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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
LARSCOM INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
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LARSCOM INCORPORATED
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2000
TO THE STOCKHOLDERS OF LARSCOM INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LARSCOM
INCORPORATED, a Delaware corporation (the "Company"), will be held at
10:00 a.m., local time, on Wednesday, May 24, 2000, at The Sheraton San Jose,
Almaden Room, 1801 Barber Lane, Milpitas, California 95035, for the following
purposes:
1. To elect six (6) directors of the Company to serve until the 2001 annual
meeting or until their respective successors are duly elected and
qualified.
2. To amend the Stock Incentive Plan to increase the number of shares of
Class A Common Stock reserved for issuance thereunder from 3,985,000 to
6,785,000 shares.
3. To amend the Employee Stock Purchase Plan to increase the number of
shares of Class A Common Stock reserved for issuance thereunder from
685,000 to 785,000 shares.
4. To amend the Stock Options Plan for Non-Employee Directors to increase
the number of shares of Class A Common Stock reserved for issuance
thereunder from 205,000 to 305,000 shares.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on April 7, 2000 are entitled to notice of and to vote at the Annual
Meeting. A complete list of stockholders entitled to vote will be available from
the Secretary of the Company for 10 days before the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. Should you receive more
than one proxy because your shares are registered in different names or
addresses, each proxy should be returned to ensure that all your shares are
voted. You may revoke your proxy in the manner described in the accompanying
proxy statement at any time before it has been voted at the Annual Meeting. Any
stockholder attending the Annual Meeting may vote in person even if he or she
has returned a proxy.
By Order of the Board of Directors,
/s/ DONALD W. MORGAN
Donald W. Morgan
SECRETARY
Milpitas, California
April 24, 2000
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE POSTAGE PREPAID
ENVELOPE.
<PAGE>
LARSCOM INCORPORATED
1845 MCCANDLESS DRIVE
MILPITAS, CA 95035
408-941-4000
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
LARSCOM INCORPORATED, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held at 10:00 a.m. on Wednesday, May 24,
2000, local time, or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at The Sheraton San Jose, Almaden
Room, 1801 Barber Lane, Milpitas, California 95035. The telephone number at that
location is (408) 943-0600. When proxies are properly dated, executed and
returned, the shares they represent will be voted at the meeting in accordance
with the instructions of the stockholder. If no specific instructions are given,
the shares will be voted for each of the proposals set forth herein and at the
discretion of the proxy holders upon such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended December 31, 1999, including financial
statements, were first mailed on or about April 24, 2000 to all stockholders
entitled to vote at the meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on April 7, 2000, (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 8,545,000, shares of the Company's Class A Common Stock, $.01
par value, were issued and outstanding and 10,000,000 shares of the Company's
Class B Common Stock, $.01 par value, were issued and outstanding. No shares of
the Company's preferred stock were outstanding.
Any stockholder or stockholder representative who, because of a disability,
may need special assistance or accommodation to allow him or her to participate
at the Annual Meeting may request reasonable assistance or accommodation from
the Company by contacting Larscom Inc. Investor Relations Department. To provide
the Company sufficient time to arrange for reasonable assistance, please submit
such requests by May 10, 2000.
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY CARD, AND RETURN IT AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED, POSTAGE-PREPAID, RETURN ENVELOPE SO THAT,
IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy
<PAGE>
should be delivered to Larscom Incorporated at 1845 McCandless Drive, Milpitas,
California 95035, Attention: Secretary, or hand-delivered to the Secretary of
the Company at or before the taking of the vote at the Annual Meeting.
VOTING AND SOLICITATION
Except with respect to certain matters as to which Delaware law requires
each class to vote as a separate class, the holders of Class A Common Stock and
Class B Common Stock vote as a single class on all matters, with each share of
Class A Common Stock entitled to one vote per share and each share of Class B
Common Stock entitled to four votes per share. Stockholders do not have the
right to cumulative voting at the meeting.
The cost of soliciting proxies will be borne by the Company. Arrangements
have been made with custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries. The Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. The Company has retained The Bank of New York, its
transfer agent, at an estimated cost of $1,500, to assist in the Company's
solicitation of proxies from brokers, nominees, institutions and individuals. In
addition, proxies may be solicited by directors, officers and employees of the
Company in person or by telephone, telegram or other means of communication. No
additional compensation will be paid for such services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the votes eligible to be cast by holders of shares of Class A and
Class B Common Stock issued and outstanding on the Record Date. Shares that are
voted "FOR", "AGAINST", "WITHHELD" or "ABSTAIN" on a matter 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 Annual Meeting (the "Votes Cast") with
respect to such matter.
Although there is no definitive statutory or case law authority in Delaware
as to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
The Delaware Supreme Court has held that, while broker non-votes should be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, broker non-votes should not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal on
which the broker has expressly not voted. The Company intends to treat broker
non-votes in a manner consistent with such holding. Thus, a broker non-vote will
not affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR ANNUAL MEETING FOR THE YEAR
ENDED DECEMBER 31, 2001
The Company currently intends to hold its 2001 Annual Meeting of
Stockholders in May 2001 and to mail Proxy Statements relating to such meeting
in April 2001. Stockholder proposals intended to be presented at the 2001 Annual
Meeting must be received by the Company for inclusion in the Proxy Statement and
form of proxy for that meeting no later than December 20, 2000. Such stockholder
proposals should be submitted to Larscom Incorporated at 1845 McCandless Drive,
Milpitas, California 95035, Attention: Secretary.
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<PAGE>
The Company's Annual Report to Stockholders for the year ended December 31,
1999 (the "Annual Report") and Annual Report on Form 10-K for the year ended
December 31, 1999 (the "Form 10-K") have been mailed concurrently with the
mailing of the Notice of Annual Meeting and Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. Neither the Annual
Report nor the Form 10-K is incorporated into this Proxy Statement and neither
is considered proxy-soliciting material.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The number of directors authorized by the Company's Board is currently fixed
at six and six directors are to be elected at the Annual Meeting of
Stockholders.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the six (6) nominees named below. In the event that any
such nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for a nominee who shall be designated
by the present Board of Directors to fill the vacancy. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office of each person elected as a
director will continue until the next Annual Meeting or until such director's
successor has been duly elected and qualified.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION
- ---------------- -------- --------------------
<S> <C> <C>
Robert Coackley................ 64 President, Chief Executive Officer
Donald G. Heitt................ 64 Retired Chairman of the Board of Voysys Corporation
Lawrence D. Milligan........... 63 President and Chief Executive Officer of Axel Johnson, Inc.
Harvey L. Poppel............... 62 Retired Managing Director of Broadview International, LLC
Richard E. Pospisil............ 68 Private Investor
Joseph F. Smorada.............. 53 Senior Vice President and Chief Financial Officer of Axel
Johnson Inc.
</TABLE>
Except as set forth below, each nominee has engaged in his or her principal
occupation described above during the past five years. There is no family
relationship among any directors or executive officers of the Company.
ROBERT COACKLEY has served as President, Chief Executive Officer and a
member of the Board of Directors since May 1999. Prior to joining the Company,
he was President of Inrange Technologies Corporation (formerly General Signal
Networks) from 1991 until 1999. Mr. Coackley has also held a number of executive
positions with LP COM, Hewlett-Packard, British Telecom and Telspec Ltd.
Mr. Coackley is a Fellow of the Institute of Electrical Engineers (U.K.) and is
also a Governor of the Electronic Industries Alliance and a board member of the
Telecommunications Industry Association. Mr. Coackley holds a B.Sc. Honors
Degree in Electrical Engineering from City University, London, England.
DONALD G. HEITT has served as a director of the Company since
November 1996. He served as Chairman of the Board of Voysys Corporation from
December 1995 until his retirement in May 1998. From April 1990 to
January 1996, Mr. Heitt was the President and Chief Executive Officer of Voysys
Corporation. Prior to 1990, Mr. Heitt served as Senior Vice President of Telebit
Corporation, Vice President of Sales and Marketing and President of the computer
division of General Automation, Inc., and Vice President of Honeywell
Information Systems, Inc. Mr. Heitt earned a BBA from the University of Iowa.
LAWRENCE D. MILLIGAN has served as a director of the Company since
November 1998 and as Chairman of the Board since June 1999. Mr. Milligan is
President, Chief Executive Officer and a
5
<PAGE>
director of Axel Johnson Inc. Prior to that, Mr. Milligan held a number of
senior management positions over the course of 38 years with Procter & Gamble
Co. Before retiring from Procter & Gamble Co. in 1998, he was the Senior Vice
President responsible for worldwide sales and customer development, a position
he held for eight years. Mr. Milligan is a member of the Board of Directors of
Portman Equipment Company. He graduated from Williams College and served in the
United States Marine Corps.
