Fiscal 97"), the Board
held three (3) regular meetings and two (2) special meetings. Each director
attended at least 75% of the meetings held during Fiscal 97 which occurred on or
after the initiation of his term as a director.
During Fiscal 97, the Board had an Audit Committee and a Compensation
Committee. The Company does not have a Nominating Committee nor a committee that
performs equivalent functions of a Nominating Committee. The Audit Committee,
composed of Messrs. Hamilton and Seifert, is responsible for reviewing financial
statements, accounting and financial policies and internal controls and
reviewing the scope of the independent auditor's activities and fees. The Audit
Committee held one (1) meeting during Fiscal 97. The Compensation Committee,
composed of Messrs. Marshall and Seifert, is responsible for reviewing and
approving, within its authority, compensation, benefits, training and other
human resource policies. The Compensation Committee held nine (9) meetings
during Fiscal 97. Each director who served on the Audit Committee or the
Compensation Committee attended at least 75% of such respective committee's
meetings held during Fiscal 97 which occurred on or after the initiation of his
term as a director.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF 1934
Section 16(a) under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten (10) percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten-percent stockholders are required by
regulations of the SEC to furnish the Company with copies of all Section 16(a)
forms that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, the Company's officers, directors and greater than ten
percent stockholders complied with all applicable Section 16(a) filing
requirements, except for two (2) Form 3 statements and four (4) Form 4
statements of which the Company is aware that were filed late by Mr. Hargrove
(Form 3 and Form 4); Mr. Seifert (Form 3); Ms. Licciardi (Form 4); Mr. Lorch
(Form 4); and Mr. Myers (Form 4).
8
<PAGE> 13
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company who are not officers or employees of the Company
will receive an annual fee of $10,000. During fiscal 1997, the Directors
received a fee of $5,000 for service on the Board. Directors are also reimbursed
for travel and other expenses relating to attendance at meetings of the Board or
committees. Under the Option Plan, non-employee directors are also eligible to
receive stock options in consideration for their services. In fiscal 1997, each
director received option grants totaling 50,000 options at exercise prices
between $5.25 and $9.00 per share, in each case the fair market value at the
Date of Grant.
EXECUTIVE COMPENSATION
The following table shows, for the year ended December 31, 1997, the cash
and other compensation awarded to, earned by or paid to Dr. Zwan and each other
executive officer who earned in excess of $100,000 for all services in all
capacities (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- -------
--------------------------------- RESTRICTED ALL
OTHER ANNUAL STOCK OPTIONS/ LTIP OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPLE POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- -------- ------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan............. 1997 $305,779 $ -- $ -- $-- $ -- $-- $ --
Chairman of the Board, 1996 300,000 -- -- -- -- -- 215,340
President and Chief
Executive Officer(1)
Seth P. Joseph............ 1997 250,005 -- -- -- -- -- --
Senior Executive Vice 1996 62,500 -- -- -- 666,666 -- --
President(2)
Kenneth R. Hargrove....... 1997 146,403 15,000 24,104 -- 20,000 -- 27,448
Vice President, North 1996 -- -- -- -- 10,000 -- --
American Sales(3)
Gerald T. Gentile......... 1997 140,313 23,000 -- -- 15,000 -- 1,312
Vice President, Research 1996 -- -- -- -- 60,000 -- --
and Development(4)
Denise Licciardi.......... 1997 123,290 -- -- -- 60,000 -- 963
Vice President, 1996 26,250 -- -- -- 30,000 -- --
Administration(5)
</TABLE>
- ---------------
(1) Amounts include deferred compensation of $215,340 received by Bryan J. Zwan
in 1996 from the Company for 1995 and the payment of $5,779 of earned and
unused vacation from 1996 and paid in calendar 1997.
(2) Mr. Joseph's employment with the Company and service as a Director commenced
in October 1996 and terminated in February 1998. Annual compensation does
not include amounts paid as wages to the spouse of Mr. Joseph during her
employment in 1996. Options included in the Option/SARs column include
10,000 options granted to Mrs. Joseph.
(3) Mr. Hargrove commenced employment with the Company in January 1997. Amounts
include $24,104 of commission payments; $17,910 of moving expenses; $1,137
of Company matching funds under the 401(k) plan; and $8,400 of car and
office allowances.
(4) Mr. Gentile commenced employment with the Company in January 1997. Amounts
include $1,312 of Company matching funds under the 401(k) plan.
(5) Ms. Licciardi's employment commenced with the Company in September 1996 and
terminated in February 1998. Annual compensation does not include amounts
paid as wages to the spouse of
9
<PAGE> 14
Ms. Licciardi during his employment in 1996 and 1997. Amounts include 15,000
options granted in 1996 to the spouse of Ms. Licciardi. Amounts also include
$963 of Company matching funds under the 401(k) plan.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") became effective
on March 5, 1996. The purpose of the Option Plan is to attract and retain
qualified personnel, to provide additional incentives to employees, officers,
directors and consultants of the Company and to promote the success of the
Company's business. A reserve of 5,000,000 shares of Common Stock has been
established for issuance under the Option Plan. The Option Plan is administered
by the Board who may delegate the administration of the plan to a committee of
the Board. The Board now has, and such committee would have, complete discretion
to determine which eligible individuals are to receive option grants, the number
of shares subject to each such grant, the status of any granted option as either
an incentive stock option or a non-statutory option, the vesting schedule to be
in effect for the option grant and the maximum term for which any granted option
is to remain outstanding.
Each option granted under the Option Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options granted under the Option Plan may be exercised only
for fully vested shares. The exercise price of incentive stock options and non-
statutory stock options granted under the Option Plan must be at least 100% and
85%, respectively, of the fair market value of the stock subject to the option
on the date of grant (or 110% with respect to holders of more than 10% of the
voting power of the Company's outstanding stock). The Board or, when appointed,
such committee, has the authority to determine the fair market value of the
stock. The purchase price is payable immediately upon the exercise of the
option. Such payment may be made in cash, in outstanding shares of Common Stock
held by the participant, through a promissory note payable in installments over
a period of years or any combination of the foregoing.
The Board may amend or modify the Option Plan at any time, provided that no
such amendment or modification may adversely affect the rights and obligations
of the participants with respect to their outstanding options or vested shares
without their consent. In addition, no amendment of the Option Plan may, without
the approval of the Company's stockholders (i) modify the class of individuals
eligible for participation, (ii) increase the number of shares available for
issuance, except in the event of certain changes to the Company's capital
structure, or (iii) extend the term of the Option Plan. The Option Plan will
terminate on March 4, 2006, unless sooner terminated by the Board.
