<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. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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
(Logo Digital Lightwave, Inc.)
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE
CLEARWATER, FLORIDA 33760
T: (727) 442-6677
HTTP://WWW.LIGHTWAVE.COM
September 15, 2000
Dear Stockholder:
You are cordially invited to attend the Company's 2000 Annual Meeting of
Stockholders to be held on September 29, 2000. The meeting will begin promptly
at 10:30 a.m., local time, at the Renaissance Vinoy Resort, 501 Fifth Avenue
N.E., St. Petersburg, Florida 33701.
The official Notice of Meeting, Proxy Statement, Proxy Card and Annual
Report to Stockholders 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/ Gerry Chastelet
-----------------------------
Gerry Chastelet
President and Chief Executive
Officer
<PAGE> 3
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE
CLEARWATER, FLORIDA 33760
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 2000
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, September 29, 2000, at 10:30 a.m., local
time, for the following purposes:
1. To elect four (4) directors of the Company to hold office until the
2001 Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified;
2. To approve the Company's Amended and Restated 1996 Stock Option
Plan which effects the following changes to the plan: (i) increases the
number of shares reserved under the plan by 3,000,000 shares to 8,000,000
shares, (ii) limits the number of option shares which may be granted to a
single individual each fiscal year, (iii) authorizes the transfer of
options to certain family members and family trusts, (iv) eliminates or
modifies certain restrictions as permitted by recent amendments to Rule
16b-3 issued by the Securities and Exchange Commission under Section 16(b)
of the Securities and Exchange Act of 1934; and (v) modifies the provisions
governing the options in the event of a change in control of the Company;
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent auditor for the fiscal year ending December 31, 2000;
and
4. 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 August 15, 2000
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. A list of stockholders entitled to vote at the meeting
will be available for inspection ten days prior to the Annual Meeting at the
principal offices of the Company, 15550 Lightwave Drive, Clearwater, Florida,
33760.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. 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. SHOULD YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOUR
SHARES ARE REGISTERED IN DIFFERENT NAMES AND ADDRESSES, EACH PROXY SHOULD BE
SIGNED AND RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE VOTED. YOUR PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
By Order of the Board of Directors,
/s/ Steven H. Grant
-----------------------------------
Steven H. Grant
Secretary
Clearwater, Florida
September 15, 2000
<PAGE> 4
DIGITAL LIGHTWAVE, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 2000
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 -- APPROVE AMENDED AND RESTATED 1996 STOCK
OPTION PLAN............................................... 17
PROPOSAL THREE -- RATIFICATION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT AUDITOR.................................... 25
OTHER BUSINESS.............................................. 25
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL
MEETING................................................... 25
</TABLE>
i
<PAGE> 5
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE,
CLEARWATER, FLORIDA 33760
---------------------
PROXY STATEMENT
FOR
THE 2000 ANNUAL MEETING OF STOCKHOLDERS
OF
DIGITAL LIGHTWAVE, INC.
TO BE HELD ON SEPTEMBER 29, 2000
---------------------
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 at the Renaissance Vinoy
Resort, 501 Fifth Avenue N.E., St. Petersburg, Florida 33701 on September 29,
2000 at 10:30 a.m., local time, (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 September 15, 2000. The Company's
1999 Annual Report is being mailed to stockholders concurrently with this Proxy
Statement. The 1999 Annual Report is not to be regarded as proxy soliciting
material or as a communication by means of which any solicitation of proxies is
to be made.
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 the Board, "FOR" the
approval of the Amended and Restated 1996 Stock Option Plan and "FOR" the
ratification of the selection of the independent auditor. 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 materials to record holders for distribution by them to their
principals and to assist the Company in collecting proxies from such holders.
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 August 15, 2000 (the "Record Date"), are entitled to vote at the
Meeting. On the Record Date, 30,099,713 shares of Common
<PAGE> 6
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.
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 majority 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 adoption of the Amended and Restated
1996 Stock Option Plan, "FOR" the ratification and approval of the Independent
Auditor, and as to any other matter that may be properly brought before the
Meeting, in accordance with the judgment of the proxy holders.
2
<PAGE> 7
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 1, 2000 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) all
of the executive officers including 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. To the knowledge of the Company,
except as noted in the footnotes below, all persons listed below have sole
voting and investing power with respect to their shares of Common Stock, except
to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME NUMBER PERCENT
---- ---------- -------
<S> <C> <C>
Bryan J. Zwan(2)(3)......................................... 17,941,750 59.2 %
Hugh Brian Haney(4)......................................... 2,000,000 6.6
Gerry Chastelet(5).......................................... 64,835 *
Steven H. Grant(6).......................................... 30,444 *
George Matz(7).............................................. 28,829 *
Ali Haider(8)............................................... 669 *
James Green(9).............................................. 16,736 *
William F. Hamilton(10)..................................... 33,333 *
William M. Seifert(11)...................................... 3,333 *
Robert F. Hussey............................................ 0 *
Peter A. Guglielmi.......................................... 0 *
All executive officers and directors as a group (9
persons)(12).............................................. 178,179 *
</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
September 1, 2000 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) Includes 2,000,000 shares for which an option has been granted to Hugh
Brian Haney pursuant to a litigation settlement and 15,941,750 shares held
by Dr. Bryan J. Zwan or through affiliates controlled by Dr. Zwan,
principally, ZG Nevada, Inc. or ZG Nevada LLP. Dr. Zwan's address is c/o
Orrick, Herrington & Sutcliffe LLP, 1020 Marsh Road, Menlo Park, California
94025, Attn: Robert E. Freitas.
(3) Includes 3,840,000 shares which are subject to forward sale agreements and
pledge agreements with CSFB SAILS Corp.
(4) Represents 2,000,000 shares for which an option has been granted by Bryan
J. Zwan, pursuant to a litigation settlement. Mr. Haney assigned the option
to HBH Assets, Ltd. whose address is P.O. Box 09770, Columbus, Ohio
43209-0770.
(5) Consists of 4,377 shares of Common Stock and 60,458 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of September 1, 2000.
(6) Consists of 10,915 shares of Common Stock and 19,529 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of September 1, 2000.
(7) Consists of 28,829 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of September 1, 2000.
(8) Consists of 669 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of September 1, 2000.
(9) Consists of 70 shares of Common Stock and 16,666 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of September 1, 2000.
3
<PAGE> 8
(10) Consists of 33,333 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of September 1, 2000.
(11) Consists of 3,333 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of September 1, 2000.
(12) Consists of 15,362 shares of Common Stock and 162,817 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of September 1, 2000.
