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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Broadcom Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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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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[BROADCOM LOGO]
NOTICE OF 1999 SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 22, 1999
TO THE SHAREHOLDERS OF BROADCOM CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Broadcom Corporation, a California corporation (the "Company"),
will be held on Monday, November 22, 1999, at 10:00 a.m. Pacific Time at the
offices of Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine,
California 92618, for the following purposes, as more fully described in the
Proxy Statement accompanying this Notice:
1. To approve the amendment of the Company's Amended and Restated
Articles of Incorporation to increase the aggregate number of authorized
shares of Class A Common Stock thereunder from 200,000,000 shares to
400,000,000 shares and to increase the aggregate number of authorized
shares of Class B Common Stock thereunder from 100,000,000 shares to
200,000,000 shares.
2. To approve the amendment of the Company's Amended and Restated
Articles of Incorporation to permit the issuance of additional shares of
Class B Common Stock upon the approval of at least two-thirds of the
members of the Board of Directors then in office.
3. To approve the amendment of the Company's 1998 Stock Incentive
Plan:
(a) to increase the number of shares of Class A Common Stock
reserved for issuance under this plan by an additional
10,000,000 shares; and
(b) to revise the automatic share increase provisions of this plan
so that the number of shares of Class A Common Stock by which
the share reserve is to increase automatically on the first
trading day in January each year will be increased to 4.5% of
the total number of shares of Class A Common Stock and Class B
Common Stock outstanding on the last trading day of December in
the immediately preceding calendar year, beginning with the
January 3, 2000 annual increase, subject to an annual share
limit.
4. To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.
Only shareholders of record at the close of business on October 15, 1999
are entitled to notice of and to vote at the Special Meeting and any
adjournment(s) or postponement(s) thereof. The stock transfer books of the
Company will remain open between the record date and the date of the Special
Meeting. A list of shareholders entitled to vote at the Special Meeting will be
available for inspection at the executive offices of the Company.
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Because this is a Special Meeting with only limited items on the agenda,
the Company does not presently intend to have any presentations from management
as it typically does for its Annual Meeting of Shareholders. As such, we
anticipate that this meeting will only last a few minutes. Although you are
entitled to attend the Special Meeting and vote in person, we encourage you to
complete, sign and date the enclosed Proxy as promptly as possible and return it
in the enclosed return envelope. Should you receive more than one Proxy because
your shares are registered in different names or addresses, please be sure to
sign and return each Proxy to assure that all of your shares will be voted. You
may revoke your Proxy at any time prior to the Special Meeting. If you attend
the Special Meeting and vote by ballot, your Proxy will be revoked automatically
and only your vote at the Special Meeting will be counted.
Sincerely,
Henry T. Nicholas III, Ph.D.
President, Chief Executive Officer and
Co-Chairman
Irvine, California
October 22, 1999
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
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[BROADCOM LOGO]
BROADCOM CORPORATION
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92618-3616
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PROXY STATEMENT
FOR 1999 SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 22, 1999
GENERAL
The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Broadcom Corporation, a California corporation (the
"Company"), for use at a Special Meeting of Shareholders to be held on Monday,
November 22, 1999 (the "Special Meeting") and at any adjournment(s) or
postponement(s) thereof. The Special Meeting will be held at 10:00 a.m. Pacific
Time at the offices of Brobeck, Phleger & Harrison LLP, 38 Technology Drive,
Irvine, California 92618. These proxy solicitation materials were mailed on or
about October 22, 1999 to all shareholders of the Company entitled to vote at
the Special Meeting.
VOTING; QUORUM
The specific proposals to be considered and acted upon at the Special
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On October 15, 1999, the record date for
determination of shareholders entitled to notice of and to vote at the Special
Meeting, shares of the Company's Class A Common Stock, par value
$0.0001 per share (the "Class A Common Stock"), were issued and outstanding, and
shares of the Company's Class B Common Stock, par value $0.0001 per
share (the "Class B Common Stock"), were issued and outstanding. No shares of
the Company's Preferred Stock, par value $0.0001 per share, were outstanding as
of October 15, 1999. The Class A Common Stock and the Class B Common Stock are
collectively referred to herein as the "Common Stock." All share numbers and
prices reported in this Proxy Statement reflect the two-for-one stock split that
was effected on February 17, 1999 through the payment of a dividend of one
additional share of Class A Common Stock for every share of Class A Common Stock
outstanding as of February 5, 1999. A comparable stock dividend was distributed
to the holders of the Company's Class B Common Stock outstanding as of February
5, 1999.
Holders of Common Stock will vote at the Special Meeting as a single class
on all matters, with each holder of Class A Common Stock entitled to one vote
per share held, and each holder of Class B Common Stock entitled to ten votes
per share held. In addition, the holders of the Class B Common Stock, voting as
a class, will separately vote on Proposal Two.
Proposals One and Two each require the approval of the affirmative vote of
the holders of Common Stock representing a majority of the voting power of the
Common Stock outstanding on the record date, voting together as a class.
Proposal Two also requires the approval of the affirmative vote of the holders
of a majority of the Class B Common Stock outstanding on the record date, voting
separately as a class. Proposal Three requires the approval of the affirmative
vote of the holders of the outstanding Common Stock representing a majority of
the voting power present or represented by proxy and voting at the Special
Meeting, together with the affirmative vote of the majority of the voting power
of the required quorum. The presence at the Special Meeting, either in person or
by proxy, of holders of shares of outstanding Common Stock entitled to vote and
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representing a majority of the voting power of such shares shall constitute a
quorum for the transaction of business. Abstentions and shares held by brokers
that are present in person or represented by proxy but that are not voted
because the brokers were prohibited from exercising discretionary authority
("broker non-votes") will be counted for the purpose of determining if a quorum
is present for the transaction of business. Abstentions and broker non-votes can
have the effect of preventing approval of a proposal where the number of
affirmative votes, though a majority of the votes cast, does not constitute a
majority of the required quorum. All votes will be tabulated by the inspector of
election appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
PROXIES
If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Special Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be voted FOR the approval of
Proposals One, Two and Three described in the accompanying Notice and in this
Proxy Statement. You may revoke or change your Proxy at any time before the
Special Meeting by filing a notice of revocation or another signed Proxy with a
later date with the Secretary of the Company at the Company's principal
executive offices, located at 16215 Alton Parkway, Irvine, California
92618-3616. You may also revoke your Proxy by attending the Special Meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of the solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the shareholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
The Company may reimburse such persons for their costs in forwarding the
solicitation materials to the beneficial owners of the Common Stock. The
original solicitation of proxies by mail may be supplemented by a solicitation
by telephone, telegram or any other means by directors, officers or employees of
the Company. No additional compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
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MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
PROPOSAL ONE:
APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
Under the Company's present capital structure, the Company is authorized to
issue 200,000,000 shares of Class A Common Stock, par value $0.0001 per share,
100,000,000 shares of Class B Common Stock, par value $0.0001 per share, and
10,000,000 shares of Preferred Stock, par value $0.0001 per share. The Board
believes the number of authorized shares of Common Stock is inadequate for the
present and future needs of the Company and in particular, limits the Company's
ability to effect future stock splits in the form of a stock dividend.