Section 162(m) of the IRC limits the Company's deduction in any one fiscal
year for federal income tax purposes to $1 million per person with respect to
the Company's Chief Executive Officer and its four (4) other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Certain
performance-based compensation is not included in this $1 million limitation.
Stock options may qualify for exclusion from this limitation if the plan under
which they are granted meets certain conditions. At present, the Option Plan
does not satisfy these conditions. Accordingly, the Company will not be able to
claim a tax deduction for certain exercises of NSOs or disqualifying
dispositions of ISOs by the CEO (should it grant any in the future) and its four
(4) other highest paid executive officers to the extent that the income from
such exercises or dispositions, combined with such executive's other taxable
compensation for the year, exceeds $1 million.
As of December 31, 1997, the Company had outstanding options under the
Option Plan exercisable into an aggregate of 2,050,785 shares of Common Stock.
10
<PAGE> 15
The following table sets forth information concerning stock options awarded
to each of the Named Executive Officers during Fiscal 97. All such options were
awarded under the Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED YEAR ($/SH) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan.................... -- --% $ -- -- $ -- $ --
Seth Joseph(2)................... -- -- -- -- -- --
Kenneth R. Hargrove.............. 20,000 1.82 5.25 4/30/03 35,710 81,014
Gerald T. Gentile................ 15,000 1.37 5.25 4/30/03 26,783 60,760
Denise Licciardi(3).............. 60,000 5.46 5.25 4/30/03 107,130 243,042
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the Common Stock
appreciates at the annual rate shown (compounded annually) from the date of
grant until the expiration of the option term. These numbers are calculated
based on the requirements of the SEC and do not reflect the Company's
estimate of future price growth.
(2) As of February 15, 1998, Mr. Joseph was no longer employed by the Company.
(3) As of February 11, 1998, Ms. Licciardi was no longer employed by the
Company.
The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 1997 by each of the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT SARS AT
SHARES FY-END (#) FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan.............. -- $ -- -- -- $ -- $ --
Seth P. Joseph(2).......... 8,500 140,240 355,930 302,236 2,802,949 2,380,109
Kenneth R. Hargrove........ -- -- 3,333 26,667 26,247 210,003
Gerald T. Gentile.......... -- -- 20,000 55,000 157,500 433,125
Denise Licciardi(3)........ 10,000 157,500 -- 80,000 -- 630,000
</TABLE>
- ---------------
(1) Values shown in these columns reflect the deference between the closing
price of $13.125 on December 31, 1997 and the exercise price of the options
and does not include the federal and state taxes due upon exercise.
(2) Shares exercised and value realized columns reflect the exercise of
non-qualified stock options by Mr. Joseph's spouse on November 24, 1997.
Amounts in other columns also reflect 1,500 vested options owned by Mrs.
Joseph.
(3) Shares exercised and value realized columns include the exercise of 5,000
non-qualified stock options by Ms. Licciardi's spouse. Unexercisable options
include 10,000 unvested options owned by Mr. Licciardi.
STOCK PURCHASE PLAN
On August 25, 1997, the Board approved the Stock Purchase Plan whereby
300,000 shares of Common Stock were reserved for issuance and purchase by
employees of the Company to assist them in acquiring a stock ownership interest
in the Company and to encourage them to remain employees of the Company. The
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code and permits eligible employees to purchase shares of Common Stock
at a discount through payroll deductions during
11
<PAGE> 16
specified six-month offering periods. No employee may purchase more than $25,000
worth of stock in any calendar year or 1,500 shares of Common Stock in any one
offering period. The Stock Purchase Plan is administered by an Administrative
Committee appointed by the Board and provides generally that the purchase price
must not be less than 85% of the fair market value of the Common Stock on the
first or last day of the offering period, whichever is lower. As of December 31,
1997, 5,258 shares have been purchased under the Stock Purchase Plan because the
first offering period had not yet concluded.
EMPLOYMENT AGREEMENT AND SEVERANCE ARRANGEMENTS
On September 30, 1996, the Company entered into an employment agreement
with Mr. Seth P. Joseph (the "Employment Agreement") whose employment with the
Company and service as a Director terminated in February 1998, in connection
with the Company's previously announced reorganization. The Employment Agreement
provided for Mr. Joseph's employment as Senior Executive Vice President of the
Company at a base salary of $250,000, with eligibility to receive an incentive
bonus as determined by the compensation committee of the Board. By virtue of his
termination, Mr. Joseph is entitled to severance payments and benefits for a
period of one year pursuant to the Employment Agreement with the severance
payments paid in bi-monthly installments.
On February 11, 1998, Ms. Denise Licciardi resigned from the Company as
Vice President, Administration. Under the terms of her separation, Ms. Licciardi
will receive $131,250 of salary paid out over the remainder of 1998 in
bi-monthly installments; continued vesting of a total of 70,000 unvested stock
options over the original vesting schedule; and forgiveness of a loan in the
amount of approximately $71,315. Additionally, Ms. Licciardi's spouse received a
lump sum severance payment of $7,615; continued vesting of a total of 10,000
unvested stock options over the original vesting schedule; and forgiveness of a
loan in the amount of approximately $71,315 related to his separation with the
Company on January 23, 1998.
The Company entered into an employment agreement effective as of February
27, 1998 (the "Grant Agreement"), with Steven H. Grant, the Company's Executive
Vice President, Finance and Chief Financial Officer. The Grant Agreement
provides for: (i) an employment term of three years which automatically renews
for an additional two years unless either Mr. Grant or the Company provide
reasonable notice of non-renewal prior to expiration; (ii) an annual salary of
$200,000; (iii) and a $40,000 bonus (which is primarily an acceleration of a
deferred sign-on bonus) to be paid upon completion of the Company's filings with
the SEC for the year ended December 31, 1997. The Grant Agreement also provides
that the Company will provide to Mr. Grant on an annual basis sufficient funds
to purchase a term life insurance policy payable to his heirs and a disability
insurance policy to provide comparable compensation, including benefits over the
life of the agreement. In addition, the Company granted to Mr. Grant stock
options to purchase 200,000 shares of Common Stock at an exercise price of
$4.6875, of which 50,000 stock options vest on the date of grant and 50,000
stock options vest on each of the three anniversaries following the date of
grant. As a result of this new option grant, the previously issued grant for
75,000 shares was canceled. In the event that Mr. Grant's employment with the
Company terminates, all stock options that have not yet vested will continue to
vest except in the event of a "change in control" whereby the unvested options
will accelerate.