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 from time to time between one (1) and nine (9). The Board currently
consists of five (5) directors: Messrs. Hamilton, Chastelet, Seifert, Hussey and
Guglielmi. Mr. Hussey was appointed by the Board on August 23, 2000 to fill the
vacancy created by Dr. Bryan Zwan's resignation on August 22, 2000. Mr.
Guglielmi was appointed to the Board on August 28, 2000. Director William
Seifert will not be standing for re-election. 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. Each nominee has
agreed to serve if elected. 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 NOMINEES LISTED BELOW.
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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE
NAME AGE YEARS AND OTHER DIRECTORSHIPS
---- --- --------------------------------------
<S> <C> <C>
Dr. William F. Hamilton 61 Dr. Hamilton has served as a director since 1997. He
is the Landau Professor of 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:
Hunt Corporation, Marlton Technologies, Inc. and
Neose Technologies, Inc.
Gerry Chastelet 53 Mr. Chastelet joined Digital Lightwave on December 31,
1998 as President and Chief Executive Officer, and
was named Chairman of the Board in July 1999. Prior
to joining the Company, Mr. Chastelet served as
President and Chief Executive Officer of Wandel &
Goltermann Technologies, Inc., a global supplier of
communications test and measurement equipment, from
December 1995 to October 1998. From June 1993 to
November 1995, he served as Vice President Sales,
Marketing and Service-Americas and Asia Pacific for
Network Systems Corporation, a supplier of
channel-attached communications solutions for large
mainframe computers. From 1989 to 1993, he was Vice
President Sales, Marketing and Service for Gandalf
Systems Corporation. Mr. Chastelet holds a degree in
Electronics Engineering from Devry Institute of
Technology and is a graduate of the University of
Toronto Executive MBA Program. He also serves as a
director of Wave Rider Communications, Inc. and
Technology Research Corporation.
Robert F. Hussey 51 Mr. Hussey was appointed by the Board to serve as a
director on August 23, 2000. Mr. Hussey was
President and CEO of MetroVision of North America,
Inc., a niche cable television
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE
NAME AGE YEARS AND OTHER DIRECTORSHIPS
---- --- --------------------------------------
<S> <C> <C>
company, from February 1991 until April 1997, when
it merged with York Hannover Health Care, Inc. Mr.
Hussey has been a director of IVEX Corporation since
May 1993, Digital Data Inc. since November 1997 and
Nur Macroprinters Ltd. since December 1997, as well
as on the board of advisors for Kaufmann Fund since
December 1996, Argentum Capital Partners, I and II
since June 1990, and Josephthal & Company, Inc.
since December 1997.
Peter A. Guglielmi 57 Mr. Guglielmi was appointed by the Board to serve as a
director on August 28, 2000. Mr. Guglielmi is
Executive Vice President of Tellabs, Inc. He served
as the Executive Vice President, Chief Financial
Officer of Tellabs, Inc. from 1988 until 2000. From
1993 to 1997, he was President of Tellabs
International, Inc. Prior to joining Tellabs, Mr.
Guglielmi was Vice President of Finance and
Treasurer of Paradyne Corporation for five years.
Mr. Guglielmi presently serves on the boards of
Tellabs, Inc., JDS Uniphase Corporation and Internet
Communications Corporation.
</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 Proxy Statement are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerry Chastelet........................... 53 Chairman of the Board, President and Chief
Executive Officer
Steven H. Grant........................... 40 Executive Vice President, Finance, Chief
Financial Officer and Secretary
George Matz............................... 50 Executive Vice President, Global Sales
Ali Haider................................ 49 Executive Vice President, Research and
Development
James Green............................... 49 Vice President, Production
Dr. William F. Hamilton(1)(2)(3).......... 61 Director
William Seifert(1)(2)(3).................. 50 Director
Robert F. Hussey.......................... 51 Director
Peter A. Guglielmi........................ 57 Director
</TABLE>
---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
6
<PAGE> 11
A description of the background of each of the Company's current director
nominees has been provided above under "Information Concerning Director
Nominees." Following is a description of the background of each of the Company's
executive officers:
Mr. Grant currently serves as Executive Vice President, Finance, Chief
Financial Officer and Secretary 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. Grant holds a Bachelor's Degree in Accounting from the
University of Alabama and holds an MBA in Finance from the University of
South Florida. On March 29, 2000, Mr. Grant, settled administrative
proceedings with the Securities and Exchange Commission. Mr. Grant, without
admitting or denying the Commission's findings, consented to the entry of
an order that he cease and desist from committing or causing any violation
or future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Securities Exchange Act of 1934, and Rules 12b-20 and 13a-13 thereunder.
Mr. Matz currently serves as Executive Vice President, Global Sales
and joined the Company in May 1998. Prior to joining the Company, Mr. Matz
served as Vice President of Global Sales at Boston Technology, Inc., a
supplier of systems, software and services to telecommunications companies,
from December 1995 to May 1998. From August 1994 to December 1995, Mr. Matz
served as Executive Director of Global Sales at Dale, Gesek, McWilliams and
Sheridan, Inc., an international supplier of telecommunications products
and services. From March 1990 to August 1994, Mr. Matz served as Director
of North American Sales at Summa Four, Inc. Mr. Matz holds a B.S. degree
from Wilkes University.
Mr. Haider currently serves as Executive Vice President, Research and
Development and joined the Company in September 1997. Prior to joining the
Company, Mr. Haider was Director, Technical Support Center at AT&T/Paradyne
Corporation from May 1996 to September 1997, Director, Engineering from May
1991 to May 1996, and Engineering Manager from July 1984 through May 1991.
Mr. Haider holds a Masters Degree in Electrical Engineering from the
University of Houston, a B.S. in Electrical Engineering from the University
of Engineering and Technology, Lahore, Pakistan, and a B.S. in Physics and
Math from Gordon College, University of Punjab.
Mr. Green currently serves as Vice President, Production and joined
the Company in August 1999 as a consultant. Prior to joining the Company,
Mr. Green also served as Vice President-Operations for the MATCO
Electronics Group from April 1993 to October 1995. Mr. Green is APICS
Certified and also holds a CPM Certification.
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. During fiscal 1999, the
Board had four (4) members: Messrs. Chastelet, Hamilton, Seifert and Zwan. The
Board currently has five (5) members: Messrs. Chastelet, Guglielmi, Hamilton,
Hussey and Seifert. Mr. Hussey was appointed by the Board on August 23, 2000 to
replace Dr. Bryan Zwan, who resigned on August 22, 2000. Mr. Guglielmi was
appointed by the Board on August 28, 2000. Director William Seifert will not be
standing for re-election. After the meeting, the Board will consist of four (4)
members. There are no family relationships among any of the directors, director
nominees or executive officers of the Company.