HARVEY L. POPPEL has served as a director of the Company since
November 1996. He served as Managing Director at Broadview International from
January 1985 until his retirement in December 1996 and as President of
Poptech, Inc. since 1984. Previously, he was Senior Vice President, Board Member
and Managing Officer of the Information Industry Practice at Booz, Allen &
Hamilton and managed communications software development at both Western Union
and Westinghouse Electric. He also is a director of Cotelligent, Inc., a
professional services firm. Mr. Poppel holds a BS and an MS from Rensselear
Polytechnic Institute.
RICHARD E. POSPISIL has served as a director of the Company since
January 2000. Mr. Pospisil is currently a private investor and has been the
president of RP Associates Services since 1994. Mr. Pospisil was President and
CEO at T3Plus Networking (OnStream Networks) from 1990 until 1994. He was
President, CEO and Director of ADA Incorporated during 1990. Previous to that,
he founded LP COM and Telecommunications Technology, Incorporated. Mr. Pospisil
holds a BS in Electrical Engineering from Iowa State University.
JOSEPH F. SMORADA has served as a director of the Company since June 1992.
Mr. Smorada has served as Senior Vice President and Chief Financial Officer of
Axel Johnson Inc. since April 1992. Prior to joining Axel Johnson Inc.,
Mr. Smorada was Senior Vice President and Chief Financial Officer for Lone Star
Industries, Inc. from September 1988 to April 1992. Prior to 1988, Mr. Smorada
held senior executive positions with Conrac Corporation and Continental
Group, Inc. Mr. Smorada earned a BA in Economics from California University of
Pennsylvania.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven meetings during the year
ended December 31, 1999, of which five were meetings in person and two were held
by telephone conference call. The Board of Directors does not have a nominating
committee or any committee performing similar functions. All members of the
Board of Directors attended more than 75% of the meetings, except for two former
Directors, Paul Graf and Donald Green, both of whom served on the Board of
Directors prior to May 2000 but do not stand for re-election at the May 2000
Annual Meeting of Stockholders.
The Audit Committee, which currently consists of Messrs. Poppel, Pospisil
and Smorada, held eight meetings during 1999, of which three were meetings in
person and five were held by telephone conference call. The Audit Committee is
primarily responsible for approving the services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal controls. All members of the
Audit Committee attended more than 75% of its meetings, except for
Mr. Pospisil, who was newly elected since January 2000.
The Compensation Committee, which currently consists of Messrs. Heitt,
Milligan and Poppel, held five meetings during 1999, of which four were meetings
in person and one was held by telephone conference call. The Compensation
Committee reviews and approves the Company's executive compensation policies and
approves all stock option grants. All members of the Compensation Committee
attended more than 75% of the meetings.
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DIRECTOR COMPENSATION
Directors who were not employees of the Company or Axel Johnson Inc. ("Axel
Johnson") or a director of Axel Johnson (the "Compensated Directors") received
compensation for their services as directors at the rate of $1,500 per quarter
and $1,500 per Board of Directors meeting attended plus $500 for each telephonic
Board of Directors meeting held in a quarter after the first such meeting, for
which no compensation is paid. Generally, Compensation Committee and Audit
Committee meetings are held quarterly at the time of the Board of Directors
meetings. Committee chairpersons who are Compensated Directors receive
compensation for their services of $1,500 per year, and Committee members who
are Compensated Directors receive compensation of $1,000 per year. Directors are
not compensated for attending committee meetings.
Compensated Directors participate in the Company's Stock Option Plan for
Non-Employee Directors (the "Directors' Plan"). Under the Directors' Plan, upon
joining the Board, Compensated Directors are automatically granted an initial
option to purchase 18,000 shares of the Company's Class A Common Stock, with an
exercise price equal to the fair market value of the Company's Class A Common
Stock on the date of grant. Pursuant to the terms of the Directors' Plan,
Compensated Directors receive thereafter annual options to purchase 6,000 shares
of the Company's Class A Common Stock, with an exercise price equal to the then
fair market value of the Company's Class A Common Stock on the date of grant. A
grant of options to purchase 6,000 shares each of Class A Common Stock was made
to Messrs. Poppel, Heitt and former Director Green at an exercise price equal to
the then fair market value of the Class A Common Stock on the date of the 1999
Annual Meeting of Stockholders.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The six candidates receiving the highest number of "FOR" votes shall be
elected to the Company's Board of Directors. An abstention will have the same
effect as a vote withheld for the election of directors, and, pursuant to
Delaware law, a broker non-vote will not be treated as voting in person or by
proxy on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE NOMINEES
SET FORTH ABOVE.
7
<PAGE>
PROPOSAL TWO
AMENDMENT TO THE STOCK INCENTIVE PLAN
On October 11, 1996, the Board of Directors (the "Board") adopted the
Company's Stock Incentive Plan (the "Plan") and reserved 2,485,000 shares of
Class A Common Stock for issuance thereunder. In 1998, the Plan was amended and
the reserve was increased to 3,985,000 shares. At the Annual Meeting, the
stockholders are being requested to consider and approve the proposed amendment
to the Plan to increase the number of shares of Class A Common Stock reserved
for issuance thereunder by 2,800,000 shares, bringing the total number of shares
under the Plan to 6,785,000.
The Board believes that the attraction and retention of high quality
personnel are essential to the Company's continued growth and success and that
the increase in the shares available under the Plan is necessary for the Company
to remain competitive in its compensation practices. In the absence of
stockholder approval of this increase in the available shares, the Board
believes there would be insufficient shares available for future option grants
under the Plan, except to the extent that shares become available upon
termination or cancellation of outstanding options.
Although the Company is permitted to grant stock appreciation rights and
other stock awards under the Plan, to date, only incentive and non-statutory
stock options have been granted.
SUMMARY OF THE PLAN
The following summary of the Plan is subject to the specific provisions of
the Plan, which is available to any stockholder upon request.
PURPOSE
The purpose of this Plan is to enable the Company to provide competitive
incentives that will attract, retain, motivate and reward employees and to
enable the Company to give employees an interest parallel to the general
interests of the Company's stockholders.
ADMINISTRATION
The Plan may generally be administered by the Board or by a Committee of the
Board of Directors (collectively, the "Administrator"). The interpretation and
construction of any provision of the Plan by the Board or its Committee shall be
final and binding.
ELIGIBILITY
The Administrator may grant non-qualified stock options, stock appreciation
rights and stock bonus awards to eligible employees and consultants. Incentive
stock options may only be granted to employees.
LIMITATIONS
Section 162(m) of the Tax Code places limits on the deductibility for
federal income tax purposes of compensation paid to certain executive officers
of the Company. In order to preserve the Company's ability to deduct the
compensation income associated with options and stock appreciation rights
granted to such persons, the Plan provides that no employee or consultant may be
granted, in any fiscal year, options and stock appreciation rights to purchase
more than 500,000 shares of Common Stock.
8
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TERMS AND CONDITIONS OF OPTIONS
Each option is evidenced by a written stock option agreement between the
Company and the optionee.
Options shall be subject to the following additional terms and conditions:
(a) The Administrator determines the purchase price of options at the time
options are granted. The purchase price of an option shall be not less than 100%
of the fair market value of the Common Stock on the date such option is granted;
provided, however, the purchase price of an incentive stock option granted to a
10% stockholder shall not be less than 110% of the fair market value of the
Common Stock on the date such option is granted.
(b) The purchase price of shares subject to an option generally may be paid
in whole or in part by (i) cash, (ii) bank-certified, cashier's or personal
check, (iii) "cashless" exercise, or (iv) other shares of Common Stock or
property of the Company. Property for purposes of the Plan shall include an
obligation of the Company unless prohibited by applicable law.
(c) Each option may be exercisable in full at the time of grant or may
become exercisable in one or more installments, at such time or times and
subject to satisfaction of such terms and conditions as the Administrator may
determine. The Administrator may at any time accelerate the date on which any
outstanding option becomes exercisable.
(d) Each option shall be exercisable during the lifetime of the optionee by
the optionee's guardian or legal representative, and after death only by the
optionee's beneficiary or estate or a person who acquired the right to exercise
the option by will or the laws of descent and distribution. Each option shall
expire at such time or times as the Administrator may determine; provided,
however, that no option shall be exercisable more than ten (10) years from the
date of grant and no incentive stock option granted to any 10% stockholder shall
be exercisable more than five (5) years from the date of grant.
(e) The stock option agreement may contain other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the
Administrator.
TERMS AND CONDITIONS OF STOCK BONUS AWARDS
A stock bonus award may, but need not be, granted as a performance unit
award or a restricted stock award. An award may be settled in either cash or
stock and may be paid at the time of grant or at a subsequent time as determined
by the Administrator. Awards will be subject to such terms and conditions,
including restrictions on transfer, as determined by the Administrator.
TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
The Administrator generally may grant to selected optionees stock
appreciation rights that are granted in connection with an option ("linked stock
appreciation rights") and/or stock appreciation rights that are granted separate
from an option ("free-standing stock appreciation rights"). A linked stock
appreciation right generally entitles the optionee to exercise the stock
appreciation right by surrendering to the Company, unexercised, the
corresponding portion of the related option. In exchange for surrender of the
option or surrender of a portion of the option ("the Surrender Value"), the
optionee receives from the Company an amount equal to the excess of fair market
value on the surrender date over the Surrender Value in cash, stock or a
combination of both. When a linked stock appreciation right is exercised, the
related option, to the extent surrendered, ceases to be exercisable. A linked
stock appreciation right remains exercisable until, and expires concurrent with
the date on which, the related option ceases to be exercisable or expires.