In the event of his termination without "cause," including due to a "change
in control" or a "change in duties" (as such terms are defined in the Grant
Agreement), Mr. Grant will be entitled to severance compensation, including all
benefits, for a period of 18 to 24 months. In addition, the compensation and
benefits to be paid to Mr. Grant are absolute, regardless of whether Mr. Grant
is terminated for "cause," until the later of March 31, 1998 or the date of
filing of the Company's Annual Report on Form 10-K for the year ended December
31, 1997. After such date, the Company is not obligated to pay compensation and
benefits under the Grant Agreement if Mr. Grant's employment is terminated for
"cause."
SECTION 401(K) PLAN
In 1997, the Company adopted a 401(k) Salary Savings Plan (the "401(k)
Plan") covering the Company's full-time employees located in the United States.
The 401(k) Plan is intended to qualify under Section 401(k) of the Internal
Revenue Code, so that contributions to the 401(k) Plan by employees or by the
Company, and the investment earnings thereon, are not taxable to employees until
withdrawn from the
12
<PAGE> 17
401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,000 in 1998) and to have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional matching contributions to the 401(k) Plan by the Company on behalf of
all participants in the 401(k) Plan. Currently, the Company matches the first 6%
of such voluntary contributions at 50% of the amount contributed by the
employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Compensation Committee of the Board consisted of Messrs.
Marshall and Seifert and both continue to serve on this Committee. No executive
officer of the Company served on the compensation committee of another entity or
on any other committee of the board of directors of another entity performing
similar functions during Fiscal 97. Additionally, no member of the Compensation
Committee is currently or was formally an officer or employee of the Company.
Effective December 8, 1997, Mr. Seifert began serving as a consultant to the
Company. Under the terms of the consulting agreement, Mr. Seifert receives
$1,500 per day and reimbursement of out-of-pocket expenses. To date, Mr. Seifert
has performed consulting services to the Company in 1997 and 1998, and has
received $12,750 in fees under this agreement since its inception.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loan to Founder. On December 21, 1995, the Company loaned Dr. Zwan, the
Company's Chairman of the Board and Chief Executive Officer, $1.7 million which
he advanced to LMI, Inc. ("LMI"), a corporation wholly owned by Dr. Zwan, to
enable LMI to repay a loan extended to LMI by a former stockholder of the
Company. See "Transactions with GAF HK." The loan to Dr. Zwan is due on December
20, 1997. Interest only is payable monthly at the rate of 9% per annum and the
original principal amount of the loan remains was repaid plus accrued interest
in September 1997.
Loans Guaranteed by Founder. Dr. Zwan and/or his spouse have personally
guaranteed most of the Company's indebtedness incurred since inception. As of
the date of this Report, no indebtedness of the Company which had been
guaranteed by Dr. Zwan and/or his wife remained outstanding.
Loans to Mr. Seth Joseph. Mr. Joseph and/or his spouse have received three
advances totaling approximately $113,021 from February 1997 through January
1998. Each of the advances have a simple interest rate of 9% per annum. A
portion of these advances are evidenced by unsecured notes between Mr. Joseph
and the Company.
Loans to Ms. Denise Licciardi. Ms. Licciardi and/or her spouse received
loans in fiscal 1998 in the amount of $71,316 each which were later forgiven
under the terms of their respective separation agreements.
The Company has from time to time granted options and other compensation to
its directors and executive officers. See "Executive Compensation" and "Security
Ownership of Certain Beneficial Owners and Management."
All future transaction, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board, including a majority of the disinterested members of the
Board or, if required by law, a majority of disinterested stockholders, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
REPORT ON REPRICING OF OPTIONS
On April 30, 1997, and December 26, 1997, respectively, the Compensation
Committee of the Company (the "Committee") recommended to the Board of
Directors, and the Board unanimously approved resolutions authorizing the
repricing by amendment of ("repricing") of all outstanding stock options held by
all then employees on the terms described below. The Committee noted in its
report that the overall purpose of the Company's stock option plans had been to
attract and retain the services of the Company's employees, consultants and
directors, and to provide incentives to such persons to exert maximum efforts
for the Company's success. The Committee concluded that the decline in the
market value of the Company's
13
<PAGE> 18
Common Stock had frustrated these purposes and diminished the value of the
Company's stock option program as an element of the Company's compensation
arrangements. Accordingly, the Committee approved the repricing changes set
forth below:
On April 30, 1997, the options to purchase shares of the Company's Common
Stock held by all then existing employees of the Company on that date which had
exercise price equal to $9.00 per share were repriced so that their new exercise
price equaled $5.25 per share. The relevant market price of the Company's Common
Stock on that date was $4.875 per share. Additionally, upon review of the
consultant's report on compensation matters, the Committee adopted a resolution
on August 25, 1997, that adjusted all vesting schedules for previously issued
options from four (4) years to three (3) years for the then current employees,
and did not modify the expiration dates.
On December 26, 1997, the options to purchase shares of the Company's
Common Stock held by all then existing employees of the Company on that date
which had an exercise price that was equal or greater than $15.00 per share were
repriced so that their new exercise price equaled $13.125 per share. The
relevant market price of the Company's Common Stock on that date was $12.75 per
share. In addition, the vesting and expiration dates with respect to the
repriced options were not changed.
Subsequent to December 31, 1997, but prior to the issuance of this report
on April 9, 1998, the Committee passed an additional resolution dated March 26,
1998, that offers each employee to cancel existing options at exercise prices
greater than $12.75 per share with new option grants at an exercise price of
$4.6875 per share. Under the terms of this offer, should the employee accept the
new option grant, they will be subject to a new three (3) year vesting schedule
effective March 26, 1998, and six (6) year option term (as opposed to a ten (10)
year option term.) As of April 9, 1998, all executive officers holding such
options had elected to accept these new option grants.
The Compensation Committee:
William Jefferson Marshall
William Seifert
April 9, 1998
14
<PAGE> 19
The following table sets forth certain information concerning repricing
during the last ten years of options to purchase the Company's Common Stock held
by executive officers of the Company.