Therefore, the Board has unanimously approved the amendment of Article III of
the Company's Amended and Restated Articles of Incorporation to increase the
aggregate number of shares of Class A Common Stock authorized for issuance by
200,000,000 shares, to an aggregate of 400,000,000 shares authorized, and to
increase the aggregate number of shares of Class B Common Stock authorized for
issuance by an additional 100,000,000 shares, to an aggregate of 200,000,000
shares authorized. The Board believes this capital structure more appropriately
reflects the present and future needs of the Company and recommends that the
Company's shareholders approve such amendment. The Preferred Stock may be issued
from time to time in one or more series with such rights, preferences and
privileges, including dividend rates, conversion and redemption prices, and
voting rights, as may be determined by the Board. On August 31, 1999, 46,177,339
shares of Class A Common Stock were outstanding, 56,919,169 shares of Class B
Common Stock were outstanding, and no shares of Preferred Stock were
outstanding. On August 31, 1999, assuming the exercise of all outstanding
options, approximately 60,834,538 shares of Class A Common Stock and 69,116,232
shares of Class B Common Stock would be outstanding on a fully diluted basis.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
The authorization of an additional 200,000,000 shares of Class A Common
Stock and 100,000,000 shares of Class B Common Stock would give the Board the
ability to issue such shares of Common Stock from time to time as the Board
deems necessary. The Board believes it needs to have the ability to issue such
additional shares of Common Stock for any proper corporate purpose, such as
stock splits and stock dividends, future acquisitions, stock and option grants,
and convertible debt and equity financings. Because the broadband communications
market is experiencing rapid technological changes, evolving industry standards
and new product introductions, the Company expects to continue to need to issue
stock and options to attract key individuals and other personnel and to acquire
complementary businesses, technologies and products. The Company may also fund
its activities and acquisitions through several different means, including
equity and convertible debt financings.
The Company has no specific plans, understandings or agreements at present
for the issuance of the proposed additional shares of Common Stock. The Board of
Directors, however, believes that if an increase in the authorized number of
shares of Common Stock were to be postponed until a specific need arose, the
delay and expense incident to obtaining the approval of the Company's
shareholders at that time could significantly impair the Company's ability to
consummate an acquisition or to meet financing requirements or other objectives.
It may also delay the effectiveness of a stock dividend.
The additional Common Stock would be available for issuance by the Board
without any future action by the shareholders, unless such action were
specifically required by the Company's Amended and Restated Articles of
Incorporation, applicable law or the rules of any stock exchange or quotation
system on which the Company's securities may then be listed.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's shareholders, depending upon the
exact nature and circumstances of any actual issuances of the authorized shares.
The increase could have an anti-takeover effect, in that additional shares could
be issued (within the limits imposed by applicable law) in one or more
transactions that could make a change in control or takeover of the Company more
difficult. For example, additional shares could be issued
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by the Company to dilute the stock ownership or voting rights of persons seeking
to obtain control of the Company. Similarly, the issuance of additional shares
to certain persons allied with the Company's management could have the effect of
making it more difficult to remove the Company's current management by diluting
the stock ownership or voting rights of persons seeking to cause such removal.
In addition, an issuance of additional shares by the Company could have an
effect on the potential realizable value of a shareholder's investment. In the
absence of a proportionate increase in the Company's earnings and book value, an
increase in the aggregate number of the Company's outstanding shares of Common
Stock caused by the issuance of the additional shares would dilute the earnings
per share and book value per share of all outstanding shares of the Company's
capital stock. If such factors were reflected in the price per share of Common
Stock, the potential realizable value of a shareholder's investment could be
adversely affected.
REQUIRED VOTE
The affirmative vote of a majority of the voting power of all shares of the
Company's Class A Common Stock and Class B Common Stock outstanding on the
record date, voting together as a class, is required for approval of the
amendment of the Company's Amended and Restated Articles of Incorporation to
increase the aggregate number of authorized shares of Class A Common Stock
issuable thereunder by 200,000,000 shares, to an aggregate of 400,000,000
shares, and to increase the aggregate number of authorized shares of Class B
Common Stock issuable thereunder by 100,000,000 shares, to an aggregate of
200,000,000 shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL. UNLESS THE AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE
AMENDMENT OF THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
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PROPOSAL TWO:
APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES
OF CLASS B COMMON STOCK UPON BOARD APPROVAL
The Company's Amended and Restated Articles of Incorporation currently
require the affirmative vote of holders of a majority of the outstanding shares
of Class B Common Stock, voting separately as a class, prior to the issuance of
any additional shares of the Company's Class B Common Stock. The Board of
Directors has unanimously approved an amendment to Article III, Section B.2 of
the Company's Amended and Restated Articles of Incorporation to permit the
Company to issue additional shares of the Class B Common Stock without the
approval of the holders of the outstanding shares of Class B Common Stock when
such issuance has been approved by two-thirds of the members of the Board of
Directors then in office.
PURPOSE OF PROPOSED AMENDMENT
The approval of the proposed amendment to the Company's Articles of
Incorporation would afford the Board the flexibility to issue additional shares
of the Company's Class B Common Stock from time to time. The Board believes this
flexibility is essential in order to enable the Company to execute its strategic
plans, particularly in connection with acquisitions where the Company's highest
voting common stock must be used in order to account for the acquisition as a
pooling of interests. The Board further believes that the delay and expense to
obtain the approval of the holders of the Company's Class B Common Stock for
each issuance could significantly impair the Company's ability to consummate
acquisitions of companies or technologies that would otherwise be in the best
interests of the Company and its shareholders. The Company does not have any
specific plans, understandings or agreements at present with respect to the
issuance of additional shares of Class B Common Stock, other than upon the
exercise of outstanding stock options.
REQUIRED VOTE
The affirmative vote of a majority of the voting power of all of the
Company's Class A Common Stock and Class B Common Stock outstanding, voting
together as a class, and the affirmative vote of a majority of the Company's
Class B Common Stock outstanding, voting separately as a class, are required to
approve this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PROPOSAL. UNLESS THE AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S)
NAMED IN EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL
OF THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES OF CLASS B COMMON STOCK UPON THE
APPROVAL OF TWO-THIRDS OF THE MEMBERS OF THE BOARD OF DIRECTORS THEN IN OFFICE.