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The Administrator shall determine when stock appreciation rights become
exercisable, and may, at any time, accelerate the exercisability of such rights;
provided, however, that no free-standing stock appreciation right shall be
exercisable more than ten (10) years from the date of grant. The base price of a
stock appreciation right shall generally be the fair market value of the Common
Stock on the date such right was granted or, with certain linked stock
appreciation rights, shall be the price of the related option. The Company's
obligation arising from the exercise of a stock appreciation right may be paid
in Common Stock or in cash, or any combination thereof, as the Administrator may
determine.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event that the stock of the Company changes by reason of any
recapitalization, reclassification, split-up or consolidation, appropriate
adjustments shall be made in the number and class of shares of stock subject to
the Plan, the number and class of shares of stock subject to any option, right
or award outstanding under the Plan, and the exercise price of any such
outstanding option, right or award.
In connection with any change of control involving the Company, the optionee
will generally vest in full and have the right to exercise each outstanding
option, right or award as to all the optioned stock, including shares not
otherwise vested or exercisable. Optionees employed less than six months will
have their options become fully vested and exercisable if they agree to remain
employed until the date six months after the option grant.
AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or terminate the Plan, or any part
thereof, at any time and for any reason. However, the Company shall obtain
stockholder approval for any amendment to the Plan to the extent necessary to
comply with applicable law. No such action by the Board or stockholders may
alter or impair any option, right or award previously granted under the Plan
without the written consent of the optionee.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after the exercise of the option, any gain or loss is
treated as a long-term capital gain or loss. Net capital gains on shares held
for more than 12 months may be taxed at a maximum federal rate of 20%. Capital
losses are allowed in full against capital gains and up to $3,000 against other
income. If these holding periods are not satisfied, the optionee recognizes
ordinary income at the time of a disposition equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise or (ii) the sale price of the shares. Any gain
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term or short-term
capital gain, depending on the holding period. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director, or 10% stockholder of the Company. Unless limited by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee.
NON-STATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a non-statutory option. However, upon
exercise, the optionee recognizes taxable income generally measured as the
excess of the then fair market value of the shares purchased over the
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exercise price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company.
Upon disposition of such shares by the optionee, any difference between the
sales price and the optionee's exercise price, to the extent not recognized as
taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period. Net capital gains on
shares held for more than 12 months may be taxed at a maximum federal rate of
20%. Capital losses are allowed in full against capital gains and up to $3,000
against other income.
Unless limited by Section 162(m) of the Code, the Company will be entitled
to a tax deduction in the same amount as the ordinary income recognized by the
optionee with respect to shares acquired upon exercise of a non-statutory
option.
STOCK APPRECIATION RIGHTS. Income will not be recognized by a recipient in
connection with the grant of a stock appreciation right. When the stock
appreciation right is exercised, the recipient generally will be required to
include as taxable ordinary income in the year of exercise an amount equal to
the sum of the amount of cash received and the fair market value of any Common
Stock received on the exercise. In the case of a recipient who is also an
employee, any income recognized on the exercise of a stock appreciation right
will constitute wages for which withholding will be required. The Company will
be entitled to a tax deduction in the same amount. If the optionee receives
Common Stock upon the exercise of a stock appreciation right, any gain or loss
on the subsequent sale of such stock will be treated in the same manner as
discussed above under "Non-statutory Stock Options".
OTHER STOCK AWARDS. Generally, income will not be recognized by a recipient
in connection with the grant of a stock award of unvested stock, unless an
election under Section 83(b) of the Tax Code is filed with the Internal Revenue
Service within 30 days of the date of grant in the case of an award of stock.
Otherwise, at the time the stock award vests, the recipient generally will
recognize compensation income in an amount equal to the difference between the
fair market value of the stock at the time of vesting and the amount paid for
the stock, if any. Generally, the recipient will be subject to tax consequences
similar to those discussed under "Non-statutory Stock Options". In the case of a
recipient who is also an employee, any amount treated as compensation will be
subject to tax withholding by the Company. The Company will be entitled to a tax
deduction in the amount and at the time the recipient recognizes ordinary income
with respect to a stock award.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Option Plan and does not purport to be complete. Reference
should be made to the applicable provisions of the Tax Code. In addition, this
summary does not discuss the tax consequences of the optionee's death or the
income tax laws of any municipality, state or foreign country in which an
optionee may reside.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
At the Annual Meeting, the stockholders are being asked to approve an
amendment to increase the number of shares available under the Plan. The
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock voting at the meeting is required to approve the amendment to the
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO
THE COMPANY'S STOCK INCENTIVE PLAN.
11
<PAGE>
PROPOSAL THREE
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board on October 11, 1996 and approved by the stockholders on
November 15, 1996. A total of 310,000 shares of Common Stock were reserved for
issuance under the Purchase Plan. In 1998, the Plan was amended and the reserve
increased to 685,000 shares. At the Annual Meeting, the stockholders are being
requested to consider and approve the proposed amendment to the Purchase Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 100,000 shares, bringing the total number of shares under the Purchase Plan
to 785,000.
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that the Purchase Plan is necessary for the Company to remain competitive in
its compensation practices. In the absence of an increase in the available
shares, the Board believes there would be insufficient shares available for
purchase under the Purchase Plan, except to the extent that shares are not
purchased during the current offering period due to the withdrawal of a plan
participant.
SUMMARY OF THE PURCHASE PLAN
The following summary of the Purchase Plan is subject to the specific
provisions of the Purchase Plan, which is available to any stockholder upon
request.
PURPOSE
The purpose of this Purchase Plan is to provide employees with an
opportunity to purchase Common Stock of the Company through payroll deductions
in a manner that qualifies under Section 423 of the Internal Revenue Code (the
"Code").
ADMINISTRATION
The Purchase Plan provides for administration by the Board or by a Committee
of the Board (collectively, the "Administrator"). The interpretation and
construction of any provision of the Purchase Plan by the Administrator shall be
final and binding.
ELIGIBILITY
Generally, any regular full-time employee of the Company (who works at least
twenty (20) hours per week and five (5) months per year) will be eligible to
participate in the Purchase Plan; provided, however, that no employee may be
granted an option under the Purchase Plan if (i) such employee, immediately
after the option is granted, owns stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or
(ii) if such employee's rights to purchase stock under all employee stock
purchase plans of the Company accrues at a rate which exceeds twenty-five
thousand dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year.
PARTICIPATION IN AN OFFERING
The Company may make offering periods of up to 27 months duration available
to eligible employees to purchase shares of Common Stock under the Purchase Plan
(an "Offering") until all shares authorized to be delivered under the Purchase
Plan have been exhausted or until the Purchase Plan is sooner terminated by the
Board. The number, commencement date and duration of any offering periods shall
be determined by the Administrator in its sole discretion; provided, however,
that, unless the Administrator determines otherwise, a new Offering shall
commence on each August 1 and
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<PAGE>
February 1 and shall terminate on (and include) the day immediately preceding
the day on which the next Offering commences. An eligible employee may elect to
participate in an Offering at such time(s) as the Administrator may permit by
authorizing a payroll deduction of up to a maximum of ten percent (10%) of
compensation. The Administrator may, at any time, suspend or accelerate the
completion of an Offering if required by law or deemed by the Administrator to
be in the best interests of the Company, including in the event of a change in
ownership or control of the Company or any subsidiary as defined in
section 424(f) of the Code, including a corporation which becomes such a
subsidiary in the future ("Subsidiary"). Once an employee becomes a participant
in the Purchase Plan, Common Stock will automatically be purchased under the
Purchase Plan at the end of each offering period, unless the participant
withdraws or terminates employment earlier and, the employee will automatically
participate in each successive offering period until such time as the employee
withdraws from the Purchase Plan or the employee's employment with the Company
terminates.
PURCHASE PRICE
The purchase price per share at which shares will be sold in an offering
under the Purchase Plan is the lower of (i) 85% of the fair market value of a
share of Common Stock on the first day of an Offering or (ii) 85% of the fair
market value of a share of Common Stock on the last day of each Offering. The
fair market value of the Common Stock on a given date is generally the closing
sale price of the Common Stock as reported on the Nasdaq National Market for
such date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
throughout the Offering. The number of shares of Common Stock a participant may
purchase in each Offering is determined by dividing the total amount of payroll
deductions withheld from the participant's compensation during that Offering by
the purchase price; provided, however, that a participant may not purchase more
than 1,000 shares for each Offering. During the Offering, a participant may
discontinue his or her participation in the Purchase Plan, and may decrease or
increase the rate of payroll deductions in an offering period within limits set
by the Administrator.