TEN-YEAR OPTION REPRICINGS(1)
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE OPTION TERM
NUMBER OF OF STOCK AT EXERCISE PRICE REMAINING
OPTIONS TIME OF AT TIME OF AT DATE OF
REPRICED OR REPRICING OR REPRICING OR REPRICING OR
AMENDED AMENDMENT AMENDMENT NEW EXERCISE AMENDMENT
NAME(2) DATE (#) ($) ($) PRICE($) (IN YEARS)
- ------- -------- ----------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mitchell A. Chancey(3).... 12/26/97 10,000 $12.750 $18.250 $13.125 5.95
Joe Fuchs................. 12/26/97 10,000 12.750 18.250 13.125 5.95
04/30/97 5,000 4.875 9.000 5.250 5.60
Gerald T. Gentile......... 04/30/97 60,000 4.875 9.000 5.250 5.60
Steven H. Grant........... 12/26/97 75,000 12.750 16.000 13.125 5.72
Ali Haider................ 12/26/97 33,000 12.750 16.813 13.125 5.78
Kenneth R. Hargrove....... 04/30/97 10,000 4.875 9.000 5.250 5.60
Seth P. Joseph(3)......... 04/30/97 656,666 4.875 9.000 5.250 9.61
Denise Licciardi(3)....... 04/30/97 15,000 4.875 9.000 5.250 5.60
Carlos J. Perez........... 12/26/97 30,000 12.750 12.750 13.125 5.59
Michael Tinsley........... 12/26/97 20,000 12.750 15.625 13.125 5.67
</TABLE>
- ---------------
(1) Additional information related to this schedule can be found in the "Report
on Repricing of Options" contained herein.
(2) The positions of each executive officer is included in the "Information
Concerning Directors and Executive Officers" contained herein.
(3) Information on repricing excludes shares that are beneficially owned by
family members.
15
<PAGE> 20
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Executive Compensation Committee (the "Committee") recommends to the
Board compensation for the Company's officers and directors and oversees the
administration of the Company's employee stock option and stock purchase plans.
All decisions of the Committee relating to compensation of the Company's
executive officers are reviewed and approved by the entire Board.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers. The Committee attempts to achieve these
goals by integrating on an individualized basis competitive annual base salaries
with stock options through the Company's stock option plan and otherwise. The
Committee believes that cash compensation in the form of salary and bonus
provides the Company's executives with short term rewards for success in
operations, and that long term compensation through the award of stock options
better coordinates the objectives of management with those of the stockholders
with respect to the long term performance and success of the Company. The
Committee generally takes into consideration a variety of subjective and
objective factors in determining the compensation package for executive
officers, including how compensation compares to that paid by competing
companies and the responsibilities and performance by each executive and the
Company as a whole. In making its determinations, the Committee attempts to
address the unique challenges which are present in the telecommunications
industry in which the Company competes against a number of public and private
companies with respect to attracting and retaining executives and other key
employees.
The Committee has relied heavily on the equity/option position of
executives as an important mechanism to retain and motivate executives and key
employees while at the same time aligning the interests of the executives with
the interests of the stockholders generally. The Committee believes that option
grants are instrumental in motivating employees to meet the Company's future
goals. By working to increase the Company's value, one of the Company's primary
performance goals is met and the executives are likewise compensated through
option value.
Section 162(m) of the IRC limits the Company's deduction in any one fiscal
year for federal income tax purposes to $1 million per person with respect to
the Company's Chief Executive Officer and its four (4) other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Certain
performance-based compensation is not included in this $1 million limitation.
Stock options may qualify for exclusion from this limitation if the plan under
which they are granted meets certain conditions. At present, the Option Plan
does not satisfy these conditions. The Compensation Committee is currently
evaluating whether to proceed to qualify under Section 162(m).
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Bryan J. Zwan has served as the Chief Executive Officer of the Company
since its inception in October 1990. In setting compensation levels for the
Chief Executive Officer, the Committee reviews competitive information
reflecting compensation practices for similar technology companies and examines
the Chief Executive Officer's performance relative to the Company's overall
financial results. The Committee also considers the Chief Executive Officer's
achievements against the same pre-established objectives and determines whether
the Chief Executive Officer's base salary, target bonus and target total
compensation approximate the competitive range of compensation for chief
executive officer positions in the technology industry. In establishing his
compensation, the Committee reviews Dr. Zwan's performance and compares it with
chief executive officers of similar technology companies.
In Fiscal 97, Dr. Zwan received a base salary of $300,000. Dr. Zwan did not
earn an incentive bonus in Fiscal 97. Overall, Dr. Zwan's base and incentive
compensation are below the median compensation for technology companies, but
within the competitive range. As of the date of this report, the Board has not
made any adjustment to the base salary of Dr. Zwan.
16
<PAGE> 21
COMPENSATION ARRANGEMENTS GENERALLY
Overall, the Committee believes that the compensation arrangements for the
Company's executives serve the long term interests of the Company and its
stockholders and that, in particular, the equity/option positions of executives
are an important factor in retaining and attracting key executives. Nonetheless,
the Committee intends to continue to review and analyze its policies in light of
the performance and development of the Company and the environment in which it
competes for executives and to retain outside compensation consultants from time
to time to assist the Committee in such review and analysis.
Compensation Committee:
William Jefferson Marshall
William Seifert
April 9, 1998
The foregoing reports of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
17
<PAGE> 22
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG DIGITAL LIGHTWAVE, INC., THE NASDAQ TOTAL RETURN INDEX, AND
THE NASDAQ NON-FINANCIAL INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DIGITAL LIGHTWAVE, NASDAQ TOTAL NASDAQ NON-
(FISCAL YEAR COVERED) INC. RETURN INDEX FINANCIAL STOCKS
<S> <C> <C> <C>
12/7/97 100.00 100.00 100.00
12/31/97 105.47 116.46 111.19
</TABLE>
The above graph assumes that $100.00 was invested in the Common Stock and
in each index on February 5, 1997, the effective date of the Company's initial
public offering. Although the Company has not declared a dividend on its Common
Stock, the total return for each index assumes the reinvestment of dividends.
Stockholder returns over the period presented should not be considered
indicative of future returns. Pursuant to regulations of the SEC, the graph
shall not be deemed to be "soliciting material" or to be "filed" with the SEC,
nor shall it be incorporated by reference into any filing under the Securities
Act or the Exchange Act.
18
<PAGE> 23
PROPOSAL TWO
RATIFICATION AND APPROVAL OF
DIGITAL LIGHTWAVE, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 2 ON THE PROXY CARD)
GENERAL
The Board has approved and is proposing for stockholder approval the
Digital Lightwave, Inc. 1997 Employee Stock Purchase Plan (the "Stock Purchase
Plan") the full text of which is included as "Attachment A" to this Proxy
Statement. The purpose of the Stock Purchase Plan is to enable eligible
employees of the Company or any of its subsidiaries, through payroll deductions,
to purchase shares of the Common Stock and thereby to have an additional
incentive to contribute to the prosperity of the Company.
STOCK PURCHASE PLAN
Under the Stock Purchase Plan, 300,000 shares of Common Stock are available
for purchase by eligible employees of the Company or any of its subsidiaries.