EXECUTIVE OFFICERS
Digital Lightwave's executive officers are elected by the Board of
Directors on an annual basis and serve until the next annual meeting of the
Board of Directors or until their successors have been duly elected and
qualified. There are no family relationships among any of the directors or
executive officers of the Company.
7
<PAGE> 12
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1999, the Board held fifteen (15)
regular meetings and thirteen (13) special meetings. Each director attended at
least 75% of the aggregate number of Board meetings and meetings of committees
on which he served which occurred on or after the initiation of his term as a
director.
The Board of Directors has an Audit Committee, a Compensation Committee,
and a Nominating Committee. The Audit Committee 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 three (3) meetings during fiscal 1999. During fiscal 1999,
the audit committee was composed of Messrs. Hamilton and Seifert. The
Compensation Committee is responsible for reviewing and approving, within its
authority, compensation, benefits, training and other human resource policies.
The Compensation Committee held eleven (11) meetings during fiscal 1999. During
fiscal 1999, the compensation committee consisted of Messrs. Hamilton and
Seifert. 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 1999. In 1999, the Board formed a Nominating Committee to select
nominees to the Board of Directors which initially consisted of Messers.
Hamilton and Seifert. On August 8, 1999, Dr. Bryan Zwan was appointed to the
Nominating Committee.
COMPENSATION OF DIRECTORS
Directors of the Company who are not officers or employees of the Company
receive an annual fee of $10,000. Directors are also reimbursed for travel and
other expenses relating to attendance at meetings of the Board or committees.
Under the Option Plan, independent directors are also eligible to receive stock
options in consideration for their services. Each independent director receives
an option for 25,000 shares of common stock upon joining the Board of Directors
and receives an option for 10,000 shares of common stock upon each annual
meeting thereafter. During 1999, each independent director received an option
for 10,000 shares of common stock as a result of the 1999 annual meeting of
stockholders. During 1999, Mr. Seifert exercised 30,000 shares of common stock
resulting in proceeds of $727,082. Dr. Hamilton exercised 10,000 shares of
common stock resulting in proceeds of $271,250.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 percent (10%) 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 that Dr. Bryan Zwan filed one late Form 4 for a
transaction.
8
<PAGE> 13
EXECUTIVE COMPENSATION
The following table shows, for the year ended December 31, 1999, the cash
and other compensation awarded to, earned by or paid to Mr. Chastelet and each
other executive officer who earned in excess of $100,000 for all services in all
capacities (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
AWARDS
ANNUAL COMPENSATION RESTRICTED PAYOUTS
---------------------------------- ----------------- ------- ALL
OTHER ANNUAL STOCK OPTIONS/ LTIP OTHER
SALARY BONUS COMPENSATION AWARDS SARs PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
--------------------------- ---- -------- -------- ------------ ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerry Chastelet.............. 1999 $276,066 $100,000 $2,924,065(1) $-- 225,000 $-- $24,500(2)(3)
Chairman of the 1998 1,060 -- -- -- 600,000 -- --
Board, President and 1997 -- -- -- -- -- -- --
Chief Executive Officer
Steven H. Grant.............. 1999 201,541 -- 1,890,312(1) -- 100,000 -- 5,000(2)
Executive Vice President, 1998 193,333 40,000 -- -- 200,000 -- 1,800(2)
Finance, Chief Financial 1997 40,615 -- -- -- 75,000(4) -- 500(2)
Officer and Secretary
George Matz.................. 1999 220,822 95,000 2,018,835(1) -- 102,500 -- 17,000(2)(3)
Executive Vice President, 1998 148,415 50,000 -- -- 300,000 -- 8,000(3)
Global Sales 1997 -- -- -- -- -- -- --
Ali Haider................... 1999 174,253 -- 646,400(1) -- 142,000 -- 2,125(2)
Executive Vice President, 1998 149,443 22,275 -- -- 48,000 -- 1,963(2)
Research and Development 1997 34,788 25,000 -- -- 33,000(4) -- --
James Green.................. 1999 28,584(5) -- 15,000(6) -- 50,000 -- --
Vice President, Production
</TABLE>
---------------
(1) Reflects proceeds from stock options exercised, gross of income taxes.
(2) Reflects 401(k) matching contributions.
(3) Reflects Automobile Allowance.
(4) Represents options which were cancelled and reissued in 1998 and which are
included in the 1998 grants list in this table.
(5) Began full time employment with the Company as the Vice President,
Production, on October 13, 1999.
(6) Reflects fees paid for consulting services prior to joining Company as a
full time employee.
9
<PAGE> 14
STOCK OPTION GRANTS
The following table sets forth information concerning stock options awarded
to each of the Named Executive Officers during 1999. All such options were
awarded under the Company's 1996 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
GRANTED YEAR ($/SH) DATE 5% 10%
---------- ----------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerry Chastelet(2)................ 75,000(3) 3.36% $5.6875 06/02/05 $145,072 $329,119
150,000(4) 6.73 6.8750 08/03/05 350,724 795,672
Steven H. Grant(2)................ 50,000(3) 2.24 5.6875 06/02/05 96,715 219,413
50,000(4) 2.24 6.8750 08/03/05 116,908 265,224
George Matz(2).................... 2,500(6) 0.11 3.0310 03/31/05 1,636 4,602
50,000(3) 2.24 5.6875 06/02/05 96,715 219,413
50,000(4) 2.24 6.8750 08/03/05 116,908 265,224
Ali Haider(2)..................... 29,500(5) 1.32 3.0310 03/31/05 19,301 54,303
40,000(3) 1.80 5.6875 06/02/05 77,372 175,530
50,000(4) 2.24 6.8750 08/03/05 116,908 265,224
23,000(7) 1.03 3.3480 08/04/05 26,449 62,340
James Green(2).................... 50,000(4) 2.24 7.6250 10/13/05 129,661 294,158
</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) The option shares will vest on an accelerated basis upon the occurrence of
certain conditions described in the section entitled "Employment Agreements
and Severance Arrangements."
(3) One-ninth of the option shares vest each year over a three year period
measured from the grant date. One-third of the options shares vest on
December 2, 2004. Of the remaining one-third of the option shares, 95% of
the shares vested on an accelerated basis upon the achievement of a
specified revenue target, and the remaining 5% will vest on December 2,
2004.
(4) One-third of the option shares vest each year over a three year period
measured from the grant date.
(5) The option shares will vest on September 30, 2004. The option shares will
vest on an accelerated basis upon the completion of certain performance
milestones prior to such date.