All payroll deductions made for a participant are credited to the
participant's account under the Purchase Plan, are withheld in whole percentages
only and are included with the general funds of the Company. Funds received by
the Company pursuant to exercises under the Purchase Plan are also used for
general corporate purposes. A participant may not make any additional payments
into his or her account.
WITHDRAWAL
A participant may terminate his or her participation in the Purchase Plan at
any time by giving the Company a written notice of withdrawal. In such event,
the payroll deductions credited to the participant's account will be returned,
without interest, to such participant. Payroll deductions will not resume unless
a new subscription agreement is delivered in connection with a subsequent
offering period.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including death,
cancels his or her participation in the Purchase Plan immediately. In such event
the payroll deductions credited to the participant's account will be returned
without interest to such participant, his or her designated beneficiaries or the
executors or administrators of his or her estate.
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<PAGE>
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any changes in the capitalization of the Company, such as a
stock split, stock dividend, combination or reclassification of the Common
Stock, resulting in an increase or decrease in the number of shares of Common
Stock, proportionate adjustments will be made by the Administrator in the shares
subject to purchase and in the price per share under the Purchase Plan.
AMENDMENT AND TERMINATION
The Board may at any time and for any reason amend or terminate the Purchase
Plan, except that no such termination shall affect options previously granted
and no amendment shall make any change in an option granted prior thereto which
adversely affects the rights of any participant. Stockholder approval for
amendments to the Purchase Plan shall be obtained in such a manner and to such a
degree as required to comply with all applicable laws or regulations. The
Purchase Plan may be terminated by the Board at any time in accordance with the
Purchase Plan.
FEDERAL INCOME TAX INFORMATION FOR PURCHASE PLAN
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
(2) years from the first day of the Offering Period or more than one (1) year
from the date of transfer of the stock to the participant, then the participant
will recognize ordinary income measured as the lesser of (i) the excess of the
fair market value of the shares at the time of such sale or disposition over the
purchase price, or (ii) an amount equal to 15% of the fair market value of the
shares as of the first day of the Offering Period. Any additional gain will be
treated as long-term capital gain. If the shares are sold or otherwise disposed
of before the expiration of this holding period, the participant will recognize
ordinary income generally measured as the excess of the fair market value of the
shares on the date the shares are purchased over the purchase price. Any
additional gain or loss on such sale or disposition will be long-term or
short-term capital gain or loss, depending on the holding period. The Company is
not entitled to a deduction for amounts taxed as ordinary income or capital gain
to a participant, except to the extent ordinary income is recognized by
participants upon a sale or disposition of shares prior to the expiration of the
holding period(s) described above and except to the extent permitted under
Section 162(m) of the Code.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
At the Annual Meeting, the stockholders are being asked to approve an
amendment to increase the number of shares available under the Purchase Plan.
The affirmative vote of the holders of a majority of the shares of the Company's
Common Stock voting at the meeting is required to approve the amendment to the
Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO
THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
14
<PAGE>
PROPOSAL FOUR
AMENDMENT TO THE STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On October 11, 1996, the Board adopted the Company's Stock Option Plan for
Non-Employee Directors (the "Directors Plan") and reserved 205,000 shares of
Class A Common Stock for issuance thereunder. At the Annual Meeting, the
stockholders are being requested to consider and approve the proposed amendment
to the Plan to increase the number of shares of Class A Common Stock reserved
for issuance thereunder by 100,000 shares, bringing the total number of shares
under the Plan to 305,000.
The Board believes that the attraction and retention of high quality
directors are essential to the Company's continued growth and success and that
the Directors Plan is necessary for the Company to remain competitive in its
director compensation practices. In the absence of stockholder approval of this
increase in the available shares, the Board believes there would be insufficient
shares available for future option grants under the Directors Plan, except to
the extent that shares become available upon termination or cancellation of
outstanding options.
SUMMARY OF THE DIRECTORS PLAN
The following summary of the Directors Plan is subject to the specific
provisions of the Directors Plan, which is available to any stockholder upon
request.
PURPOSE
The purpose of the Directors Plan is to enhance the Company's ability to
attract and retain qualified non-employee directors and to encourage them to
increase their proprietary interests in the Company.
ADMINISTRATION
The Directors Plan shall be administered by a committee of the Board
consisting of two or more directors appointed from time to time by the Board
(the "Compensation Committee"), unless the Board determines that the Directors
Plan should be administered by the Board, in which case it shall be administered
by the Board. Unless the Board determines otherwise, any committee administering
the Directors Plan shall be comprised solely of "Non-Employee Directors" within
the meaning of Securities and Exchange Commission ("SEC") Rule 16b-3. Subject to
the terms of the Directors Plan, the Compensation Committee shall have the power
to administer, interpret and construe the Directors Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for administering the Directors Plan as the Compensation Committee deems
desirable.
PARTICIPATION
"Eligible directors" are members of the Board who are not employees of the
Company, any Subsidiary or Axel Johnson, including any director of Axel Johnson
who is such a member of the Board.
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<PAGE>
LIMITATIONS
All options granted under the Directors Plan shall be nonstatutory options
not intended to qualify as incentive stock options under Section 422 of the
Code. Each option granted under the Directors Plan and the issuance of shares
thereunder shall be subject to the following terms and conditions:
TERMS AND CONDITIONS OF OPTIONS
Each option is evidenced by a written stock option agreement between the
Company and the optionee.
Options shall be subject to the following terms and conditions.
(a) Each option granted under the Directors Plan shall be evidenced by a
written instrument duly executed on behalf of the Company and dated as of the
applicable date of grant. Each such instrument shall be signed on behalf of the
Company by an officer or officers delegated such authority by the Compensation
Committee using either manual or facsimile signature. Each such instrument shall
comply with and be subject to the terms and conditions of the Directors Plan.
Any such instrument may contain such other terms, provisions and conditions not
inconsistent with the Directors Plan as may be determined by the Compensation
Committee.
(b) Immediately following each annual meeting of stockholders of the
Company, until the Directors Plan is terminated or expires, each person who is
then an Eligible Director shall hereby be granted, on the date of such annual
meeting, an option to purchase 6,000 shares of Common Stock from the Company,
unless such option is the first option to be granted to such person under the
Directors Plan, in which case such person shall hereby be granted, on such date,
an option to purchase 18,000 shares of Common Stock from the Company. The price
at which the shares may be purchased under any option granted pursuant to the
preceding sentence shall be equal to the mean between the high and low sales
price of Common Stock in consolidated trading on the Nasdaq National Market or
other market as reported in the WALL STREET JOURNAL ("Fair Market Value") on the
date on which such option is granted.
(c) Except as otherwise provided, an option may be exercised at any time for
all or from time to time for any part of the shares which are subject to
purchase under the option, before the tenth anniversary of the date on which the
option was granted. If not sooner exercised or terminated pursuant to the
preceding sentence or the other provisions, an option shall expire on the tenth
anniversary of the date on which it was granted.
(d) An option which is the first option to be granted to a participant under
the Directors Plan may not be exercised (i) with respect to any of the shares
subject to the option until the participant shall have served on the Board
during the period extending from the date of grant of the option to the date of
the first annual meeting of stockholders next following the date of grant of the
option, nor (ii) with respect to more than one-third of the shares subject to
the option until the participant shall have served on the Board during the
period extending from the date of grant of the option to the date of the second
annual meeting of stockholders next following the date of grant of the option,
nor (iii) with respect to more than two-thirds of the shares subject to the
option until the participant shall have served on the Board during the period
extending from the date of grant of the option to the date of the third annual
meeting of stockholders next following the date of grant of the option.
(e) An option which is not the first option to be granted to the participant
under the Directors Plan may not be exercised in whole or in part unless and
until the participant shall have served on the Board during the period extending
from the date of grant of the option to the date of the third annual meeting of
stockholders next following the date of grant of the option.
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<PAGE>
(f) On the date (if any) on which a change in control occurs, the preceding
provisions of (d) and (e) shall cease to apply to any option that is outstanding
and that would be fully exercisable on such date were it not for such
provisions, but, in the case of an option which was granted less than six months
before such change in control occurs, only if the participant agrees in writing
(if requested in writing by the Compensation Committee to do so in advance of
such change in control) to remain on the Board at least through the date which
is six months after the date on which such option was granted with the same
compensation and indemnification rights as immediately before the change in
control.
(g) If and to the extent that any option is outstanding and exercisable
pursuant to the provisions of (c) (d), (e) and (f) above on the date on which a
participant's service on the Board terminates for any reason other than cause
(which for purposes of the Directors Plan shall mean cause within the meaning of
the Company's by-laws or, in the absence of a by-law provision regarding cause,
within the meaning of subsection 141(k) of the Delaware General Corporation
Law), such option shall terminate one year after such termination of Board
service; provided that if the participant dies during such one year period after
termination of Board service, such option shall terminate one year after the
participant's death, and, provided further, that in no event shall any option be
exercisable after the tenth anniversary of the date on which it was granted. If
and to the extent that any option is outstanding but not exercisable pursuant to
the provisions (c), (d), (e) and (f) above on the date of termination of Board
service for any reason other than cause, such option shall terminate upon such
termination of Board service. If and to the extent that any option is
outstanding on the date (if any) on which a participant's service on the Board
terminates for cause, such option, whether or not otherwise exercisable pursuant
to the provisions of (c), (d), (e) and (f) above, shall terminate upon such
termination of Board service.