The Stock Purchase Plan permits eligible employees to elect to have a portion of
their pay deducted by the Company to purchase shares of Common Stock. In the
event there is any increase or decrease in Common Stock without receipt of
consideration by the Company (for instance, by a recapitalization or stock
split), there may be a proportionate adjustment to the number and kinds of
shares that may be purchased under the Stock Purchase Plan.
Rights to purchase shares of Common Stock will be deemed granted to
participating employees as of the first trading day of each Option Period.
Option Periods will be 27 months or such other period as is set by the Company.
Exercise Periods are the periods during which shares of Common Stock are
purchased. Generally, Exercise Periods will be three months. Payroll deductions
and other payments will be accumulated during an Exercise Period and purchases
of shares will occur at the end of each Exercise Period (from the amounts
accumulated during that Exercise Period).
The option price for each share (the "Option Price") will be set by the
Board of the Directors. The Option Price for the initial Exercise Period will be
85% of the fair market value of the Common Stock on the first trading day or
last trading day of such Exercise Period which ever is lower.
Any employee of the Company or subsidiary may participate in the Stock
Purchase Plan, except the following, who are ineligible to participate: (a) an
employee whose customary employment is 20 hours or less per week; and (b) an
employee who, after exercising his or her rights to purchase stock under the
Stock Purchase Plan, would own stock (including stock that may be acquired under
any outstanding options) representing five percent or more of the total combined
voting power of all classes of stock of the Company. An employee must be
employed on the last day of the Exercise Period in order to acquire stock for
that Exercise Period under the Stock Purchase Plan.
An eligible employee may become a participant in the Stock Purchase Plan by
completing an election to participate in the Stock Purchase Plan authorizing the
Company to have deductions made from pay on each pay day following enrollment in
the Stock Purchase Plan. The deductions or contributions will be credited to the
employee's account under the Stock Purchase Plan. An employee may change his or
her percentage of payroll deduction or contribution during the beginning of any
Exercise Period. An employee may suspend participation in the plan during an
Exercise Period but will not be able withdraw any contributed funds until the
end of the Exercise Period.
No employee may purchase Common Stock in any calendar year under the Stock
Purchase Plan and all other "employee stock purchase plans" of the Company and
any parent or subsidiary having an aggregate fair market value in excess of
$25,000, determined as of the date granted during the Exercise Period.
On the last trading day of each Exercise Period, a participating employee
will be credited with the number of whole shares of Common Stock purchased under
the Stock Purchase Plan for such period. Common Stock purchased under the Stock
Purchase Plan will be held in the custody of an agent designated
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<PAGE> 24
by the Company (the "Agent"). The Agent may hold the Common Stock purchased
under the Stock Purchase Plan in stock certificates in nominee names and may
commingle shares held in its custody in a single account or stock certificate,
without identification as to individual employees. An employee may, however,
instruct the Agent to have all or part of such shares reissued in the employee's
own name and have the stock certificate delivered to the employee.
A participating employee will be refunded all monies in his or her account,
and his or her participation in the Stock Purchase Plan will be terminated, if:
(a) the employee terminates employment with the Company; (b) the Board elects to
terminate the Stock Purchase Plan; or (c) the employee ceases to be eligible to
participate in the Stock Purchase Plan.
No participating employee may assign his or her rights to purchase shares
of Common Stock under the Stock Purchase Plan, whether voluntarily, by operation
of law or otherwise.
The Stock Purchase Plan will be administered by the Company at the
direction of the Board. The Board of Directors has the authority to interpret
the Stock Purchase Plan, to prescribe, amend and rescind rules relating to it,
and to make all other determinations necessary or advisable in administering the
Stock Purchase Plan, all of which determinations will be final and binding.
The Board may, at any time, amend the Stock Purchase Plan in any respect;
provided, however, that without approval of the stockholders of the Company no
amendment shall be made that (a) materially increases the number of shares that
may be made available for purchase under the Stock Purchase Plan, (b) materially
changes the eligibility requirements for participating in the Stock Purchase
Plan or (c) materially impairs the vested rights of participating employees.
The Board may terminate the Stock Purchase Plan at any time and for any
reason or for no reason, provided that such termination shall not impair any
rights of participants that have vested at the time of termination. In any
event, the Stock Purchase Plan shall, without further action of the Board,
terminate at the earlier of (i) ten years after adoption of the Stock Purchase
Plan by the Board and (ii) such time as all shares of Common Stock that may be
made available for purchase under the Stock Purchase Plan have been issued.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK PURCHASE PLAN
If a participant acquires stock under the Stock Purchase Plan, no income
will result to such participant, and the Company will be allowed no deduction as
a result of such purchase, if certain conditions are met. The principal
condition which must be satisfied is that the participant does not dispose of
the stock within two years after the first day of the applicable Offering Period
or one year after purchase of the stock. If the employee disposes of the stock
acquired pursuant to the Stock Purchase Plan after the statutory holding period
has expired, gain on the sale is capital gain except to the extent of ordinary
(compensation) income determined as described below. If the employee disposes of
the stock before the expiration of the statutory holding period, the employee
must recognize as ordinary (compensation) income the difference between the
stock's fair market value and the purchase price.
An employee disposing of stock after expiration of the statutory holding
period (or who dies) must include in ordinary (compensation) income at the time
of sale or other taxable disposition of the stock acquired under the Stock
Purchase Plan, or upon the employee's death while still holding the stock, the
lesser of:
(1) the Purchase Price discount from the fair market value of the
stock at the beginning of the Offering Period; or
(2) the amount, if any, by which the stock's fair market value at the
time of such disposition or death exceeds the purchase price paid.
VOTE REQUIRED AND BOARD RECOMMENDATION
Ratification and approval of the adoption of the Stock Purchase Plan
requires the affirmative vote of a majority of the Shares present in person or
represented by proxy at the Meeting and entitled to be voted for it.
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<PAGE> 25
Accordingly, abstentions will have the same effect as votes against this
proposal and broker non-votes will not affect the outcome of voting on this
proposal.
The Board believes that the Stock Purchase Plan encourages and assists the
Company's employees to acquire an equity interest in the Company, helps align
employee interests with other stockholders, helps provide for the future
financial security of the Company's employees and fosters good employee
relations. The opportunity for employees to acquire shares of Common Stock
pursuant to the Stock Purchase Plan will be important to attract and retain
qualified employees who are essential to the success of the Company. THE BOARD
RECOMMENDS A VOTE "FOR" THE RATIFICATION AND APPROVAL OF THE ADOPTION OF THE
STOCK PURCHASE PLAN.