(6) The option shares will vest on September 30, 2004.
(7) One-third of the option shares vested on August 4, 1999, an additional
one-third of the option shares vested on August 4, 2000, and the remaining
one-third of the option shares will vest on August 4, 2001.
10
<PAGE> 15
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 1999 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 AT
SHARES OPTIONS AT FY-END(#) FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerry Chastelet........... 100,000 $2,924,065 -- 725,000 -- $43,785,688
Steven H. Grant........... 65,000 1,890,312 35,000 200,000 2,075,938 11,703,125
George Matz............... 75,000 2,018,835 75,000 252,500 4,467,188 14,858,673
Ali Haider................ 23,666 646,400 -- 166,834 -- 9,835,238
James Green............... -- -- -- 50,000 -- 2,818,750
</TABLE>
---------------
(1) Values shown in these columns reflect the difference between the closing
price of $64.00 on December 31, 1999 and the exercise price of the options
and does not include the federal and state taxes due upon exercise.
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 specified three 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 June 30, 2000, 178,063 shares have
been purchased under the Stock Purchase Plan.
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company entered into a letter agreement dated as of December 31, 1998
(the "Chastelet Agreement"), with Gerry Chastelet, the Company's Chairman of the
Board, Chief Executive Officer and President. The Chastelet Agreement provides
for: (1) employment at will; (2) an annual salary of $275,000; (3) a $150,000
signing bonus payable over two years; and (4) a performance bonus of up to 50%
of his base salary to be paid based on 80% quantitative and 20% qualitative
criteria to be established by the Company's board of directors. In addition, the
Company granted to Mr. Chastelet stock options to purchase 600,000 shares of
Common Stock at an exercise price of $2.313 per share, of which 100,000 stock
options vest after each six months of employment. In the event of a change in
control (as such term is defined in the Chastelet Agreement), Mr. Chastelet's
unvested options will vest.
The Company entered into a letter agreement dated as of April 13, 1998 and
an addendum to the letter agreement dated February 9, 1999 (the "Matz
Agreements"), with George J. Matz, the Company's Executive Vice President,
Global Sales. The Matz Agreements provide for: (1) employment at will; (2) an
annual salary of $225,000; (3) a $150,000 sign-on bonus payable over three
years; and (4) a performance bonus of 20% for the first year. In addition, the
Company granted to Mr. Matz stock options to purchase 300,000 shares of Common
Stock at an exercise price of $4.4375 per share, of which 75,000 stock options
vested on December 31, 1999, and 75,000 vest on each of the second and third of
his employment anniversary dates. In the event of a change in control (as such
term is defined in the Matz Agreement), Mr. Matz's unvested options will vest.
11
<PAGE> 16
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, Chief Financial Officer and Secretary. The Grant
Agreement provides for: (1) an employment term of three years which
automatically renews for an additional two years unless either Mr. Grant or the
Company provides reasonable notice of non-renewal prior to expiration; (2) an
annual salary of $200,000; and (3) 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 per share, of which 50,000 stock options vested 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. The Company is not obligated to pay compensation and benefits
under the Grant Agreement if Mr. Grant's employment is terminated for "cause."
The Company entered into a letter agreement dated as of September 8, 1997
as modified by letters dated July 2, 1998 and August 4, 1998 with Ali Haider
(the "Haider Agreements"), the Company's Executive Vice President, Research and
Development. The Haider Agreements provide for: (1) an annual salary of
$170,000; and (2) a performance bonus of $22,275 for positive first and second
quarter 1998 performance. In addition, the Company agreed to grant to Mr. Haider
certain stock options. In the event of the termination of Mr. Haider's
employment for any reason (other than a criminal act), Mr. Haider is entitled to
severance pay in the amount of six months base salary at the greater of Mr.
Haider's base salary as of the date of any termination of employment or as of
July 27, 1998.
The Company entered into a letter agreement dated October 13, 1999 and an
addendum to the letter dated February 18, 2000 (the "Green Agreements") with
James Green, the Company's Vice President, Production. The Green Agreements
provide for: (1) an annual salary of $130,000; (2) a performance bonus of $5,000
based on fourth quarter 1999 revenues; and (3) relocation expenses for up to one
(1) year of temporary living expenses and realtor costs not to exceed $20,000.
In addition, the Company granted to Mr. Green stock options to purchase 50,000
shares of Common Stock at an exercise price of $7.625 per share of which one-
third vests on each of the three anniversaries following the date of grant.
On October 18, 1999, the Company entered into an addendum to the existing
employment agreements with Messrs. Chastelet, Grant, Matz and Haider. On June 9,
2000, the Company entered into an addendum to the existing employment agreement
with Mr. Green. Each agreement contains a non-compete clause that is more
restrictive than any provision previously applicable to such executives. The
addenda also provide for severance payments of up to two years base salary and
bonus and acceleration of all stock options following involuntary termination
upon a change of control.
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 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 1999) 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
12
<PAGE> 17
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 1999, the Compensation Committee of the Board consisted of Messrs.
Hamilton and Seifert. 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 1999.
Additionally, no member of the Compensation Committee is currently or was
formally an officer or employee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 15, 1998, the Company loaned $100,000 to Dr. Zwan, a former
director. The loan has a simple interest rate of 9% per annum, is evidenced by
an unsecured promissory note and was due December 14, 1999. On February 23,
2000, the loan was paid in full, including accrued interest of approximately
$10,000. In accordance with the Company's policy on related party transactions,
the loan was approved by the independent members of the Audit Committee of the
Board of Directors.
13
<PAGE> 18
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The 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 with an exercise price equal to 100% of the fair market value at
the time of grant may qualify for exclusion from this limitation if the plan
under which they are granted meets certain conditions. However, because the net
cost of compensation, including its deductibility, is weighed by the Committee
against many factors in determining executive compensation the Committee may
determine that it is appropriate and in the best interests of the Company to
authorize compensation that is not deductible, whether by reason of Section
162(m) or otherwise.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
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
pre-established objectives and determines whether the Chief Executive Officer's
base salary, target bonus, option grants 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 the Chief Executive Officer's performance and compares it with
chief executive officers of similar technology companies.
The Company hired Mr. Chastelet on December 31, 1998 to serve as President
and Chief Executive Officer. The Company entered into an employment agreement
with Mr. Chastelet which provides for an annual base salary of $275,000. Mr.