(h) An option may not be exercised for fewer than fifty shares unless fewer
than fifty shares remain subject to the option at the time, in which case the
option may not be exercised for less than the full balance of the shares that
remain subject to the option at the time.
(i) The Company's obligation to issue or transfer shares of Common Stock
pursuant to the exercise of any option under the Directors Plan shall be subject
to the condition that such issuance or transfer would not, in the opinion of the
Compensation Committee, cause any impairment of the Company's capital or
constitute a breach of or cause the Company to be in violation of any covenant,
warranty or representation made by the Company in any credit agreement to which
the Company is a party.
TIME AND MANNER OF OPTION EXERCISE
An option shall be considered exercised if and when written notice, signed
by the person exercising the option and stating the number of shares with
respect to which the option is being exercised, is received by the Secretary on
a form approved for this purpose by the Compensation Committee, accompanied by
full payment of the option exercise price in one or more of the forms described
below for the number of shares to be purchased. No option may at any time be
exercised with respect to a fractional share.
PAYMENT OF EXERCISE PRICE
The option exercise price may be paid in whole or in part (a) in cash,
(b) by bank-certified check, cashier's check or personal check subject to
collection, (c) in whole shares of Common Stock valued at their Fair Market
Value on the date of exercise, provided that such shares have been held by the
participant for at least six months before the date of exercise or satisfy such
other requirement(s) as the Compensation Committee may impose, or (d) by
delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a stockbroker that the Compensation Committee
determines satisfy the provisions of section 220.3(e)(4) (or a successor
provision) of Regulation T promulgated by the Board of Governors of the Federal
Reserve System.
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<PAGE>
EXERCISE AFTER DEATH
Following the death of a participant, any options that were exercisable at
the time of the participant's death may be exercised prior to their expiration
or termination pursuant to the provisions (c) and (g) above by the participant's
beneficiary designated pursuant to the transferability provision below or, if no
such beneficiary has been designated or survives the participant, by the
participant's estate or the person or persons to whom the options passed by will
or the laws of descent and distribution.
TRANSFERABILITY
Options granted under the Directors Plan shall not be transferable otherwise
than by will or the laws of descent and distribution and, during the lifetime of
the participant, shall be exercisable only by him or his legal representative.
Notwithstanding the foregoing, a participant may designate a beneficiary to whom
the participant's options shall pass in the event of the participant's death,
provided that (a) such beneficiary is designated in writing on a form approved
for that purpose by the Compensation Committee, (b) such form is received by the
Secretary of the Company prior to the participant's death, and (c) the
Compensation Committee consents to any beneficiary so designated.
REGULATORY APPROVAL AND COMPLIANCE
Any provision of the Directors Plan to the contrary notwithstanding, no
option shall be exercisable unless and until the Company (a) obtains the
approval of all regulatory bodies whose approval the Compensation Committee may
deem necessary or desirable, and (b) complies with all legal requirements deemed
applicable by the Compensation Committee, nor may any Option be exercised unless
and until the person exercising the option supplies the Company with such
documentation as the Compensation Committee may deem necessary or advisable to
establish the identity of such person and such person's entitlement to exercise
the Option.
CAPITAL ADJUSTMENTS
The aggregate number and class of shares subject to issuance and transfer
under the Directors Plan, the number and class of shares with respect to which
options may be granted to each Eligible Director under the Directors Plan as
provided, the number and class of shares subject to each outstanding option, and
the exercise price per share specified in each such option, shall be
appropriately adjusted by the Compensation Committee in the event of stock
dividends, stock splits, spin-offs or other distributions of assets (other than
normal cash dividends), recapitalizations, reorganizations, mergers,
consolidations, exchanges or other changes in corporate structure or
capitalization.
DURATION OF THE DIRECTORS PLAN
The Directors Plan shall remain in effect until all shares authorized to be
issued or transferred hereunder have been exhausted or until the Directors Plan
is sooner terminated by the Board of Directors, and shall continue in effect
thereafter with respect to any options outstanding at the time of such
termination.
AMENDMENT AND TERMINATION OF THE DIRECTORS PLAN
The Directors Plan may be amended by the Board of Directors, without
stockholder approval, at any time and in any respect, unless stockholder
approval of the amendment in question is required under Delaware law, any
national securities exchange or system on which shares of Common Stock are then
listed or reported, by any regulatory body having jurisdiction with respect to
the Directors Plan, or under any other applicable laws, rules or regulations.
The Directors Plan may also be terminated at any
18
<PAGE>
time by the Board. No amendment or termination of the Directors Plan shall
adversely affect any option granted prior to the date of such amendment or
termination without the written consent of the participant.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
At the Annual Meeting, the stockholders are being asked to approve an
amendment to increase the number of shares available under the Directors Plan.
The affirmative vote of the holders of a majority of the shares of the Company's
Common Stock voting at the meeting is required to approve the amendment to the
Directors Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO
THE COMPANY'S STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
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<PAGE>
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP, independent accountants,
to audit the consolidated financial statements of the Company for the year
ending December 31, 2000. This appointment is being presented to the
stockholders for ratification at the Annual Meeting. If the stockholders reject
the appointment, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
since 1993 and performed reviews from 1987 through 1992. Its representatives are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at the
Annual Meeting will be required to approve the ratification of the Board's
appointment of PricewaterhouseCoopers LLP as independent accountants of the
Company for the year ending December 31, 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF PRICEWATERHOUSECOOPERS LLP.
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<PAGE>
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation of the
Company's Chief Executive Officer, each of the other most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000
during the year ended December 31, 1999, and two individuals who were two of the
Company's most highly compensated executive officers but were not serving as
executive officers at the end of 1999 (collectively, the "Named Executive
Officers"), for services rendered in all capacities to the Company for the years
ended December 31, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
TABLE LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ----------------------
SUMMARY COMPENSATION LONG-TERM SECURITIES ALL OTHER
FISCAL -------------------------- INCENTIVE UNDERLYING COMPENSATION
NAME YEAR SALARY($) BONUS(1)($) PLAN($) OPTIONS(#) ($)
- ---- -------- --------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Coackley (2)............. 1999 182,308 -- -- 500,000 27,097(9)
President and Chief Executive
Officer
George M. Donohoe............... 1999 264,258(5) -- -- 27,000 15,288(10)
Executive Vice President of 1998 219,916(5) -- -- 88,500 16,000(10)
Sales and Service 1997 180,043(5) 51,410 -- 12,500 14,297(10)
Rebecca C. Horn................. 1999 195,501(6) -- -- 27,000 34,082(11)
Vice President, Marketing 1998 46,443 -- -- -- --
Donald W. Morgan (3)............ 1999 30,788 -- -- 50,000 33,749(12)
Vice President, Finance and
Chief Financial Officer
Amin Pessah (4)................. 1999 188,457(7) -- -- 21,000 15,055(13)
Vice President, International 1998 194,307(7) -- -- 57,000 6,189(13)
Sales 1997 178,368(7) 15,027 -- 5,000 3,954(13)
Jeffrey W. Reedy................ 1999 166,261 -- -- 27,000 7,843(14)
Vice President, Engineering 1998 140,302 -- -- 57,500 4,971(14)
1997 125,583 51,410 -- 12,500 6,319(14)
Stephen A. Gartner (4).......... 1999 181,971(8) -- -- 21,000 11,173(15)
Vice President, Sales 1998 172,921(8) -- -- 44,500 6,809(15)
1997 142,602(8) 8,801 -- 4,000 6,072(15)
</TABLE>
- ------------------------
(1) Represents bonuses earned in the year indicated and paid in the following
year.
(2) Mr. Coackley joined the company in May of 1999.
(3) Mr. Morgan joined the Company in October of 1999.
(4) Mr. Pessah and Mr. Gartner were no longer deemed Officers of the Company
following the appointment of Mr. Coackley as President and Chief Executive
Officer in May 1999. Mr. Pessah and Mr. Gartner remain with the Company in
executive roles as Vice Presidents.
(5) Includes sales commissions of $5,348, $23,881, and $67,849 in 1999, 1998 and
1997, respectively.
(6) Includes sales commissions of $20,500 in 1999.
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(7) Includes sales commissions of $19,795, $38,768 and $86,569 in 1999, 1998 and
1997, respectively.
(8) Includes sales commissions of $47,260, $61,053 and $67,133 in 1999, 1998 and
1997, respectively.
(9) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Executive Officer of $3,130, Company
paid life insurance of $3,075 and a moving allowance of $20,892 in 1999.