OTHER BUSINESS
The Company is not aware of any other matters to be presented at the
Meeting. If any other matters are properly brought before the Meeting, it is the
intention of the persons named in the enclosed Proxy Card to vote the shares
that they represent in accordance with their best judgment.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals that stockholders desire to have included in the Company's proxy
materials for next year's Annual Meeting of Stockholders must be received by the
Secretary of the Company at its principal executive offices (601 Cleveland
Street, Fifth Floor, Clearwater, Florida 33775) no later than November 16, 1998,
and must satisfy the conditions established by the SEC for stockholder proposals
to be included in such proxy materials.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for Fiscal 97 is being
mailed with this Proxy Statement to stockholders entitled to notice of the
Meeting. At any stockholder's written request, the Company will provide without
charge, a copy of the Annual Report for Fiscal 97 which incorporates the Form
10-K as filed with the SEC, including the financial statements and a list of
exhibits. If copies of exhibits are requested, a copying charge of $.20 per page
will be made. Requests should be sent to Investor Relations, Digital Lightwave,
Inc., 601 Cleveland Street, Fifth Floor, Clearwater, Florida 33775.
By Order of the Board of Directors,
/s/ Steven H. Grant
Steven H. Grant
Secretary
Clearwater, Florida
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<PAGE> 26
ATTACHMENT A
DIGITAL LIGHTWAVE, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this Plan is to provide an opportunity for Employees of
Digital Lightwave, Inc. (the "Corporation") and its Designated Subsidiaries, to
purchase Common Stock of the Corporation and thereby to have an additional
incentive to contribute to the prosperity of the Corporation. It is the
intention of the Corporation that the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended, although the Corporation makes no undertaking nor representation to
maintain such qualification.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Corporation.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the committee appointed by the Board in
accordance with Section 12 of the Plan.
(d) "COMMON STOCK" shall mean the Common Stock of the Corporation, or
any stock into which such Common Stock may be converted.
(e) "COMPENSATION" shall mean an Employee's wages or salary and other
amounts payable to an Employee on account of personal services rendered by
the Employee to the Corporation or a Designated Subsidiary and which are
reportable as wages or other compensation on the Employee's Form W-2, plus
pre-tax contributions of the Employee under a cash or deferred arrangement
(401(k) plan) or cafeteria plan maintained by the Corporation or a
Designated Subsidiary, but excluding, however, (1) non-cash fringe
benefits, (2) special payments as determined by the Committee (e.g., moving
expenses, unused vacation, severance pay), (3) income from the exercise of
stock options or other stock purchases and (4) any other items of
Compensation as determined by the Committee.
(f) "CORPORATION" shall mean Digital Lightwave, Inc., a Delaware
corporation.
(g) "DESIGNATED SUBSIDIARY" shall mean a Subsidiary which has been
designated by the Board as eligible to participate in the Plan.
(h) "EMPLOYEE" shall mean an individual classified as an employee
(within the meaning of Code Section 3401(c) and the regulations thereunder)
by the Corporation or a Designated Subsidiary on the Corporation payroll
records during the relevant participation period.
(i) "ENTRY DATE" shall mean the first day of each Option Period.
(j) "EXERCISE DATE" shall mean the last business day of each Exercise
Period.
(k) "EXERCISE PERIOD" shall mean a three-month, six-month or other
period as determined by the Board. The first Exercise Period during an
Option Period shall commence on the first day of such Option Period.
Subsequent Exercise Periods, if any, shall run consecutively after the
termination of the preceding Exercise Period. The last Exercise Period in
an Option Period shall terminate on the last day of such Option Period.
(l) "FAIR MARKET VALUE" shall mean the value of one (1) share of
Common Stock on the relevant date, determined as follows:
(1) If the shares are traded on an exchange, the reported "closing
price" on the next preceding trading day;
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<PAGE> 27
(2) If the shares are traded over-the-counter on the NASDAQ System
or on the NASDAQ National Market System, the mean between the highest
bid and the highest asked prices on said System on the next preceding
trading day; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(m) "OPTION PERIOD" shall mean a period of up to twenty-seven (27)
months as determined by the Committee. The Board may determine that the
Option Period and the Exercise Period are the same.
(n) "PARTICIPANT" shall mean a participant in the Plan as described in
Section 4 of the Plan.
(o) "PLAN" shall mean this employee stock purchase plan.
(p) "SHAREHOLDER" shall mean a record holder of shares entitled to
vote shares of Common Stock under the Corporation's by-laws.
(q) "SUBSIDIARY" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, as described in Code Section 424(f).
3. ELIGIBILITY.
Any Employee regularly employed on a full-time basis by the Corporation or
by any Designated Subsidiary on an Entry Date shall be eligible to participate
in the Plan with respect to the Option Period commencing on such Entry Date,
provided that the Committee may establish administrative rules requiring that
employment commence some minimum period (e.g., one pay period) prior to an Entry
Date to be eligible to participate with respect to that Entry Date and provided
further that (1) the Board may extend eligibility to part-time Employees
pursuant to criteria and procedures established by the Committee and (2) the
Board may impose an eligibility period on participation of up to two years with
respect to participation on any prospective Entry Date. The Board may also
determine that a designated group of highly compensated Employees (e.g.,
Employees subject to Section 16(b) of the Securities Exchange Act of 1934) are
ineligible to participate in the Plan. An Employee shall be considered employed
on a full-time basis unless his or her customary employment is less than 20
hours per week or five months per year. No Employee may participate in the Plan
if immediately after an option is granted the Employee owns or is considered to
own (within the meaning of Code Section 424(d)), shares of stock, including
stock which the Employee may purchase by conversion of convertible securities or
under outstanding options granted by the Corporation, possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Corporation or of any of its Subsidiaries. All Employees who participate
in the Plan shall have the same rights and privileges under the Plan except for
differences which may be mandated by local law and which are consistent with
Code Section 423(b)(5). The Board may impose restrictions on eligibility and
participation of Employees who are officers and directors to facilitate
compliance with federal or state securities laws or foreign laws.
4. PARTICIPATION.
4.1 An Employee who is eligible to participate in the Plan in accordance
with Section 3 may become a Participant by filing, on a date prescribed by the
Committee prior to an applicable Entry Date, a completed payroll deduction
authorization and Plan enrollment form provided by the Corporation. An eligible
Employee may authorize payroll deductions at the rate of any whole percentage of
the Employee's Compensation, not to exceed fifteen percent (15%) of the
Employee's Compensation, or such lesser percentage as specified by the Committee
as applied to an Entry Date or Option Period. All payroll deductions may be held
by the Corporation and commingled with its other corporate funds. No interest
shall be paid or credited to the Participant with respect to such payroll
deductions except where required by local law as determined by the Committee. A
separate bookkeeping account for each Participant shall be maintained by the
Corporation under the Plan and the amount of each Participant's payroll
deductions shall be credited to such account. A Participant may not make any
additional payments into such account.