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PROPOSAL THREE:
APPROVAL OF AMENDMENT OF THE 1998 STOCK INCENTIVE PLAN
The Company's shareholders are being asked to approve the amendment of the
Company's 1998 Stock Incentive Plan (the "1998 Plan") to effect the following
changes:
(i) To increase the number of shares of the Company's Class A Common
Stock reserved for issuance under the 1998 Plan by an additional 10,000,000
shares; and
(ii) To revise the automatic share increase provisions of the 1998
Plan so that the number of shares of Class A Common Stock by which the
share reserve is to increase automatically on the first trading day in
January each year will be increased from 3% of the number of shares of
Class A Common Stock outstanding on the last trading day of December in the
immediately preceding calendar year to 4.5% of the total number of shares
of Class A Common Stock and Class B Common Stock outstanding on the last
trading day of December in the immediately preceding calendar year,
beginning with the January 3, 2000 annual increase, but in no event will
any such annual increase exceed 9,000,000 shares of Class A Common Stock.
The Board of Directors unanimously adopted this amendment on September 24,
1999, subject to shareholder approval at this Special Meeting.
The proposed amendment will assure that a sufficient reserve of Class A
Common Stock remains available for issuance under the 1998 Plan in order to
allow the Company to continue to utilize equity incentives to attract and retain
the services of key individuals and other personnel essential to the Company's
long-term growth and financial success. The Company relies significantly on
equity incentives in the form of stock option grants in order to attract and
retain key employees and other personnel and believes that such equity
incentives are necessary for the Company to remain competitive in the
marketplace for executive talent and other key employees. Option grants made to
newly-hired or continuing employees will be based on both competitive market
conditions and individual performance. The amendment of the automatic share
increase provisions to apply to both Class A Common Stock and Class B Common
Stock reflects the correction of an inadvertent definitional mistake in the
original plan document.
The following is a summary of the principal features of the 1998 Plan, as
most recently amended. Any shareholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Company
at P.O. Box 57013, Irvine, California 92619-7013 (Attention: Investor
Relations). The 1998 Plan serves as the successor to the Company's 1994 Stock
Option Plan and the Special Stock Option Plan (collectively, the "Predecessor
Plans"), which terminated in connection with the initial public offering of the
Company's Class A Common Stock in April 1998. All outstanding options under the
Predecessor Plans at the time of such termination were transferred to the 1998
Plan.
EQUITY INCENTIVE PROGRAMS
The 1998 Plan consists of five (5) separate equity incentive programs: (i)
the Discretionary Option Grant Program, (ii) the Salary Investment Option Grant
Program, (iii) the Stock Issuance Program, (iv) the Automatic Option Grant
Program for non-employee Board members, and (v) the Director Fee Option Grant
Program for such Board members. The principal features of each program are
described below. The Compensation Committee of the Board will have the exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to option grants and stock issuances made to the Company's
executive officers and non-employee Board members and will also have the
authority to make option grants and stock issuances under those programs to all
other eligible individuals. However, the Board may at any time appoint a
secondary committee of one or more Board members to have separate but concurrent
authority with the Compensation Committee to make option grants and stock
issuances under those two programs to individuals other than the Company's
executive officers and non-employee Board members. The Compensation Committee
will also have complete discretion to select the individuals who are to
participate in the Salary Investment Option Grant Program, but all grants made
to the selected individuals will be governed by the express terms of that
program.
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As of the date of this proxy statement, the Company has only implemented
the Discretionary Option Grant Program and Automatic Option Grant Program and
has not issued any shares or granted any options under the Stock Issuance
Program, the Salary Investment Option Grant Program or the Director Fee Option
Grant Program. The Board may determine to implement such Programs in the future.
The Board has appointed an Option Committee, consisting of Dr. Henry T. Nicholas
III and Dr. Henry Samueli, to administer the Discretionary Option Grant Program
and the Stock Issuance Program with respect to option grants and stock issuances
made to eligible individuals other than the Company's executive officers and
non-employee Board members.
The term "Plan Administrator," as used in this summary, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative jurisdiction under the
1998 Plan. However, neither the Compensation Committee nor any secondary
committee will exercise any administrative discretion under the Automatic Option
Grant and Director Fee Option Grant Programs. All grants under those programs
will be made in strict compliance with the express provisions of such programs.
SHARE RESERVE
A total of 26,874,254 shares of Class A Common Stock and 15,896,456 shares
of Class B Common Stock have been reserved in the aggregate for issuance over
the term of the 1998 Plan. Such share reserve consists of (i) the 31,961,126
shares initially reserved for issuance under the 1998 Plan (including the shares
of Class B Common Stock subject to the outstanding options under the Predecessor
Plans, which have been transferred to the 1998 Plan), (ii) the 809,584 shares of
Class A Common Stock added to the 1998 Plan on January 4, 1999 pursuant to the
automatic share increase provisions of the 1998 Plan, plus (ii) the additional
increase of 10,000,000 shares of Class A Common Stock which forms part of this
Proposal. In addition, upon shareholder approval of this Proposal, the number of
shares of Class A Common Stock reserved for issuance under the 1998 Plan will
automatically increase on the first trading day of January each calendar year,
beginning in January 2000, by an amount equal to four and one-half percent
(4.5%) of the total number of shares of Class A Common Stock and Class B Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event will any such annual increase exceed
9,000,000 shares of Class A Common Stock. Prior to the amendment to the 1998
Plan which is the subject of this Proposal, the share reserve was to increase
automatically each year by three percent (3%) of the total number of shares of
Class A Common Stock outstanding on the last trading day of December in the
immediately preceding calendar year.
No participant in the 1998 Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
3,000,000 shares of Class A Common Stock in the aggregate per calendar year.
Shareholder approval of this Proposal will also constitute a reapproval of the
3,000,000 share limitation for purposes of Internal Revenue Code Section 162(m).
The shares of Class A Common Stock and Class B Common Stock issuable under
the 1998 Plan may be drawn from shares of the Company's authorized but unissued
shares of such Common Stock or from shares of such Common Stock reacquired by
the Company, including shares repurchased on the open market.
Shares subject to any outstanding options under the 1998 Plan (including
options transferred from the Predecessor Plans) which expire or otherwise
terminate prior to exercise will be available for subsequent issuance. Unvested
shares issued under the 1998 Plan and subsequently repurchased by the Company,
at the option exercise or direct issue price paid per share, pursuant to the
Company's repurchase rights under the 1998 Plan will be added back to the number
of shares reserved for issuance under the 1998 Plan and will accordingly be
available for subsequent issuance. In addition, the share reserve under the 1998
Plan will be increased by any unvested shares originally issued under the
Predecessor Plans and subsequently repurchased by the Company, at the option
exercise price paid per share, in connection with the optionee's termination of
service prior to vesting in those shares, but in no event will such increase
exceed 6,908,403 shares. However, any shares subject to stock appreciation
rights exercised under the 1998 Plan will not be available for reissuance.