Chastelet was also eligible to receive performance based stock options in
14
<PAGE> 19
1999. The performance based options represented twenty-two percent of all
options granted to Mr. Chastelet in 1999, and vest after five and one-half
years, or immediately upon the Company achieving 80% of revenue and net income
targets established by the Committee and the Board. The remaining options
granted to Mr. Chastelet in 1999 vest in accordance with the Company's 1996
Stock Option Plan. Overall, Mr. Chastelet's base and incentive compensation are
below the median compensation for technology companies, but within the
competitive range.
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 Seifert
Dr. William F. Hamilton
The foregoing report 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.
15
<PAGE> 20
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG DIGITAL LIGHTWAVE, INC., THE NASDAQ TOTAL RETURN INDEX, AND
THE NASDAQ NON-FINANCIAL INDEX
<TABLE>
<CAPTION>
NASDAQ TOTAL RETURN NASDAQ NON-FINANCIAL
DIGITAL LIGHTWAVE, INC. INDEX STOCKS
----------------------- ------------------- --------------------
<S> <C> <C> <C>
2/7/97 100.00 100.00 100.00
12/31/97 104.97 116.28 110.91
12/31/98 18.41 163.96 162.84
12/31/99 509.44 303.42 324.21
</TABLE>
The above graph assumes that $100.00 was invested in the Common Stock and
in each index on February 7, 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.
16
<PAGE> 21
PROPOSAL TWO
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan became effective on March 5, 1996. The
Company's stockholders are being asked to approve an amended and restated Stock
Option Plan (the "Amended Plan") designed to effect the following changes: (i)
increase the maximum number of shares that may be issued under the Amended Plan
from 5,000,000 shares to 8,000,000 shares; (ii) limit the number of option
shares which may be granted to a single individual in a fiscal year to 400,000
shares, except with respect to individuals first hired by the Company who may
receive an additional grant of up to 400,000 shares; (iii) authorize the
transfer of awards to certain family members and family trusts; (iv) eliminate
or modify certain restrictions as permitted by recent amendments to Rule 16b-3
issued by the Securities and Exchange Commission under Section 16(b) of the
Securities and Exchange Act of 1934; and (v) modify the provisions governing the
options in the event of a change in control of the Company.
If shareholder approval of the Amended Plan is obtained, the outstanding
options under the Stock Option Plan will continue to be governed by their
existing terms, unless the Plan Administrator elects to extend one or more
features of the Amended Plan to those options. Except as otherwise noted below,
the outstanding options have substantially the same terms as are expected for
grants made under the Amended Plan.
Nothing in the Amended Plan prohibits the Company from adopting other
equity compensation programs for its employees or directors, including those
eligible for grants under the Amended Plan.
The description of the Amended Plan contained below is qualified in its
entirety by reference to the entire provisions of the Amended Plan, which is
attached as Appendix A to this Proxy Statement.
DESCRIPTION OF AMENDED PLAN
PURPOSE
The purpose of the Amended Plan is to allow the Company to provide key
employees (including officers and directors), non-employee Board members and
independent consultants and advisors in the Company's service the continuing
opportunity to acquire a meaningful equity interest in the Company as an
incentive for them to remain in service. The Board believes that such equity
incentives are a significant factor in the Company's ability to attract and
retain the key individuals who are essential to the Company's long-term growth
and financial success.
SHARE RESERVE
8,000,000 shares of Common Stock are reserved for issuance under the
Amended Plan, including the increase of 3,000,000 shares. Should an outstanding
option expire or terminate for any reason prior to exercise in full, the shares
subject to the portion of the option not so exercised will be available for
subsequent issuance under the Amended Plan. Unvested shares issued under the
Amended Plan and subsequently repurchased by the Company at the original option
exercise price paid per share will be added back to the share reserve and will
accordingly be available for subsequent issuance under the Amended Plan.
ADMINISTRATION
The Compensation Committee of the Board will have exclusive authority to
administer the Amended Plan with respect to option grants made to the Company's
executive officers and independent Board members. The Compensation Committee and
a Secondary Committee of one or more Board members will each have separate but
concurrent authority to make option grants under that program to all other
eligible individuals. The term "Plan Administrator," as used in this Proposal,
will mean either the Compensation Committee or the Secondary Committee, to the
extent each such entity is acting within the scope of its administrative
jurisdiction under the Amended Plan. Before the amendment, the Stock Option Plan
required that the
17
<PAGE> 22
administration of the Stock Option Plan be performed by certain individuals
meeting the requirements of an outdated version of Rule 16b-3 of the Securities
Exchange Act of 1934.
ELIGIBILITY
Employees (including officers), independent Board members, and independent
consultants and advisors in the service of the Company or its parent and
subsidiaries (whether now existing or subsequently established) will be eligible
to receive options granted under the Amended Plan.
In no event may any single participant in the Amended Plan receive option
grants after stockholder approval of the Amended Plan for more than 400,000
shares of common stock in the aggregate per fiscal year, except with respect to
individuals first hired by the Company, who may receive an additional option
grant in the fiscal year of their hire of up to 400,000 shares. Before the
amendment, the Stock Option Plan contained no limit on the number of shares of
common stock a single participant could receive per fiscal year.
GRANTS
The Plan Administrator will have complete discretion to determine which
eligible individuals are to receive option grants, the time or times when those
grants are to be made, 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 under the federal tax laws, the vesting schedule (if any)
to be in effect for the option grant and the maximum term for which any granted
option is to remain outstanding.
PRICE AND EXERCISABILITY
Each option will have an exercise price per share not less than 100% of the
fair market value per share of common stock on the option grant date in the case
of incentive stock options or 100% of the fair market value per share of common
stock on the option grant date in the case of non-statutory options.
Each option may generally be exercised for vested shares in a series of
installments over a specified period of service measured from the grant date.
However, options may be structured to be immediately exercisable for any or all
of the option shares. However, any shares acquired under those options will
generally be unvested and subject to repurchase by the Company, at the exercise
price paid per share, if the optionee ceases service with the Company prior to
vesting in those shares.
The exercise price may be paid in cash or in shares of the common stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a brokerage firm will effect an immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes.
No optionee will have any shareholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options will generally not be assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee. However,
the Plan Administrator may allow non-statutory options to be transferred or
assigned during the optionee's lifetime, subject to such limitations as the Plan
Administrator may establish from time to time, pursuant to a domestic relations
order or to one or more of Optionee's family members or an entity owned,
benefiting or controlled by the Optionee or one or more of Optionee's family
members. The optionee may also designate one or more beneficiaries to
automatically receive his or her outstanding options at death. Before the
amendment, options were not assignable or transferable except pursuant to a
qualified domestic relations order. The expanded transferability provisions will
be extended to the outstanding options.