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<PAGE> 28
4.2 Under procedures established by the Committee, a Participant may
suspend or discontinue participation in the Plan at any time during an Exercise
Period by completing and filing a new payroll deduction authorization and Plan
enrollment form with the Corporation. A Participant may increase or decrease his
or her rate of payroll deductions only effective on an Entry Date by filing a
new payroll deduction authorization and Plan enrollment form. If a new payroll
deduction authorization and Plan enrollment form is not filed with the
Corporation, the rate of payroll deductions shall continue at the originally
elected rate throughout the Option Period unless the Board determines to change
the permissible rate.
If a Participant suspends participation during an Exercise Period, his or
her accumulated payroll deductions will remain in the Plan for purchase of
shares as specified in Section 6 on the following Exercise Date, but the
Participant will not again participate until he or she completes a new payroll
deduction authorization and Plan enrollment form. The Committee may establish
rules limiting the frequency with which Participants may suspend and resume
payroll deductions under the Plan and may impose a waiting period on
Participants wishing to resume suspended payroll deductions. If a Participant
discontinues participation in the Plan, the amount credited to the Participant's
individual account shall be paid to the Participant without interest (except
where required by local law). In the event any Participant terminates employment
with the Corporation or any Subsidiary for any reason (including death) prior to
the expiration of an Option Period, the Participant's participation in the Plan
shall terminate and all amounts credited to the Participant's account shall be
paid to the Participant or the Participant's estate without interest (except
where required by local law). Whether a termination of employment has occurred
shall be determined by the Committee. The Committee may also establish rules
regarding when leaves of absence or change of employment status (e.g., from
full-time to part-time) will be considered to be a termination of employment,
and the Committee may establish termination of employment procedures for this
Plan which are independent of similar rules established under other benefit
plans of the Corporation and its Subsidiaries.
In the event of a Participant's death, any accumulated payroll deductions
will be paid, without interest, to the estate of the Participant.
5. OFFERING.
5.1 The maximum number of shares of Common Stock which may be issued
pursuant to the Plan shall be 300,000 shares. The Board may designate any amount
of available shares for offering for any Option Period determined pursuant to
Section 5.2.
5.2 Each Option Period, Entry Date and Exercise Period shall be determined
by the Board. The Board shall have the power to change the duration of future
Option Periods or future Exercise Periods, and to determine whether or not to
have overlapping Option Periods, with respect to any prospective offering,
without shareholder approval, and without regard to the expectations of any
Participants.
5.3 With respect to each Option Period, each eligible Employee who has
elected to participate as provided in Section 4.1 shall be granted an option to
purchase that number of shares of Common Stock which may be purchased with the
payroll deductions accumulated on behalf of such Employee (assuming payroll
deductions at a rate of 15% of Compensation) during each Exercise Period within
such Option Period at the purchase price specified in Section 5.4 below;
provided, however, (1) in no event shall the Employee be entitled to accrue
rights to purchase shares under the Plan (and all other employee stock purchase
plans, as defined in Code Section 423, of the Corporation and its subsidiaries)
at a rate which exceeds $25,000 of the Fair Market Value of such stock
(determined at the time the option is granted) for any calendar year in which
such option is outstanding at any time, and (2) the maximum shares subject to
any option shall in no event exceed 1,500.
5.4 The option price under each option shall be the lower of: (i) a
percentage (not less than eighty-five percent (85%)) established by the Board
("Designated Percentage") of the Fair Market Value of the Common Stock on the
Entry Date on which an option is granted, or (ii) the Designated Percentage of
the Fair Market Value on the Exercise Date on which the Common Stock is
purchased. The Board may change the Designated Percentage with respect to any
future Option Period, but not below eighty-five percent (85%).
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<PAGE> 29
5.5 If the total number of shares of Common Stock for which options granted
under the Plan are exercisable exceeds the maximum number of shares offered on
any Entry Date, the number of shares which may be purchased under options
granted on the Entry Date shall be reduced on a pro rata basis in as nearly a
uniform manner as shall be practicable and equitable. In this event, payroll
deductions shall also be reduced or refunded accordingly. If an Employee's
payroll deductions during any Exercise Period exceeds the purchase price for the
maximum number of shares permitted to be purchased under Section 5.3, the excess
shall be refunded to the Participant without interest (except where otherwise
required by local law).
5.6 In the event that the Fair Market Value of the Corporation's Common
Stock is lower on the first day of an Exercise Period within an Option Period
(subsequent "Reassessment Date") than it was on the Entry Date for such Option
Period, all Employees participating in the Plan on the Reassessment Date shall
be deemed to have relinquished the unexercised portion of the option granted on
the Entry Date and to have enrolled in and received a new option commencing on
such Reassessment Date, unless the Board has determined not to permit
overlapping Option Periods or to restrict such transfers to lower price Option
Periods.
6. PURCHASE OF STOCK.
Upon the expiration of each Exercise Period, a Participant's option shall
be exercised automatically for the purchase of that number of full shares of
Common Stock which the accumulated payroll deductions credited to the
Participant's account at that time shall purchase at the applicable price
specified in Section 5.4.
7. PAYMENT AND DELIVERY.
Upon the exercise of an option, the Corporation shall deliver to the
Participant the Common Stock purchased and the balance of any amount of payroll
deductions credited to the Participant's account not used for the purchase. The
Board may permit or require that shares be deposited directly with a broker
designated by the Participant (or a broker selected by the Committee) or to a
designated agent of the Company, and the Committee may utilize electronic or
automated methods of share transfer. The Board may require that shares be
retained with such broker or agent for a designated period of time (and may
restrict dispositions during that period) and/or may establish other procedures
to permit tracking of disqualifying dispositions of such shares or to restrict
transfer of such shares. To the extent the unused cash balance represents a
fractional share, the unused cash balance credited to the Participant's account
shall be carried over to the next Exercise Period, if the Participant is also a
Participant in the Plan at that time or refunded to the Participant, as
determined by the Committee. The Corporation shall retain the amount of payroll
deductions used to purchase Common Stock as full payment for the Common Stock
and the Common Stock shall then be fully paid and non-assessable. No Participant
shall have any voting, dividend, or other stockholder rights with respect to
shares subject to any option granted under the Plan until the option has been
exercised and shares issued.