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Should the exercise price of an option under the 1998 Plan be paid with
shares of Class A Common Stock or should shares of Class A Common Stock
otherwise issuable under the 1998 Plan be withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the 1998 Plan, then the
number of shares of Class A Common Stock available for issuance under the 1998
Plan will be reduced only by the net number of shares of Class A Common Stock
issued to the holder of such option or stock issuance, and not by the gross
number of shares for which the option is exercised or which vest under the stock
issuance.
ELIGIBILITY
Officers, employees, non-employee Board members and independent consultants
in the service of the Company or its parent and subsidiaries, whether now
existing or subsequently established, will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. The Company's executive
officers and other highly paid employees will also be eligible to participate in
the Salary Investment Option Grant Program, and non-employee members of the
Board will also be eligible to participate in the Automatic Option Grant and
Director Fee Option Grant Programs.
As of August 31, 1999, seven executive officers, three non-employee Board
members and approximately 780 other employees and consultants were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
seven executive officers were eligible to participate in the Salary Investment
Option Grant Program, and the three non-employee Board members were eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.
VALUATION
The fair market value per share of Class A Common Stock on any relevant
date under the 1998 Plan will be deemed to be equal to the closing selling price
per share on that date on the Nasdaq National Market. On August 31, 1999, the
fair market value per share determined on such basis was $128.75.
DISCRETIONARY OPTION GRANT PROGRAM
The Plan Administrator will have complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule, if any, to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
Each granted option will have an exercise price per share determined by the
Plan Administrator, but in no event will such exercise price be less than
eighty-five percent (85%) of the fair market value of the option shares on the
grant date. No granted option will have a term in excess of ten (10) years, and
the option will generally become exercisable in one or more installments over a
specified period of service measured from the grant date. However, options may
be structured so that they will be immediately exercisable for any or all of the
option shares. However, the shares acquired under those options may be subject
to repurchase by the Company, at the exercise price paid per share, if the
optionee ceases service with the Company prior to vesting in those shares.
Upon cessation of service with the Company, the optionee will have a
limited period of time in which to exercise any outstanding option to the extent
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue tandem stock appreciation
rights under the Discretionary Option Grant Program, which will provide the
holders with the right to surrender their options for an appreciation
distribution from the Company. The amount of such distribution will be equal to
the excess of
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<PAGE> 12
(a) the fair market value of the vested shares of Class A Common Stock subject
to the surrendered option over (b) the aggregate exercise price payable for such
shares. Such appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Class A Common Stock.
The Plan Administrator also has the authority to effect the cancellation of
any or all options outstanding under the Discretionary Option Grant Program and
to grant, in substitution therefor, new options covering the same or a different
number of shares of Class A Common Stock or Class B Common Stock, but with an
exercise price per share based upon the fair market value of the option shares
on the new grant date.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Compensation Committee will have complete discretion in implementing
the Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Compensation Committee an irrevocable
authorization directing the Company to reduce his or her base salary for the
upcoming calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000 and to apply that amount to the acquisition of a special
option grant under the program. As of August 31, 1999, no individuals had
participated in this program.
Each selected individual who files such a timely election will
automatically be granted a non-statutory option on the first trading day in
January of the calendar year for which that salary reduction is to be in effect.
Shareholder approval of this Proposal will also constitute pre-approval of each
option granted under the Salary Investment Option Grant Program after the date
of this Special Meeting and the subsequent exercise of that option in accordance
with the terms of the program summarized below.
The number of shares subject to each such option will be determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of Class A Common Stock on the grant date, and the exercise price will be
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the total spread on the option shares at the time of grant
(the fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the salary reduction
amount. In effect, the salary reduction will constitute a pre-payment of the
remaining two-thirds of the fair market value of the option shares on the grant
date.
The option will become exercisable in a series of twelve (12) equal monthly
installments upon the optionee's completion of each calendar month of service in
the calendar year for which the salary reduction is in effect and will become
immediately exercisable in all the option shares on an accelerated basis upon
certain changes in ownership or control of the Company. Each option will remain
exercisable for any vested shares until the earlier of (i) the expiration of the
ten (10) year option term or (ii) the end of the three (3) year period measured
from the date of the optionee's cessation of service.
STOCK ISSUANCE PROGRAM
Shares of Class A Common Stock may be issued under the Stock Issuance
Program for such valid consideration under the California General Corporation
Law as the Plan Administrator deems appropriate, including cash and promissory
notes. The shares may also be issued as a bonus for past services without any
cash outlay required of the recipient. In addition, shares of Class A Common
Stock may be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals. The Plan Administrator will have complete
discretion under the program to determine which eligible individuals are to
receive such stock issuances or share right awards, the time or times when those
issuances or awards are to be made, the number of shares subject to each such
issuance or award and the vesting schedule to be in effect for the stock
issuance or share rights award. As of August 31, 1999, the Company has not
issued any shares under this Stock Issuance Program.
The shares issued may be fully vested upon issuance or may vest upon the
completion of a designated service period or the attainment of pre-established
performance goals. The Plan Administrator will, however,
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<PAGE> 13
have the discretionary authority at any time to accelerate the vesting of any
and all unvested shares outstanding under the Stock Issuance Program.
Outstanding share right awards under the Stock Issuance Program will
automatically terminate, and no shares of Class A Common Stock will actually be
issued in satisfaction of those awards, if the performance goals established for
such awards are not attained. The Plan Administrator, however, will have the
discretionary authority to issue shares of Class A Common Stock in satisfaction
of one or more outstanding share right awards as to which the designated
performance goals are not attained.
AUTOMATIC OPTION GRANT PROGRAM
Grants
Under the Automatic Option Grant Program, eligible non-employee Board
members will receive a series of option grants over their period of Board
service. Each non-employee Board member will, at the time of his or her initial
election or appointment to the Board, receive an option grant for 80,000 shares
of Class A Common Stock, provided that such individual has not previously been
in the employ of the Company or any of its parents or subsidiaries. In addition,
on the date of each Annual Shareholders Meeting, each individual who is to
continue to serve as a non-employee Board member will automatically be granted
an option to purchase 6,000 shares of Class A Common Stock, provided he or she
has served as a non-employee Board member for at least six (6) months. There
will be no limit on the number of such 6,000 share option grants any one
eligible non-employee Board member may receive over his or her period of
continued Board service, and non-employee Board members who have previously been
in the Company's employ will be eligible to receive one or more such annual
option grants over their period of Board service. At the Company's Annual
Shareholders Meeting in May 1999, each non-employee Board member who was
eligible to receive the 6,000 share annual stock option grant declined to accept
the annual grant for 1999.