TERMINATION OF SERVICE
Upon cessation of service, the optionee will generally have a limited
period of time in which to exercise his or her outstanding options for any
shares in which the optionee is vested at that time. The Plan
18
<PAGE> 23
Administrator will have complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability or vesting of such options
in whole or in part.
CANCELLATION/REGRANT PROGRAM
The Plan Administrator may effect, with the consent of the affected option
holders, the cancellation of outstanding options under the Amended Plan in
return for the grant of new options for the same or a different number of option
shares with an exercise price per share based upon the fair market value of the
common stock on the new grant date.
VALUATION
For all valuation purposes under the Amended Plan, the fair market value
per share of common stock on any relevant date will be deemed equal to the
closing selling price per share on that date, as reported on the Nasdaq National
Market.
VESTING ACCELERATION
If the Company is acquired by merger or asset sale, each outstanding option
that is not to be assumed by the successor corporation will generally
automatically accelerate in full, and all unvested shares will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation.
The Plan Administrator may grant options that become fully exercisable if
those options are assumed in the acquisition and the optionee's service with the
Company or the acquiring entity is involuntarily terminated within a designated
period (not to exceed 18 months) following such acquisition. The Plan
Administrator may also have the authority to grant options that will immediately
vest upon an acquisition of the Company, whether or not those options are
assumed by the successor corporation.
The Plan Administrator may extend any of the acceleration provisions of the
Amended Plan to one or more outstanding options. Prior to the amendment, the
plan was structured so that the options will terminate and cease to be
outstanding, whether or not they are exercisable, if the Company is acquired by
merger and the outstanding options are not assumed by the successor entity or
otherwise continued in effect. The expanded provisions regarding the treatment
of options that are not assumed in connection with a merger will be extended to
the outstanding options.
The acceleration of vesting in the event of an acquisition of the Company
may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal.
CHANGES IN CAPITALIZATION
If any change is made to the outstanding shares of common stock by reason
of any recapitalization, stock dividend, stock split, combination of shares,
exchange of shares or other change in corporate structure effected without the
Company's receipt of consideration, appropriate adjustments will be made to (i)
the maximum number and/or class of securities issuable under the Amended Plan,
(ii) the maximum number and/or class of securities for which any one person may
be granted stock options per fiscal year or as an initial grant, and (iii) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option. Such adjustments will be designed to preclude any
dilution or enlargement of benefits under the Plan or the outstanding options
thereunder.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of options. The Plan Administrator will
determine the terms of any such financial assistance. However, the maximum
amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares.
19
<PAGE> 24
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options under the
Amended Plan with the right to have the Company withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the withholding taxes
incurred by such individuals in connection with the exercise of those options or
the vesting of those shares. Alternatively, the Plan Administrator may allow
such individuals to deliver previously acquired shares of common stock in
payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the Amended Plan at any time, subject to any
required shareholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the Amended Plan will terminate on the
earliest of (i) March 5, 2006, (ii) the date on which all shares available for
issuance under the Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the Amended Plan may be either incentive stock
options that satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a disposition. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition of the shares is made more
than two years after the date the option for those shares is granted and more
than one year after the date the option is exercised for such shares. If either
of these periods is not met, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date over (ii) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair
20
<PAGE> 25
market value of the shares on the date those shares vest over (ii) the exercise
price paid for such shares. The optionee may, however, elect under Section 83(b)
of the Internal Revenue Code to include as ordinary income in the year of
exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise price
paid for those shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
STOCK AWARDS
The table below shows, as to the Company's Chief Executive Officer ("CEO"),
the four other most highly compensated executive officers (with base salary and
bonus for the 1999 fiscal year in excess of $100,000) and the other individuals
and groups indicated, the number of shares of common stock subject to option
grants made under the 1996 plan and the Amended and Restated 1996 plan from
January 1, 1999 through September 1, 2000, together with the weighted average
exercise price payable per share.
21
<PAGE> 26
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES UNDERLYING EXERCISE PRICE
NAME AND POSITION OPTIONS GRANTED (#) PER SHARE ($)
----------------- --------------------------- ----------------
<S> <C> <C>
Gerry Chastelet........................................ 500,000 $52.4031
Chairman of the Board, President and Chief Executive
Officer
Steven H. Grant........................................ 216,750 50.3051
Executive Vice President, Finance, Chief Financial
Officer and Secretary
George Matz............................................ 219,250 49.7628
Executive Vice President, Global Sales
Ali Haider............................................. 256,000 42.2793
Executive Vice President, Research and Development
James Green............................................ 163,500 64.0657
Vice President, Production
Dr. Bryan J. Zwan(1)................................... -- --
Director
Dr. William F. Hamilton................................ 10,000 4.125
Director
William Seifert........................................ 10,000 4.125
Director
Robert F. Hussey(2).................................... 50,000 99.0313
Director
Peter A. Guglielmi(3).................................. 50,000 93.500
Director
All current executive officers as a group.............. 1,355,500 51.1353
All current independent directors as a group........... 120,000 80.9089
All employees, including current officers who are not
executive officers, as a group....................... 1,907,617 19.7203
</TABLE>
---------------
(1) Dr. Bryan J. Zwan resigned on August 22, 2000. Mr. Robert F. Hussey was
appointed as his replacement by the Board on August 23, 2000.
(2) Mr. Hussey was appointed by the Board on August 23, 2000 to fill the vacancy
created by Dr. Bryan Zwan's resignation.
(3) Mr. Guglielmi was appointed by the Board on August 28, 2000.
As of September 1, 2000, 3,314,338 shares of common stock were subject to
outstanding options under the Amended Plan, and 2,453,097 shares remained
available for future issuance, assuming stockholder approval of the
3,000,000-share increase which forms part of this Proposal.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock and preferred stock, voting together as a single
class, is required to approve the implementation of the Amended Plan. Should
such stockholder approval not be obtained, then the 3,000,000 share increase
will not be implemented, the options granted on the basis of the 3,000,000 share
increase will terminate and cease to be outstanding, and the 1996 Stock Option
Plan will not be amended and restated. The 1996 Stock Option Plan will continue
to remain in effect and option grants may continue to be made pursuant to the
provisions of the 1996 Plan in effect prior to the amendments summarized in this
Proposal No. Two.
22
<PAGE> 27
NEW PLAN BENEFITS
As of September 1, 2000, options to purchase an aggregate of 650,000 shares
of the Company's Common Stock have been granted on the basis of the 3,000,000
share increase which forms part of this Proposal No. Two, and such options have
been granted under the terms of the Amended Plan, including (i) the limit on the
number of shares which may be granted to a single individual in a fiscal year,
(ii) the transferability provisions and (iii) the revised change in control
provisions.