(10) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Executive Officer of $3,732, $3,686 and
$3,445 in 1999, 1998 and 1997, respectively, Company paid life insurance of
$4,595, $4,688 and $2,452 in 1999, 1998 and 1997, respectively, an
automobile allowance of $6,961, $6,209 and $6,942 in 1999, 1998 and 1997,
respectively and other benefits of $1,417 and $1,458 in 1998 and 1997,
respectively.
(11) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Executive Officer of $5,150, Company
paid life insurance of $634, a signing bonus of $26,000 and an automobile
allowance of $2,298 in 1999.
(12) Includes a moving allowance of $32,220 and other benefits of $1,529 in
1999.
(13) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the employee of $5,503, $3,663 and $3,489 in 1999,
1998 and 1997, respectively, Company paid life insurance of $673, $905 and
$465 in 1999, 1998 and 1997, respectively, an automobile allowance of $8,879
in 1999, and a sales award of $1,621 in 1998.
(14) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the Named Executive Officer of $5,149, $4,504 and
$4,309 in 1999, 1998 and 1997, respectively, Company paid life insurance of
$396, $467 and $267 in 1999, 1998 and 1997, respectively, an automobile
allowance of $2,298 in 1999, and an achievement award of $1,743 in 1997.
(15) Includes the matching contribution under the Company's 401k plan which the
Company made on behalf of the employee of $4,460, $5,181 and $4,889 in 1999,
1998 and 1997, respectively, Company paid life insurance of $567, $599 and
$354 in 1999, 1998 and 1997, respectively, an automobile allowance of $6,146
in 1999 and other benefits of $1,029 and $829 in 1998 and 1997,
respectively.
22
<PAGE>
OPTION GRANTS AND EXERCISES
The following table sets forth each grant of stock options made during the
year ended December 31, 1999 to each of the Named Executive Officers:
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------ ------------------------------------
ASSUMING ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK USING BLACK-
SECURITIES OPTIONS PRICE APPRECIATION SCHOLES
UNDERLYING GRANTED EXERCISE FOR OPTION TERM (2) OPTION
OPTIONS IN FISCAL PRICE EXPIRATION -------------------- PRICING MODEL
NAME GRANTED YEAR (1) ($/SHARE) DATE 5%($) 10%($) ($)(3)
- ---- ---------- ---------- --------- ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Coackley............... 500,000 37.7% 3.125 5/19/09 982,648 2,490,223 815,057
George M. Donohoe............. 27,000 2.0% 4.031 11/29/09 68,447 173,458 57,731
Rebecca C. Horn............... 27,000 2.0% 4.031 11/29/09 68,447 173,458 57,731
Donald W. Morgan.............. 50,000 3.8% 4.031 11/29/09 126,754 321,219 106,909
Amin Pessah................... 21,000 1.6% 4.031 11/29/09 53,236 134,912 44,902
Jeffrey W. Reedy.............. 27,000 2.0% 4.031 11/29/09 68,447 173,458 57,731
Stephen A. Gartner............ 21,000 1.6% 4.031 11/29/09 53,236 134,912 44,902
</TABLE>
- ------------------------
(1) A total of 1,324,500 options were granted to employees and directors during
the year ended December 31, 1999 under the Stock Incentive Plan.
(2) The dollar amounts in these columns are the results of calculations at the
five percent and ten percent rates set by the SEC and are not intended to
predict future appreciation of the Company's securities. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% or 10% annual rate of
compounded stock price appreciation or at any other defined level. Unless
the market value of the common stock appreciates over the option term, no
value will be realized from the option grants made to the executive
officers.
(3) In determining the potential realizable value using the Black-Scholes option
pricing model the following assumptions were made: a risk free interest rate
of 5.83%, an average expected option life of 3.50 years, an expected
volatility of 70% and a zero dividend yield.
23
<PAGE>
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during 1999, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1999, and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1999.
AGGREGATED OPTION EXERCISED IN YEAR END DECEMBER 31, 1999
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES --------------------------- ---------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Coackley.................... -- -- -- 500,000 -- 1,703,000
George M. Donohoe.................. -- -- 20,133 82,367 95,318 329,397
Rebecca C. Horn.................... -- -- 9,479 52,521 45,319 189,516
Donald W. Morgan................... -- -- -- 50,000 -- 125,000
Amin Pessah........................ -- -- 11,915 53,085 57,058 206,149
Jeffrey W. Reedy................... -- -- 15,571 68,929 74,529 268,190
Stephen A. Gartner................. -- -- 9,342 46,158 44,748 173,008
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Heitt, Milligan and Poppel. None of the members of the Compensation
Committee is or ever has been an officer or employee of the Company. No
interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other Company's Board of Directors
or Compensation Committee.
EMPLOYMENT CONTRACTS, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to an agreement dated as of October 6, 1998, the Company agreed to
provide certain continuing employee benefits to Deborah Soon when she ceased to
be employed as the Company's Chief Executive Officer. Pursuant to the agreement,
Ms. Soon remained an employee of the Company through March 31, 1999 and received
salary continuation through that date of her base salary and other employee
benefits in effect as of September 30, 1998. The Company also paid Ms. Soon's
base salary, on the Company's regular payroll dates, from April 1, 1999 until
September 30, 1999. The Company also paid $8,500 for outplacement services for
Ms. Soon.
24
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON
Prior to the Company's initial public offering in December 1996, the Company
was a wholly owned subsidiary of Axel Johnson. As the sole stockholder, Axel
Johnson was responsible for providing the Company with financial, management,
administrative and other resources. Furthermore, Axel Johnson maintained
substantial control over the day-to-day operations of the Company.
Services provided to the Company by Axel Johnson include significant
management functions and services, including treasury, accounting, tax, internal
audit, legal, human resources and other support services. The Company was
charged and/or allocated expenses of $438,000, $425,000, and $622,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. The costs of these
services were directly charged and/or allocated using methods that the Company's
management believes are reasonable. Such charges and allocations are not
necessarily indicative of the costs the Company would have incurred to obtain
these services had it been a separate entity. Neither Axel Johnson nor the
Company has conducted any study or obtained any estimates from third parties to
determine what the cost of obtaining similar services from third parties may
have been.
The Company and Axel Johnson entered into a number of agreements prior to
the Company's initial public offering for the purpose of defining the ongoing
relationship between them. These agreements were negotiated in the context of a
parent-subsidiary relationship and therefore are not the result of negotiations
between independent parties. It is the intention of the Company and Axel Johnson
that such agreements and the transactions provided for therein maintain certain
mutually beneficial arrangements on overall terms which the Company and Axel
Johnson believe to be at least as favorable to Larscom as could have been
obtained from unrelated third parties. However, because of the complexity of the
various relationships between the Company and Axel Johnson, there can be no
assurance that the terms of any individual element of such arrangements are as
favorable to the Company as could have been obtained from unaffiliated third
parties. The following summaries address all material provisions of such
agreements. While these agreements will provide the Company with certain
benefits, the Company is only entitled to the ongoing assistance of Axel Johnson
for a limited time and it may not enjoy benefits from its relationship with Axel
Johnson beyond the term of the agreements.
Subsequent to the Company's initial public offering, the Company adopted a
policy that all future agreements between the Company and Axel Johnson will be
on terms that the Company believes are no less favorable to the Company than the
terms the Company believes would be available from unaffiliated parties. In that
regard, the Company intends to follow the procedures provided by the Delaware
General Corporation Law (the "DGCL") which include a vote to affirm any such
future agreements by a majority of the Company's directors who are not employees
of Axel Johnson (even though such directors may be less than a quorum). There
can be no assurance that any such arrangements or transactions will be the same
as that which would be negotiated between independent parties.
The following is a summary of certain arrangements between the Company and
Axel Johnson that became effective upon consummation of the Company's initial
public offering.
ADMINISTRATIVE SERVICES AGREEMENT
The Company and Axel Johnson entered into an administrative services
agreement (the "Services Agreement") effective since the consummation of the
Company's initial public offering, pursuant to which Axel Johnson continues to
provide limited services to the Company, including treasury, accounting, tax,
internal audit, legal and human resource functions.
Each service under the Services Agreement was initially provided for a
period of two years. In 1999, the Company unilaterally extended the term for an
additional year, in accordance with the
25
<PAGE>
Service Agreement. However, to the extent legally permissible, the Company may
terminate any individual service or all services that it receives under the
Services Agreement at any time upon 45 days prior written notice. Otherwise, the
Services Agreement shall terminate upon the earlier of, among other things,
(i) three years after the consummation of the Company's initial public offering
or (ii) the date which Axel Johnson owns less than 50% of the voting control of
the Company; provided, however, that if such reduction in voting control results
from a sale or transfer of Class B Common Stock by Axel Johnson, the services
shall continue to be provided for a period of 90 days thereafter. The Company is
obligated to take all steps necessary to obtain its own administrative and
support services prior to the termination of the Services Agreement.
The Company is obligated to pay fees established in the Services Agreement
based upon the type and amount of services rendered. Axel Johnson charged an
annual fee of $438,000 for all of the services that it provided under the
Services Agreement for 1999. These fees will be approximately $451,000 for 2000.