Shareholder approval of this Proposal will also constitute pre-approval of
each option granted under the Automatic Option Grant Program after the date of
the Special Meeting and the subsequent exercise of that option in accordance
with the terms of the program summarized below.
Option Terms
Each automatic grant will have an exercise price per share equal to the
fair market value per share of Class A Common Stock on the grant date and will
have a maximum term of ten (10) years, subject to earlier termination following
the optionee's cessation of Board service. Each automatic option will be
immediately exercisable for all of the option shares; however, any unvested
shares purchased under such option will be subject to repurchase by the Company,
at the exercise price paid per share, should the optionee cease Board service
prior to vesting in those shares. The shares subject to each initial 80,000
share automatic option grant will vest in a series of four (4) successive equal
annual installments upon the optionee's completion of each year of Board service
over the four (4) year period measured from the grant date. The shares subject
to each annual 6,000 share automatic grant will vest upon the optionee's
completion of one (1) year of Board service measured from the grant date.
However, the shares subject to each outstanding automatic option grant will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while a Board member.
Following the optionee's cessation of Board service for any reason, each option
will remain exercisable for a twelve (12) month period and may be exercised
during that time for any or all shares in which the optionee is vested at the
time of such cessation of Board service.
DIRECTOR FEE OPTION GRANT PROGRAM
Each non-employee Board member will have the right to apply all or a
portion of his total retainer fee, if any, otherwise payable in cash each year
to the acquisition of a special option grant under the Director Fee Option Grant
Program. The grant will automatically be made on the first trading day in
January following the filing of the option-in-lieu-of-cash election and will
have an exercise price per share equal to one-third of the fair market value of
the option shares on the grant date. The number of option shares will be
determined by dividing the total dollar amount of the retainer fee subject to
the director's election by two-thirds of the fair
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<PAGE> 14
market value per share of Class A Common Stock on the option grant date. As a
result, the total spread on the option (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the portion of the retainer fee subject to the
director's election. In effect, the director-fee election will constitute a
pre-payment of the remaining two-thirds of the fair market value of the option
shares on the grant date. As of August 31, 1999, no Board member was being paid
a cash retainer fee by the Company and no Board member participated in this
option grant program.
Shareholder approval of this Proposal will constitute pre-approval of each
option granted pursuant to the provisions of the Director Fee Option Grant
Program after the date of the Special Meeting and the subsequent exercise of
that option in accordance with its terms.
The option will become exercisable for the option shares in a series of
twelve (12) successive equal monthly installments upon the optionee's completion
of each month of Board service during the calendar year of the option grant. In
the event the optionee ceases Board service for any reason (other than death or
permanent disability), the option will immediately terminate with respect to any
unvested shares subject to the option at the time. However, the option will
remain exercisable for the vested shares subject to the option until the earlier
of (i) the expiration of the ten (10) year option term or (ii) the end of the
three (3) year period measured from the date of the optionee's cessation of
Board service. Should the optionee's service as a Board member cease by reason
of death or permanent disability, then the option will immediately become
exercisable for all the shares of Common Stock subject to the option and may be
exercised for any or all of those shares until the earlier of (i) the expiration
of the ten (10) year option term or (ii) the end of the three (3) year period
measured from the date of the optionee's cessation of Board service.
LIMITED STOCK APPRECIATION RIGHTS
Each option granted under the Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program will include a limited stock
appreciation right. Upon the successful completion of a hostile tender offer for
more than fifty percent (50%) of the Company's outstanding voting securities or
a change in a majority of the Board as a result of one or more contested
elections for Board membership, each outstanding option under the Salary
Investment Option Grant, Automatic Option Grant or Director Fee Option Grant
Program may be surrendered to the Company in return for a cash distribution from
the Company. The amount of the distribution per surrendered option share will be
equal to the excess of (i) the fair market value per share at the time the
option is surrendered or, if greater, the tender offer price paid per share in
the hostile take-over over (ii) the exercise price payable per share under such
option.
Shareholder approval of this Proposal will also constitute pre-approval of
each limited stock appreciation right granted under the Salary Investment Option
Grant, Automatic Option Grant or Director Fee Option Grant Program and the
subsequent exercise of that right in accordance with the foregoing terms.
PREDECESSOR PLANS
All outstanding options under the Predecessor Plans that were transferred
to the 1998 Plan will continue to be governed by the terms of the original
agreements evidencing those options, and no provision of the 1998 Plan will
affect or otherwise modify the rights or obligations of the holders of the
transferred options with respect to their acquisition of Class A Common Stock or
Class B Common Stock. However, the Plan Administrator has complete discretion to
extend one or more provisions of the 1998 Plan to the transferred options, to
the extent those options do not otherwise contain such provisions.
STOCK AWARDS
The table below sets forth, as to Company's Chief Executive Officer, the
three other most highly compensated executive officers of the Company (with base
salary and bonus for the past fiscal year in excess of $100,000) and the other
individuals and groups indicated, the number of shares of Common Stock subject
to option grants made under the 1998 Plan from the April 8, 1998 effective date
of the 1998 Plan through
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<PAGE> 15
August 31, 1999, together with the weighted average exercise price payable per
share for such option grants. The Company has not made any direct stock
issuances to date under the 1998 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF SHARES EXERCISE PRICE
UNDERLYING TYPE OF SECURITIES PER
NAME AND POSITION OPTIONS GRANTED(#) UNDERLYING OPTIONS SHARE($)
----------------- ------------------- -------------------- --------------
<S> <C> <C> <C>
Henry T. Nicholas III, Ph.D............. -- -- --
President, Chief Executive Officer and
Co-Chairman
Henry Samueli, Ph.D..................... -- -- --
Vice President of Research &
Development,
Chief Technical Officer and
Co-Chairman
William J. Ruehle....................... 300,000 Class A Common Stock $40.9063
Vice President and Chief Financial
Officer
Aurelio E. Fernandez.................... 100,000 Class A Common Stock $40.9063
Vice President of Worldwide Sales
Myron S. Eichen......................... 80,000 Class A Common Stock $ 12.00
Director
Alan E. Ross............................ 80,000 Class A Common Stock $ 12.00
Director
Werner F. Wolfen........................ 80,000 Class A Common Stock $ 12.00
Director
All current executive officers as a
group (7 persons)..................... 700,000 Class A Common Stock $40.9063
All current non-employee directors as a
group (3 persons)..................... 240,000 Class A Common Stock $ 12.00
All employees, including current
officers who are not executive
officers, as a group.................. 14,049,378 Class A Common Stock $61.3483
</TABLE>
As of August 31, 1999, 14,657,199 shares of Class A Common Stock and
11,379,497 shares of Class B Common Stock were subject to outstanding options
under the 1998 Plan, 233,173 shares of Class A Common Stock and 4,342,044 shares
of Class B Common Stock had been issued under the 1998 Plan, and 2,166,172
shares of Class A Common Stock remained available for future issuance. In
September 1999, the Board of Directors approved an amendment to the 1998 Plan to
increase the number of shares available for future issuance by 10,000,000
shares, subject to shareholder approval of this Proposal.