The table below shows, as to the Company's Chief Executive Officer ("CEO"),
the four other most highly compensated executive officers (with base salary and
bonus for the 1999 fiscal year in excess of $100,000) and the other individuals
and groups indicated, the number of shares of common stock subject to option
grants made under the 1996 Amended Plan pursuant to the 3,000,000 share increase
that is the subject of this Proposal No. Two together with the weighted average
exercise price payable per share.
23
<PAGE> 28
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES UNDERLYING EXERCISE PRICE
NAME AND POSITION OPTIONS GRANTED (#) PER SHARE ($)
----------------- --------------------------- ----------------
<S> <C> <C>
Gerry Chastelet........................................ 250,000 $93.375
Chairman of the Board, President and Chief Executive
Officer
Steven H. Grant........................................ 100,000 93.375
Executive Vice President, Finance, Chief Financial
Officer and Secretary
George Matz............................................ 100,000 93.375
Executive Vice President, Global Sales
Ali Haider............................................. 100,000 93.375
Executive Vice President, Research and Development
James Green............................................ 100,000 93.375
Vice President, Production
Dr. Bryan J. Zwan...................................... -- --
Director(1)
Dr. William F. Hamilton................................ -- --
Director
William Seifert........................................ -- --
Director
Robert F. Hussey....................................... -- --
Director(2)
Peter A. Guglielmi..................................... -- --
Director(3)
All current executive officers as a group.............. 650,000 93.375
All current independent directors as a group........... -- --
All employees, including current officers who are not
executive officers, as a group....................... -- --
</TABLE>
---------------
(1) Dr. Bryan J. Zwan resigned on August 22, 2000. Mr. Robert F. Hussey was
appointed as his replacement by the Board on August 23, 2000.
(2) Mr. Hussey was appointed by the Board on August 23, 2000 to fill the vacancy
created by Dr. Bryan Zwan's resignation.
(3) Mr. Guglielmi was appointed by the Board on August 28, 2000.
Because the grant of options under the Amended Plan is within the
discretion of the Plan Administrator, it is impossible to state which eligible
individuals will receive future grants and in what amount. However, it is
anticipated that grants will continue to be made to independent directors in
accordance with the plan Administrator's current practice, which is described
under Compensation of Directors, above.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends a vote IN FAVOR of the approval of the
Amended Plan.
24
<PAGE> 29
PROPOSAL THREE
RATIFICATION AND SELECTION OF INDEPENDENT AUDITOR
(ITEM 3 ON THE PROXY CARD)
The firm of PricewaterhouseCoopers LLP served as independent auditor for
the Company for the fiscal year ended December 31, 1999. The Board of Directors
has selected the firm to continue in this capacity for the current fiscal year.
Accordingly, the Company is asking the stockholders to ratify the selection of
PricewaterhouseCoopers LLP as independent auditor. In the event that
stockholders fail to ratify the section of the independent auditor for the
fiscal year ending December 31, 2000, the Audit Committee of the Board of
Directors will consider it as a direction to select other auditors for the
subsequent year. Even if the selection is ratified, the Board in its discretion
may direct the appointment of a different independent accounting firm at any
time during the year if the Board feels that such a change would be in the best
interests of the Company and its stockholders.
The Company anticipates that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting. Such representative will be given the
opportunity to make a statement if he or she desires to do so, and is expected
to be available to respond to questions at the meeting. THE BOARD RECOMMENDS A
VOTE "FOR" SUCH RATIFICATION.
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 (15550 Lightwave
Drive, Clearwater, Florida 33760) no later than May 18, 2001, 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 99 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 this report, 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., 15550 Lightwave Drive, Clearwater, Florida 33760.
By Order of the Board of Directors,
/s/ Steven H. Grant
-----------------------------------
Steven H. Grant
Secretary
Clearwater, Florida
25
<PAGE> 30
APPENDIX A
DIGITAL LIGHTWAVE, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This Amended and Restated 1996 Stock Option Plan is intended to promote the
interests of Digital Lightwave, Inc., a Delaware corporation, by providing
eligible persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Plan with respect to Section 16 Insiders. Administration of the
Plan with respect to all other persons eligible to participate in the Plan may,
at the Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer the Plan with respect
to all such persons. However, any discretionary option grants for members of the
Primary Committee must be authorized by a disinterested majority of the Board.
In no event shall the Secondary Committee be authorized to grant to any
individual options to purchase more than 50,000 shares of Common Stock in the
aggregate per fiscal year.
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the provisions of the
Plan and any outstanding options hereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Plan under its jurisdiction or any stock
option thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) independent members of the Board or the board of directors of any
Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
<PAGE> 31
B. Each Plan Administrator shall, consistent with the provisions of the
Plan and within the scope of its administrative jurisdiction under the Plan,
have full authority to determine which eligible persons are to receive option
grants, the time or times when those grants are to be made, the number of shares
to be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
is to become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock reserved
for issuance over the term of the Plan shall not exceed 8,000,000 shares. Such
reserve shall consist of (i) the 5,000,000 shares initially reserved for
issuance over the term of the plan (ii) plus an additional increase of 3,000,000
shares to be approved by the Corporation's stockholders at the 2000 Annual
Meeting.
B. In no event may any individual receive an option grant after the
Corporation's 2000 Annual Meeting that would result in such individual being
granted options for more than 400,000 shares of Common Stock in the aggregate
per fiscal year, except with respect to individuals first hired by the
Corporation in that fiscal year, who may receive an additional option grant in
the fiscal year of their hire of up to 400,000 shares. These limitations shall
not operate to adversely affect options granted prior to stockholder approval of
the Plan.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares for
which the option is exercised, and not by the net number of shares of Common
Stock issued to the holder of such option.
D. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made by
the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one person may be granted stock options under the Plan per fiscal year
or as an initial grant, and (iii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan.
Such adjustments to the outstanding options are to be effected in a manner that
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
2
<PAGE> 32
ARTICLE TWO
TERMS OF OPTIONS
I. GENERAL OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the option grant date in the case of Incentive
Options or not less than one hundred percent (100%) of such Fair Market Value in
the case of Non-Statutory Options.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Three and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b)'the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation
of Service for any reason shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator and set
forth in the documents evidencing the option, but no such option shall
be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
3
<PAGE> 33
(iii) Should the Optionee's Service be terminated for Misconduct or
should the Optionee otherwise engage in Misconduct while holding one or
more outstanding options under this Article Two, then all those options
shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options that are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that the Plan Administrator may allow Non-Statutory
Options to be transferred or assigned during the Optionee's lifetime, subject to
such limitations as the Plan Administrator may establish from time to time,
pursuant to a domestic relations order or to one or more of Optionee's family
members or an entity owned, benefiting or controlled by the Optionee or one or
more of Optionee's family members. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the
Optionee may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding options under this Article Two, and
those options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee's death while
holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Optionee's death.