In addition, the Company reimburses Axel Johnson for any out-of-pocket expenses
it incurs in connection with providing the services.
Axel Johnson incurred various costs related to services provided to the
Company, which were charged to the Company. These are as follows:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Pension and thrift plan..................................... $1,994,000
Health insurance............................................ $ 845,000
Property, liability and general insurance................... $ 244,000
Other charges net of tax credit............................. $ 246,000
</TABLE>
Larscom participates in the centralized cash management system operated by
Axel Johnson. Under this system all payments made by Larscom are settled by Axel
Johnson and all receipts from customers are remitted to Axel Johnson. Cash
remittances made, net of cash advances were $3,973,000 during 1999.
TAX SHARING AGREEMENT
The Company and Axel Johnson entered into a tax sharing agreement (the "Tax
Sharing Agreement") effective since the consummation of the Company's initial
public offering, pursuant to which the Company has made a payment to Axel
Johnson of an amount in respect of taxes shown as due attributable to the
operations of the Company on the consolidated federal income tax return filed
along with Axel Johnson for the short period commencing on January 1, 1996 and
ending on the date on which the Company ceased to be a member of the Axel
Johnson consolidated group, December 19, 1996. For the period subsequent to the
initial public offering, the Company filed combined state income tax returns
with Axel Johnson or its subsidiaries, pursuant to which appropriate payments
were made by or to the Company. Axel Johnson will indemnify the Company from
liability for certain matters, including, net of corresponding tax benefits, any
federal, state or local income or other taxes attributable to any affiliated or
combined group of which the Company is a member for any period ending after the
Company's initial public offering. The Company has agreed to indemnify Axel
Johnson and its subsidiaries from liability for certain matters, including any
federal, state or local income or other taxes attributable to the operations of
the Company subsequent to the Company's initial public offering. Subsequent to
the Company's initial public offering, the Company has made its own tax filings,
with assistance provided by Axel Johnson under the Services Agreement.
CREDIT AGREEMENT
The Company and Axel Johnson entered into a credit agreement, pursuant to
which Axel Johnson has agreed to provide a revolving credit/working capital
facility (the "Credit Agreement") to the
26
<PAGE>
Company in an aggregate amount of $15,000,000. The Credit Agreement expires in
December 2000. Any loans thereunder bear interest during each calendar quarter
at a rate per annum equal to the sum of the three month London Interbank Offered
Rate (LIBOR), plus 2.0% initially on the date when the loan is made and adjusted
thereafter on the first business day of each calendar quarter. Additionally, the
Company is required to pay a commitment fee of 0.5% per annum on the unused
portion of the Credit Agreement. The Company is required to maintain compliance
with certain covenants under the Credit Agreement. As of December 31, 1999,
$15,000,000 was available, and during 1999, 1998 and 1997, no borrowings were
made under the Credit Agreement.
The Credit Agreement contains various representations, covenants and events
of default typical for financing of a similar size and nature. As a condition to
borrowing pursuant to the Credit Agreement, Larscom must be able to represent
that, among other things, it is duly incorporated and has the corporate
authority to enter into the Credit Agreement, there are no conflicts with the
Certificate of Incorporation or Bylaws or any contract of Larscom, there has
been no material adverse change in the financial condition or results of
operations of Larscom since November 20, 1998 and that there is no pending or
threatened litigation that would have a material adverse effect on the Company.
Larscom covenants to, among other things, keep its legal existence in effect,
cause to be done all things necessary to maintain and operate its business in
substantially the same manner, pay all indebtedness and other obligations,
provide Axel Johnson with certain financial information and to use the proceeds
of the loans for the purposes set forth in the Credit Agreement. The events of
default under the Credit Agreement include any failure to pay punctually any
principal or interest due under the Credit Agreement, any act of insolvency of
Larscom and any sale by Larscom of all or substantially all of its assets. Upon
an event of default, the line of credit shall become payable in full.
The Credit Agreement also permits Axel Johnson to require, upon 90 days
written notice, a mandatory prepayment of all, or a portion of all outstanding
loans and to terminate the Credit Agreement in the event that Axel Johnson
(i) owns less than the majority of the outstanding voting stock of Larscom or
(ii) nominates less than a majority of the persons to be elected to the Board of
Directors of Larscom.
27
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board administers all of the Company's
stock option plans, which include the Stock Option Plan for Non-Employee
Directors, the Stock Incentive Plan, and the Employee Stock Purchase Plan. The
Compensation Committee also recommends to the Board salaries, bonuses, benefits
and other remuneration payable to the officers and key employees of the Company.
The members of the Compensation Committee are Donald G. Heitt, Lawrence D.
Milligan and Harvey L. Poppel, none of whom is employed by the Company.
COMPENSATION PHILOSOPHY
The Company operates in the competitive and rapidly changing environment of
high technology businesses. The Committee seeks to establish compensation
policies that allow the Company flexibility to respond to changes in its
business environment. The Company's compensation philosophy is based on the
belief that achievement in this environment is enhanced by the coordinated
efforts of all individuals working toward common objectives. The goals of the
Company's compensation program are to align compensation with the Company's
business objectives and performance, to foster teamwork and to enable the
Company to attract, retain and reward employees who contribute to the Company's
long-term success.
COMPENSATION COMPONENTS
The Company's executive officers are compensated with a salary and are
eligible for bonus and stock option awards. The Committee assesses the past
performance and anticipated future contribution, and considers the total
compensation (earned or potentially available) of each executive officer in
establishing each element of compensation. To that end, the Company has provided
incentives to its executive officers in the following three ways:
1) BASE SALARY. The base salaries of executive officers are initially
determined by evaluating the responsibilities of the position held and
the experience and performance of the individual, with reference to the
competitive marketplace for executive talent, including a comparison of
base salaries for comparable positions based on industry surveys made
available to the Compensation Committee.
2) CASH BONUS. The Company's executive cash bonus plan is designed to
reward executive officers based on the financial performance of the
Company during the year. Under the plans, cash bonuses are determined
based upon the Company's achievement against specific financial
performance objectives. This plan emphasizes the Compensation Committee's
belief that, when the Company is successful, the executives should be
appropriately compensated. Conversely, if the Company is not profitable,
no bonuses are paid, absent extraordinary circumstances. No bonuses have
been or will be paid to executive officers based on the financial
performance of the Company during 1999.
3) STOCK OPTIONS. The principal equity components of executive compensation
are options granted under the Company's Stock Incentive Plan. Stock
options are generally granted when an executive joins the Company with
additional options granted from time to time for promotions and
performance. The initial option granted to an executive vests over a
period of four years. The Compensation Committee believes that the stock
option participation provides a method of retention and motivation for
the senior level executives of the Company and also aligns senior
management's objectives with long-term stock price appreciation.
Executives are also eligible to participate in the Employee Stock
Purchase Plan pursuant to which stock may be purchased at 85 percent of
the lower of the closing sale price for the Class A Common Stock as
reported on the Nasdaq National Market at the beginning or end of each
six month offering period subject to various limitations on the number of
shares that can be purchased.
28
<PAGE>
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Coackley was appointed as President and Chief Executive Officer of the
Company by the Board of Directors in May 1999 and his annual salary was set at
$300,000. Mr. Coackley's compensation for 1999 reflects the Compensation
Committee's evaluation of his overall leadership skills and the significant
experience he brings to the Company as its President and Chief Executive
Officer. In determining Mr. Coackley's compensation, the Compensation Committee
considered, among other factors, Mr. Coackley's experience in the industry and
the competitive marketplace for executive talent.
In May 1999, with the hiring of Robert Coackley as President and Chief
Executive Officer, George Donohoe ceased to function as the Acting Chief
Executive Officer of the Company at a base salary of $245,000. Mr. Donohoe
continues with the Company as an Officer and Executive Vice President of Sales
and Services at a base salary of $200,012. Pursuant to an agreement dated as of
October 6, 1998, between the Company and the former President and Chief
Executive Officer, Ms. Deborah Soon, the Company agreed to continue Ms. Soon's
salary through September 30, 1999. Under this agreement Ms. Soon was paid
$247,177 in 1999.
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and proposed regulations thereunder
(the "Section"). The Section disallows a tax deduction for any publicly held
corporation for individual compensation exceeding $1 million in any taxable year
for any of the Named Executive Officers, unless such compensation is
performance-based. The Company's policy is to qualify, to the extent reasonable,
its executive officers' compensation for deductibility under applicable tax
laws. However, the Committee believes that its primary responsibility is to
provide a compensation program that will attract, retain and reward the
executive talent necessary to the Company's success. Consequently, the Committee
recognizes that the loss of a tax deduction could be necessary in some
circumstances.
29
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
the Company's Class A Common Stock from December 24, 1996 through December 31,
1999, to the cumulative total return over such period of (i) The Nasdaq Stock
Market (U. S. Companies) and (ii) the Nasdaq Telecom Index. The information
contained in the performance graph shall not be deemed to be "soliciting
material" or to be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it
by reference into such filing.