1999 SPECIAL STOCK OPTION PLAN
In October 1999, the Company's Board of Directors approved the 1999 Special
Stock Option Plan and reserved an aggregate of 500,000 shares of Class A Common
Stock for issuance under this plan. These shares are in addition to the shares
reserved for issuance under the 1998 Plan. Employees, independent consultants
and advisors in the service of the Company or any of its subsidiaries who are
neither officers of the Company nor members of the Board and who are not
otherwise subject to Section 16 of the Securities Exchange Act of 1934, as
amended, at the time of the option grant are eligible to participate in this
plan. The plan terminates in October 2009 and permits the Company to grant
options to eligible participants at an exercise price below the then fair market
value of the Class A Common Stock. As of October 15, 1999, the Company had
granted options to purchase an aggregate of shares of Class A
Common Stock under this plan at a weighted average exercise price of $ per
share.
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<PAGE> 16
OPTION GRANTS AND ISSUANCES OF ADDITIONAL SHARES UNDER 1998 PLAN
As of September 15, 1999, no stock options had been granted under the 1998
Plan, and no shares of Class A Common Stock had been issued, out of the
additional shares to be reserved for issuance under this Proposal.
GENERAL PROVISIONS
Acceleration
In the event a change in control of the Company occurs, each outstanding
option under the Discretionary Option Grant Program will automatically
accelerate in full, unless (i) the option is assumed by the successor
corporation or otherwise continued in effect or (ii) the option is replaced with
a cash incentive program which preserves the spread existing on the unvested
option shares (the excess of the fair market value of those shares over the
option exercise price payable for such shares) and provides for subsequent
payout in accordance with the same vesting schedule in effect for those option
shares. In addition, all unvested shares outstanding under the Discretionary
Option Grant and Stock Issuance Programs will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation or otherwise continued in effect. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program that will become exercisable for all the
option shares in the event the optionee's service with the Company or the
successor entity is terminated (actually or constructively) within a designated
period following a change in control transaction in which those options are
assumed or otherwise continued in effect. The vesting of outstanding shares
under the Stock Issuance Program may also be structured to accelerate upon
similar terms and conditions.
The Plan Administrator will have the discretion to structure one or more
option grants under the Discretionary Option Grant Program so that those options
will vest immediately vest upon a change in control, whether or not the options
are to be assumed or otherwise continued in effect. The Plan Administrator may
also structure stock issuances under the Stock Issuance Program so that those
issuances will immediately vest upon a change in control. The shares subject to
each option under the Salary Investment Option Grant, Automatic Option Grant and
Director Fee Option Grant Programs will immediately vest upon any change in
control transaction. A change in control will be deemed to occur upon (i) an
acquisition of the Company by merger or asset sale, (ii) the successful
completion of a tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock, or (iii) a change in the majority of the Board
effected through one or more contested elections for Board membership.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Shareholder Rights and Option Transferability
No optionee will have any shareholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are not assignable or transferable other than
by will or the laws of inheritance following optionee's death, and during the
optionee's lifetime, the option may only be exercised by the optionee. However,
non-statutory options may be transferred or assigned during optionee's lifetime
to one or more members of the optionee's family or to a trust established for
one or more such family members or to the optionee's former spouse, to the
extent such transfer is in connection with the optionee's estate plan or
pursuant to a domestic relations order.
Changes in Capitalization
In the event any change is made to the outstanding shares of Class A Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1998 Plan, (ii) the maximum
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<PAGE> 17
number and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the 1998 Plan per calendar year, (iii) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option, (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option transferred
from the Predecessor Plans to the 1998 Plan, (vi) the maximum number and/or
class of securities by which the share reserve under the 1998 Plan is to
increase automatically each year, and (vii) the maximum number and/or class of
securities by which the share reserve under the 1998 Plan may increase as a
result of the repurchase of unvested shares originally issued under the
Predecessor Plan. Such adjustments will be designed to preclude any dilution or
enlargement of benefits under the Plan or the outstanding options thereunder.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program through full-recourse interest-bearing promissory notes.
However, the maximum amount of financing provided any participant may not exceed
the cash consideration payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of those shares.
Special Tax Election
The Plan Administrator may provide one or more holders of non-statutory
options or unvested share issuances under the 1998 Plan with the right to have
the Company withhold a portion of the shares otherwise issuable to such
individuals in satisfaction of the withholding taxes to which such individuals
become subject in connection with the exercise of those options or the vesting
of those shares. Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of common stock in payment of
such withholding tax liability.
Amendment and Termination
The Board may amend or modify the 1998 Plan at any time, subject to any
required shareholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 1998 Plan will terminate on the
earliest of (i) January 31, 2008, (ii) the date on which all shares available
for issuance under the Plan have been issued and have become fully-vested
shares, or (iii) the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the 1998 Plan may be either incentive stock options,
which satisfy the requirements of Section 422 of the Internal Revenue Code (the
"Code"), or non-statutory stock options, which are not intended to meet such
requirements. The federal income tax treatment for the two types of options
differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
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<PAGE> 18
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.
Non-Statutory Stock Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will, in general,
recognize ordinary income in the year in which the option is exercised, equal to
the excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights
No taxable income is recognized upon receipt of a stock appreciation right.
The holder will recognize ordinary income in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of Common Stock on the exercise date over
the base price in effect for the exercised right, and the holder will be
required to satisfy the tax withholding requirements applicable to such income.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable year
in which such ordinary income is recognized.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 1998 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory stock option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory stock options with exercise prices equal to the
fair market value of the option shares on the grant date under the 1998 Plan
will qualify as performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into
15
<PAGE> 19
account for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
ACCOUNTING TREATMENT
Option grants under the Discretionary Option Grant and Automatic Option
Grant Programs with exercise prices equal to the fair market value of the option
shares on the grant date will not result in any direct charge to the Company's
reported earnings. However, the fair value of those options is required to be
disclosed in the notes to the Company's consolidated financial statements, and
the Company must also disclose, in footnotes to the Company's consolidated
financial statements, the pro forma impact those options would have upon the
Company's reported earnings were the fair value of those options at the time of
grant treated as a compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully-diluted basis.