4
<PAGE> 34
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Three shall be applicable to Incentive Options. Options
that are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding option
under the Plan shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The foregoing notwithstanding, an outstanding option
shall NOT become exercisable on such an accelerated basis if and to the extent:
(i) such option is, in connection with the Corporate Transaction, to be assumed
by the successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on any
shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant.
B. All outstanding repurchase rights under the Plan shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Upon the effective date of the Corporate Transaction, all outstanding
options under the Plan shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options under the Plan
per calendar year. To the extent the actual holders of the Corporation's
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Corporate Transaction, the
5
<PAGE> 35
successor corporation may, in connection with the assumption of the outstanding
options under the Plan, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Plan so that those options
shall, immediately prior to the effective date of such Corporate Transaction,
become exercisable for all the shares of Common Stock at the time subject to
those options and may be exercised for any or all of those shares as fully
vested shares of Common Stock, whether or not those options are to be assumed in
the Corporate Transaction. In addition, the Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation's repurchase
rights under the Plan so that those rights shall not be assignable in connection
with such Corporate Transaction and shall accordingly terminate upon the
consummation of such Corporate Transaction, and the shares subject to those
terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Plan so that those options shall
become exercisable for all the shares of Common Stock at the time subject to
those options in the event the Optionee's Service is subsequently terminated by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Corporate Transaction
in which those options are assumed and do not otherwise accelerate. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is
not exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Nonstatutory Option under the
Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options covering the same or a different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new grant date.
6
<PAGE> 36
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option exercise
price by delivering a full-recourse, interest-bearing promissory note payable in
one or more installments. The Plan Administrator shall establish the terms of
any such promissory note (including the interest rate and the terms of
repayment) in its sole discretion. In no event may the maximum credit available
to the Optionee exceed the lesser of (a) the sum of (i) the aggregate option
exercise price payable for the purchased shares (less the par value of such
shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee in connection with the option exercise or (b)
one hundred thousand dollars ($100,000).
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or vesting of such shares under the Plan shall be subject to
the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares of
Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of such shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the time
the Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other than in connection with
the option exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective Date.
Options may be granted under the Discretionary Option Grant at any time on or
after the Plan Effective Date, however, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The 1996 Stock Option Plan became effective on March 5, 1995. The Board
subsequently amended the 1996 Stock Option Plan, as reflected in this document,
for submission to the shareholders at the Company's 2000 Annual Meeting. If
shareholder approval is not obtained at such meeting, the 1996 Stock Option Plan
shall continue in accordance with its terms as in existence before such
amendments.
C. Each outstanding option at the Effective Time shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of each such outstanding option with respect to
their acquisition of shares of Common Stock. However, one or more provisions of
the Plan, including (without limitation) the option/vesting acceleration
provisions of Article Two relating to Corporate Transactions may, in the Plan
7
<PAGE> 37
Administrator's discretion, be extended to one or more options outstanding prior
to the amendment and restatement which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) March 4,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Should the Plan
terminate on March 4, 2006, then all option grants outstanding at that time
shall continue to have force and effect in accordance with the provisions of the
documents evidencing such grants.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested shares of Common Stock at the time outstanding under
the Plan unless the Optionee consents to such amendment or modification. In
addition, certain amendments may require stockholder approval pursuant to
applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Plan that are in each instance in excess of the number of shares then available
for issuance under the Plan, provided any excess shares actually issued under
the Plan shall be held in escrow until there is obtained stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees the exercise price paid for
any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock upon the exercise of any
granted option shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it and the shares of Common Stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
8
<PAGE> 38
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMON STOCK shall mean the Corporation's common stock.
D. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
E. CORPORATION shall mean Digital Lightwave, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Digital Lightwave, Inc. which shall by appropriate action adopt the
Plan.
F. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
G. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
H. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market and published in The Wall Street Journal. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange and published in The Wall Street Journal. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
I. INCENTIVE OPTION shall mean an option that satisfies the requirements
of Code Section 422.
J. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more
A-1
<PAGE> 39
than fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
K. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not in any way
preclude or restrict the right of the Corporation (or any Parent or Subsidiary)
to discharge or dismiss any Optionee or other person in the Service of the
Corporation (or any Parent or Subsidiary) for any other acts or omissions, but
such other acts or omissions shall not be deemed, for purposes of the Plan, to
constitute grounds for termination for Misconduct.
L. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
M. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
N. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
O. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
P. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
Q. PLAN shall mean the Corporation's Amended and Restated 1996 Stock
Option Plan, as set forth in this document.
R. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Plan with respect to one or more classes of eligible persons, to
the extent such entity is carrying out its administrative functions under the
Plan with respect to the persons under its jurisdiction.
S. PLAN EFFECTIVE DATE shall mean the date the Plan was approved by the
Board.
T. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan with
respect to Section 16 Insiders.
U. SECONDARY COMMITTEE shall mean a committee of one or more Board members
appointed by the Board to administer the Plan with respect to eligible persons
other than Section 16 Insiders.
V. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
W. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
X. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
Y. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-2
<PAGE> 40
Z. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
AA. WITHHOLDING TAXES shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-3
<PAGE> 41
DIGITAL LIGHTWAVE
15550 LIGHTWAVE DRIVE,
CLEARWATER, FLORIDA 33760
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Gerry Chastelet 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,
September 29, 2000, at 10:30 a.m., local time, and at any adjournments thereof,
and to vote as designated.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below. [ ] WITHHOLD AUTHORITY
(except as otherwise indicated) as to all nominees listed below.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
NOMINEES: 1. Gerry Chastelet 2. Peter A. Guglielmi 3. Dr. William F. Hamilton 4. Robert F. Hussey
</TABLE>
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S
NAME IN THE SPACE PROVIDED:
------------------------
2. RATIFY AND APPROVE THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
3. RATIFY AND APPROVE THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITOR
[ ] 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 AMENDED AND
RESTATED STOCK OPTION PLAN, "FOR" THE RATIFICATION OF SELECTION OF THE
INDEPENDENT AUDITOR, AND AS THE PROXY HOLDER MAY DETERMINE IN HIS DISCRETION
WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE MEETING.
Date: , 2000
--------------------
--------------------------------
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.