The graph assumes that $100 was invested on the date of the Company's
initial public offering, December 24, 1996, in the Company's Class A Common
Stock at the initial public offering price of $12.00 per share in each index. No
dividends have been declared or paid on the Company's Class A Common Stock.
Stockholder returns over the period indicated should not be considered
indicative of future stockholder returns.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG LARSCOM INCORPORATED,
THE NASDAQ COMPOSITE INDEX AND THE NASDAQ TELECOM INDEX
SINCE THE DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ INDEX TELECOM INDEX LARSCOM
<S> <C> <C> <C>
12/24/1996 100.00 100.00 100.00
12/31/1996 100.26 102.41 94.79
12/31/1997 121.95 145.42 79.17
12/31/1998 170.29 237.59 12.76
12/31/1999 316.03 481.62 54.43
</TABLE>
<TABLE>
<CAPTION>
12/24/96 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nasdaq Composite Index.................................. $100.00 $100.26 $121.95 $170.29 $316.03
Nasdaq Telecom Index.................................... 100.00 102.41 145.42 237.59 481.62
Larscom Incorporated.................................... 100.00 94.79 79.17 12.76 54.43
</TABLE>
30
<PAGE>
SECURITY OWNERSHIP
The following table sets forth as of April 7, 2000 (except as set forth in
the footnotes) certain information known to the company with respect to the
beneficial ownership of the Company's Class A Common Stock and Class B Common
Stock by (i) each beneficial owner of more than 5% of the outstanding shares of
each class of Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
CLASS A CLASS A CLASS B CLASS B TOTAL VOTING
SHARES(1) SHARES(2) SHARES(1) SHARES(2) POWER(2)
--------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Axel Johnson Inc.(3).......................... 10,000 * 10,000,000 100.0% 82.4
Kopp Investment Advisors, Inc,(4)............. 2,475,000 29.0 -- * 5.1
State of Wisconsin Investment Board(5)........ 1,450,300 17.0 -- * 3.0
Robert Coackley............................... 139,645(6) 1.6 -- * *
Joseph F. Smorada............................. 39,500 * -- * *
Donald G. Heitt............................... 24,000(7) * -- * *
Harvey L. Poppel.............................. 24,000(7) * -- * *
Donald W. Morgan.............................. 2,500 * -- * *
Richard E. Pospisil........................... -- * -- * *
George M. Donohoe............................. 40,420(8) * -- * *
Jeffrey W. Reedy.............................. 26,581(9) * -- * *
Rebecca C. Horn............................... 25,854(10) * -- * *
Lawrence D. Milligan.......................... 3,500 * -- * *
All executive officers and directors as a
group (10 persons).......................... 326,000 3.8 -- * *
</TABLE>
- ------------------------
* Less than 1%
(1) The number of shares beneficially owned includes Class A Common Stock and B
Common Stock of which such individual has the right to acquire beneficial
ownership either currently or within 60 days of April 7, 1999, including but
not limited to, upon exercise of an option.
(2) Percentage of beneficial ownership and voting power is based on 8,545,000
shares of Class A Common Stock and 10,000,000 shares of Class B Common
Stock, all of which were outstanding on April 7, 2000. For each individual,
this includes Class A Common Stock of which such individual has the right to
acquire beneficial ownership either currently or within 60 days of April 7,
2000, including, but not limited to, upon the exercise of an option;
however, such Class A Common Stock shall not be deemed outstanding for the
purpose of computing the percentage owned by any other individual.
(3) Based on information provided in a Schedule 13G filed by Axel Johnson with
the SEC on February 12, 1997. The address for Axel Johnson is 300 Atlantic
Street, Stamford CT 06901-0350. The 10,000 shares of Class A Common Stock
are owned of record by Antonia Ax:son Johnson and her spouse. Ms. Johnson is
the ultimate owner of Axel Johnson.
(4) Based on information provided in a Schedule 13D filed by Kopp Investment
Advisors, Inc. with the SEC on March 16, 2000. The address for Kopp
Investment Advisors, Inc. is 7701 France Avenue South, Suite 500, Edina MN
55435.
(5) Based on information provided in a Schedule 13G/A filed by The State of
Wisconsin Investment Board with the SEC on February 10, 2000. The address
for The State of Wisconsin Investment Board is P.O. Box 7842, Madison WI
53707.
31
<PAGE>
(6) Includes 125,000 shares issuable upon exercise of options to purchase
Larscom Class A Common Stock that are exercisable within 60 days of
April 7, 2000.
(7) Includes 24,000 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 7, 2000.
(8) Includes 29,258 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 7, 2000.
(9) Includes 3,386 shares issuable upon exercise of options to purchase Larscom
Class A Common Stock that are exercisable within 60 days of April 7, 2000.
(10) Includes 13,854 shares issuable upon exercise of options to purchase
Larscom Class A Common Stock that are exercisable within 60 days of
April 7, 2000.
32
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, officers and persons who are directly or indirectly the beneficial
owners of more than 10% of the Common Stock of the Company are required to file
with the SEC within specified monthly and annual due dates, a statement of their
initial beneficial ownership and all subsequent changes in ownership of Common
Stock. Rules of the SEC require such persons to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of such forms,
the Company believes all section 16 filing requirements were met.
OTHER MATTERS
The Company knows of no other matters to be brought before the meeting. If
any other matters are properly come before the meeting, it is the intention of
the persons named in the accompanying proxy to vote the shares represented as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
/s/ DONALD W. MORGAN
Donald W. Morgan
SECRETARY
Dated: April 24, 2000
33
<PAGE>
HARDING & HEAL, INC. PROOF #5 3/15/00 1315 CUST. THE BANK OF NEW YORK
FILE NAME 71562 LARSCOM L/P
ATTN: WILLIAM POWERS (STENCIL SIDE PRINTS ALL RED)
- -------------------------------------------------------------------------------
DETACH PROXY CARD HERE
V V
- -------------------------------------------------------------------------------
\ \
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN ITEM 1 "FOR"
ITEM 2, ITEM 3, ITEM 4 AND ITEM 5.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees / / WITHHOLD AUTHORITY to vote / / *EXCEPTIONS / /
listed below for all nominees listed below.
</TABLE>
Nominees: Robert Coackley, Donald G. Heitt, Lawrence D. Milligan, Harvey L.
Poppel, Richard E. Pospisil, Joseph F. Smorada
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.
THIS WILL BE TREATED AS AN INSTRUCTION TO VOTE FOR EACH OF THE
NOMINEES EXCEPT FOR THOSE WHOSE NAME YOU WRITE IN THE SPACE
PROVIDED BELOW.)
*Exceptions __________________________________________________________________
2. To ratify and approve an amendment to the Company's Stock Incentive Plan
(the "Incentive Plan") to increase the number of shares of the Company's
Class A Common Stock reserved for issuance pursuant to the Stock Incentive
Plan from 3,985,000 shares to 6,785,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. To ratify and approve an amendment to the Company's Employee Stock
Purchase Plan (the "Stock Purchase Plan") to increase the number of shares
of Class A Common Stock reserved for issuance pursuant to the Stock Purchase
Plan from 685,000 shares to 785,000 shares.
FOR / / AGAINST / / ABSTAIN / /
4. To ratify and approve an amendment to the Company's Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors Stock Option Plan") to
increase the number of shares of Class A Common Stock reserved for issuance
pursuant to the Non-Employee Directors Stock Option Plan from 205,000 shares
to 305,000 shares.
FOR / / AGAINST / / ABSTAIN / /
5. To ratify and approve the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent public accountants for the Company
for the fiscal year ending December 31, 2000.
FOR / / AGAINST / / ABSTAIN / /
CHANGE OF ADDRESS / /
MARK HERE
Please sign exactly as your name appears to the
left. When signing as attorney, executor,
administrator, trustee or guardian, please give
your full title. If shares are held jointly,
each holder should sign.
Dated: ______________________________, 2000
___________________________________________
Signature
___________________________________________
Signature
VOTES MUST BE INDICATED /X/
(X) IN BLACK OR BLUE INK.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
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PLEASE DETACH HERE
YOU MUST DETACH THIS PORTION OF THE PROXY CARD
BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE
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<PAGE>
HARDING & HEAL, INC. PROOF #5 3/15/00 1315 CUST. THE BANK OF NEW YORK
FILE NAME 71562 LARSCOM L/P
ATTN: WILLIAM POWERS
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LARSCOM INCORPORATED
PROXY/VOTING INSTRUCTIONS CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LARSCOM INCORPORATED FOR THE ANNUAL MEETING OF
STOCKHOLDERS SCHEDULED FOR MAY 24, 2000
The undersigned appoints Lawrence D. Milligan and Joseph F. Smorada
and each of them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of Larscom
Incorporated Class A Common Stock which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders to be held on May 24, 2000 and at
any adjournment or postponement thereof, as indicated on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE NOMINEES SET FORTH IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3, 4 AND 5.
(Continued and to be signed on the reverse side.)
LARSCOM INCORPORATED
P.O. BOX 11396
NEW YORK, N.Y. 10203-0396
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