Option grants or stock issuances made under the 1998 Plan with exercise or
issue prices less than the fair market value of the shares on the grant or issue
date will result in a direct compensation expense to the Company in an amount
equal to the excess of such fair market value over the exercise or issue price.
The expense must be amortized against the Company's earnings over the period
that the option shares or issued shares are to vest.
On March 31, 1999, the Financial Accounting Standards Board issued an
exposure draft of a proposed interpretation of APB Opinion No. 25 governing the
accounting principles applicable to equity incentive plans. Under the proposed
interpretation, as subsequently modified on August 11, 1999, option grants made
to non-employee consultants (but not non-employee Board members) after December
15, 1998 will result in a direct charge to the Company's reported earnings based
upon the fair value of the option measured initially as of the grant date and
then subsequently on the vesting date of each installment of the underlying
option shares. Such charge will accordingly include the appreciation in the
value of the option shares over the period between the grant date of the option
(or, if later, the effective date of the final interpretation) and the vesting
date of each installment of the option shares. In addition, if the proposed
interpretation is adopted, any options which are repriced after December 15,
1998 will also trigger a direct charge to the Company's reported earnings
measured by the appreciation in the value of the underlying shares over the
period between the grant date of the option (or, if later, the effective date of
the final interpretation) and the date the option is exercised for those shares.
Should one or more individuals be granted tandem stock appreciation rights
under the 1998 Plan, then such rights would result in a compensation expense to
be charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount, if any, by which the fair market value of the
shares of Common Stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.
REQUIRED VOTE
The affirmative vote of a majority of the voting power of the outstanding
Class A Common Stock and Class B Common Stock, voting together as a single
class, present in person or represented by proxy and voting at the Special
Meeting, together with the affirmative vote of the majority of voting power of
the required quorum, is required for approval of the amendment to the 1998 Plan.
Should such shareholder approval not be obtained, then neither the 10,000,000
share increase to the share reserve under the 1998 Plan nor the change in the
automatic share increase provisions of the 1998 Plan will be implemented, any
stock options granted under the 1998 Plan on the basis of those increases will
immediately terminate without ever becoming exercisable for the shares of Class
A Common Stock subject to those options, and no additional options or stock
issuances will be made on the basis of such increases. The 1998 Plan will,
however, continue in effect, and option grants and direct stock issuances may
continue to be made under the 1998 Plan until all the shares
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<PAGE> 20
available for issuance under the 1998 Plan has been issued pursuant to such
option grants and direct stock issuances.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL. UNLESS THE AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE
AMENDMENT OF THE 1998 STOCK INCENTIVE PLAN.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Special Meeting. If any other matters properly come before
the Special Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
expressly granted by the execution of the enclosed Proxy.
17
<PAGE> 21
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
August 31, 1999, by (i) all persons known to the Company to beneficially own
five percent (5%) or more of either class of the Company's Common Stock, (ii)
each director of the Company, (iii) the executive officers named in the Summary
Compensation Table of the Executive Compensation and Other Information section
of this Proxy Statement, and (iv) all current directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES AND PERCENTAGE BENEFICIALLY OWNED(1)
-------------------------------------------- PERCENTAGE
CLASS A CLASS B OF TOTAL
COMMON COMMON VOTING
BENEFICIAL OWNER STOCK PERCENT STOCK PERCENT POWER(1)(2)
---------------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Henry T. Nicholas III, Ph.D.(3)(4)......... -- -- 19,287,300 33.6% 31.1%
Henry Samueli, Ph.D.(3)(5)................. 2 * 19,422,500 33.9 31.3
General Instrument Corporation(6).......... 5,000 * 4,370,000 7.7 7.1
Myron S. Eichen(7)......................... 80,000 * 232,000 * *
Werner F. Wolfen(8)........................ 74,220 * 278,750 * *
Alan E. Ross(9)............................ 74,104 * 22,050 * *
William J. Ruehle(10)...................... 1,679 * 649,000 1.1 1.1
Aurelio E. Fernandez....................... 809 -- 340,563 * *
All current directors and executive
officers as a group (10 persons)(11)..... 267,009 * 40,936,406 70.3 65.2
</TABLE>
- ---------------
* Less than one percent.
(1) The percentage of shares beneficially owned is based on 46,177,339 shares
of Class A Common Stock and 56,919,169 shares of Class B Common Stock
outstanding as of August 31, 1999. Beneficial ownership is determined in
accordance with the rules and regulations of the Securities and Exchange
Commission. Shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of August 31, 1999 are deemed to
be outstanding and beneficially owned by the person holding such options
for the purpose of computing the number of shares beneficially owned and
the percentage ownership of such person, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table, and
subject to applicable community property laws, such persons have sole
voting and investment power with respect to all shares of the Company's
Common Stock shown as beneficially owned by them.
(2) Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share.
Holders of Common Stock will vote together as a single class on all matters
submitted to a vote of shareholders, except (i) as otherwise required by
law and (ii) in the case of a proposed issuance of shares of Class B Common
Stock, which issuance currently requires the affirmative vote of the
holders of the majority of the outstanding shares of Class B Common Stock
voting separately as a class. See "Proposal Two" which will eliminate this
shareholder approval requirement if the issuance of Class B Common Stock is
approved by two-thirds of the Board of Directors then in office.
(3) The address for Dr. Nicholas and Dr. Samueli is 16215 Alton Parkway,
Irvine, California 92618-3616. Includes 455,000 shares of Class B Common
Stock issuable upon exercise of options that are currently exercisable or
will become exercisable within 60 days after August 31, 1999.
(4) Includes 18,832,300 shares of Class B Common Stock held by Dr. Nicholas and
his spouse, as trustees of the Nicholas Family Trust.
(5) Includes (i) 1,722,500 shares of Class B Common Stock owned by HS
Management, L.P., of which Dr. Samueli is the General Partner, (ii)
2,400,000 shares of Class B Common Stock held by Dr. Samueli, as Trustee
for the Lifetime Benefit Trust for Henry Samueli, (iii) 5,845,000 shares of
Class B Common Stock held by Dr. Samueli and his spouse, as Trustees of the
Samueli Family 1995
18
<PAGE> 22
Trust, and (iv) 9,000,000 shares of Class B Common Stock held by HS
Portfolio L.P., of which Dr. Samueli is the General Partner.
(6) The address for General Instrument is 101 Tournament Drive, Horsham,
Pennsylvania 19044.
(7) Includes 232,000 shares of Class B Common Stock owned by the Eichen Family
Trust, of which Mr. Eichen is a trustee. Also includes 80,000 shares of
Class A Common Stock issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after August 31,
1999.