8. RECAPITALIZATION.
If after the grant of an option, but prior to the purchase of Common Stock
under the option, there is any increase or decrease in the number of outstanding
shares of Common Stock because of a stock split, stock dividend, combination or
recapitalization of shares subject to options, the number of shares to be
purchased pursuant to an option, the share limit of Section 5.3 and the maximum
number of shares specified in Section 5.1 shall be proportionately increased or
decreased, the terms relating to the purchase price with respect to the option
shall be appropriately adjusted by the Board, and the Board shall take any
further actions which, in the exercise of its discretion, may be necessary or
appropriate under the circumstances.
The Board, if it so determines in the exercise of its sole discretion, also
may adjust the number of shares specified in Section 5.1, as well as the price
per share of Common Stock covered by each outstanding option and the maximum
number of shares subject to any individual option, in the event the Corporation
effects one or more reorganizations, recapitalizations, spin-offs, split-ups,
rights offerings or reductions of shares of its outstanding Common Stock.
The Board's determinations under this Section 8 shall be conclusive and
binding on all parties.
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<PAGE> 30
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.
In the event of the proposed liquidation or dissolution of the Corporation,
the Option Period will terminate immediately prior to the consummation of such
proposed transaction, unless otherwise provided by the Board in its sole
discretion, and all outstanding options shall automatically terminate and the
amounts of all payroll deductions will be refunded without interest to the
Participants.
In the event of a proposed sale of all or substantially all of the assets
of the Corporation, or the merger or consolidation of the Corporation with or
into another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Board on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll deductions shall
be returned to the Participants.
10. TRANSFERABILITY.
Options granted to Participants may not be voluntarily or involuntarily
assigned, transferred, pledged, or otherwise disposed of in any way, and any
attempted assignment, transfer, pledge, or other disposition shall be null and
void and without effect. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than as permitted by the Code, such act shall be treated as an election by the
participant to discontinue participation in the Plan pursuant to Section 4.2.
11. AMENDMENT OR TERMINATION OF THE PLAN.
11.1 The Plan shall continue until, June 30, 2007 unless previously
terminated in accordance with Section 11.2.
11.2 The Board may, in its sole discretion, insofar as permitted by law,
terminate or suspend the Plan, or revise or amend it in any respect whatsoever,
except that, without approval of the shareholders, no such revision or amendment
shall:
(a) materially increase the number of shares subject to the Plan,
other than an adjustment under Section 8 of the Plan;
(b) materially modify the requirements as to eligibility for
participation in the Plan, except as otherwise specified in this Plan;
(c) materially increase the benefits accruing to Participants;
(d) reduce the purchase price specified in Section 5.4, except as
specified in Section 8;
(e) extend the term of the Plan beyond the date specified in Section
11.1; or
(f) amend this Section 11.2 to defeat its purpose.
12. ADMINISTRATION.
The Board shall appoint a Committee consisting of at least two members who
will serve for such period of time as the Board may specify and who may be
removed by the Board at any time. The Committee will have the authority and
responsibility for the day-to-day administration of the Plan, the authority and
responsibility specifically provided in this Plan and any additional duties,
responsibility and authority delegated to the Committee by the Board, which may
include any of the functions assigned to the Board in this Plan. The Committee
shall have full power and authority to promulgate any rules and regulations
which it deems necessary for the proper administration of the Plan, to interpret
the provisions and supervise the administration of the Plan, and to take all
action in connection with administration of the Plan as it deems necessary or
advisable, consistent with the delegation from the Board. Decisions of the Board
and the Committee shall be final and binding upon all participants. Any decision
reduced to writing and signed by a majority of the members of the Committee
shall be fully effective as if it had been made at a meeting of the Committee
duly
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<PAGE> 31
held. The Corporation shall pay all expenses incurred in the administration of
the Plan. No Board or Committee member shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
thereunder.
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
The Committee may adopt rules or procedures relating to the operation and
administration of the Plan in non-United States jurisdictions to accommodate the
specific requirements of local laws and procedures. Without limiting the
generality of the foregoing, the Committee is specifically authorized to adopt
rules and procedures regarding handling of payroll deductions, payment of
interest, conversion of local currency, withholding procedures and handling of
stock certificates which vary with local requirements.
14. SECURITIES LAWS REQUIREMENTS.
The Corporation shall not be under any obligation to issue Common Stock
upon the exercise of any option unless and until the Corporation has determined
that: (i) it and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.
15. GOVERNMENTAL REGULATIONS.
This Plan and the Corporation's obligation to sell and deliver shares of
its stock under the Plan shall be subject to the approval of any governmental
authority required in connection with the Plan or the authorization, issuance,
sale, or delivery of stock hereunder.
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Corporation or any Designated
Subsidiary or to interfere with the right of the Corporation or Designated
Subsidiary to discharge any Employee at any time.
17. GOVERNING LAW.
This Plan shall be governed by Delaware law.
18. EFFECTIVE DATE.
This Plan shall be effective on September 1, 1997, subject to approval of
the shareholders of the Corporation within 12 months of its adoption by the
Board of Directors.
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<PAGE> 32
Appendix
DIGITAL LIGHTWAVE
601 CLEVELAND STREET, FIFTH FLOOR
CLEARWATER, FLORIDA 33755
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Dr. Bryan J. Zwan and Steven
H. Grant and each of them, his true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned at the Annual
Meeting of Stockholders of Digital Lightwave, Inc. to be held at the Renaissance
Vinoy Resort, 501 Fifth Avenue, N.E., St. Petersburg, Florida on Friday, May 15,
1998, at 2:00 p.m., local time, and at any adjournments thereof, and to vote as
designated.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] FOR all nominees listed below. [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
except as marked to the contrary. for all nominees listed
below.
</TABLE>
NOMINEES: 1. Dr. Bryan J. Zwan 2. Dr. William F. Hamilton
3. William Jefferson Marshall 4. William Seifert
2. RATIFY AND APPROVE THE ADOPTION OF THE DIGITAL LIGHTWARE, INC. 1997 EMPLOYEE
STOCK PURCHASE PLAN
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
and to vote on such other business as may properly come before the meeting
YOUR VOTE IS IMPORTANT! PLEASE VOTE.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" ALL NOMINEES TO THE BOARD OF DIRECTORS, "FOR" THE RATIFICATION
AND APPROVAL OF THE ADOPTION OF THE DIGITAL LIGHTWAVE, INC. 1997 EMPLOYEE STOCK
PURCHASE PLAN, "FOR" AND AS THE PROXY HOLDER MAY DETERMINE IN HIS DISCRETION
WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE MEETING.
Date: , 1998
---------------------
--------------------------------
Signature of Stockholder(s)
--------------------------------
Signature of Stockholder(s)
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
THANK YOU FOR VOTING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