(8) Includes (i) 19,390 shares of Class B Common Stock held by the Werner F.
Wolfen Annuity Trust B, of which Mr. Wolfen is a beneficiary, (ii) 19,390
shares of Class B Common Stock held by the Mary G. Wolfen Annuity Trust B,
of which Mr. Wolfen's spouse is a beneficiary, (iii) 8,206 shares of Class
B Common Stock held by Werner F. Wolfen, P.C. a professional corporation,
and (iv) 610 shares of Class A Common Stock held by Mary G. Wolfen, Mr.
Wolfen's spouse. Also includes 42,502 shares of Class B Common Stock owned
by the Estate of Lawrence P. Wolfen, of which Mr. Wolfen serves as executor
and as to which Mr. Wolfen disclaims beneficial ownership. Also includes
73,000 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after August 31,
1999.
(9) Includes 74,104 shares of Class A Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after August 31, 1999.
(10) Includes 305,250 shares of Class B Common Stock held by a family trust as
to which shares Mr. Ruehle, as co-trustee of such trust, shares voting and
dispositive power.
(11) Includes 227,104 shares of Class A Common Stock and 1,278,598 shares of
Class B Common Stock issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after August 31,
1999.
19
<PAGE> 23
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding all executive
officers and key employees of the Company as of August 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Henry T. Nicholas III, Ph.D. ........ 39 President, Chief Executive Officer and
Co-Chairman
Henry Samueli, Ph.D.................. 45 Vice President of Research & Development, Chief
Technical Officer and Co-Chairman
Martin J. Colombatto................. 41 Vice President and General Manager, Networking
Business Unit
David A. Dull........................ 50 Vice President of Business Affairs, General
Counsel and Secretary
Aurelio E. Fernandez................. 44 Vice President of Worldwide Sales
Timothy M. Lindenfelser.............. 39 Vice President of Marketing
Vahid Manian......................... 39 Vice President of Manufacturing Operations
William J. Ruehle.................... 57 Vice President and Chief Financial Officer
Jeffrey L. Thermond.................. 46 Vice President and General Manager, Home
Networking Business Unit
Nancy M. Tullos...................... 47 Vice President of Human Resources
</TABLE>
The following is a brief description of the capacities in which each of the
executive officers and key employees has served during the past five years.
HENRY T. NICHOLAS III, PH.D. co-founded the Company and has served as its
President, Chief Executive Officer and Co-Chairman since the Company's
inception. From 1988 through 1991, Dr. Nicholas was first a consultant and then
the Director of Microelectronics for PairGain Technologies, Inc., a
telecommunications equipment manufacturer, and was the founder of PairGain's
microelectronics organization. Prior to joining PairGain, Dr. Nicholas held
various senior management positions with the Microelectronics Center of TRW,
Inc. between 1982 and 1989. Dr. Nicholas attended the United States Air Force
Academy, and received a B.S., M.S. and Ph.D. in Electrical Engineering from the
University of California, Los Angeles.
HENRY SAMUELI, PH.D. co-founded the Company and has served as its Vice
President of Research & Development, Chief Technical Officer and Co-Chairman
since the Company's inception. Since 1985, Dr. Samueli has also been a professor
in the Electrical Engineering Department at the University of California, Los
Angeles, where he supervises advanced research programs in broadband
communications circuits and has published more than 100 papers on the subject.
Dr. Samueli was the Chief Scientist and one of the founders of PairGain, and he
consulted for PairGain from 1988 to 1994. From 1980 until 1985, Dr. Samueli was
employed in various engineering management positions in the Electronics and
Technology Division of TRW. Dr. Samueli received a B.S., M.S. and Ph.D. in
Electrical Engineering from the University of California, Los Angeles.
MARTIN J. COLOMBATTO joined the Company in July 1996 as its Director of
Marketing for Broadband Access, and became the Vice President and General
Manager of the Networking Business Unit in December 1997. Prior to joining the
Company, Mr. Colombatto held various sales positions with LSI Logic Corp., a
semiconductor manufacturer, including Director, North American Sales
Communication Segment, from August 1995 to July 1996; Director, European Sales
Communication and Consumer Segment, from April 1992 to July 1995; and Regional
Sales Manager from August 1987 to June 1992. Mr. Colombatto received a B.S. from
the California Polytechnic University, Pomona.
DAVID A. DULL has served as the Company's Vice President of Business
Affairs and General Counsel since March 1998 and was appointed Secretary in
April 1998. From 1985 until 1998, Mr. Dull was a Partner in the law firm of
Irell & Manella LLP, where as a business lawyer he represented a number of
public and private companies and individuals in the entertainment and high
technology industries, including the Company.
20
<PAGE> 24
Irell & Manella LLP has represented and continues to represent the Company in
various transactional and litigation matters. Mr. Dull received a B.A. and a
J.D. from Yale University.
AURELIO E. FERNANDEZ has served as the Vice President of Worldwide Sales
since joining the Company in December 1997. From November 1996 to December 1997,
Mr. Fernandez served as the Senior Vice President of Sales at Exar Corporation,
a semiconductor manufacturer. From November 1994 to November 1996, Mr. Fernandez
served as the Senior Vice President of Sales at ICWorks, Inc., a semiconductor
manufacturer. Prior to that, Mr. Fernandez served in a number of positions, most
recently as Vice President of Telecom Sales at VLSI Technology, Inc., a
semiconductor manufacturer. Mr. Fernandez received a B.S.E.E. from the
University of Florida and an M.B.A. from Florida Atlantic University.
TIMOTHY M. LINDENFELSER has served as the Vice President of Marketing since
joining the Company in February 1994. From that time until December 1997, Mr.
Lindenfelser also served as Vice President of Worldwide Sales. Prior to joining
the Company, Mr. Lindenfelser was employed by Brooktree Corporation, a
semiconductor manufacturer, from November 1988 until February 1994, where he was
responsible for all marketing and new business development for the
Communications Strategic Business Unit. Mr. Lindenfelser received a B.S.E.E.
from the University of Minnesota and an M.B.A. from the University of San Diego.
VAHID MANIAN joined the Company in January 1996 as its Director of
Operations and became the Vice President of Manufacturing Operations in December
1997. Prior to joining the Company, Mr. Manian served as the Director of
Operations at Silicon Systems, Inc. from November 1983 to January 1996, where he
led the implementation, production ramp and qualification of advanced PRML-read
channel ICs. Mr. Manian received a B.S.E.E. and an M.B.A. from the University of
California, Irvine.
WILLIAM J. RUEHLE has served as the Vice President and Chief Financial
Officer since joining the Company in June 1997. Mr. Ruehle was employed by
SynOptics Communications, Inc. as Vice President and Chief Financial Officer
from 1987 until the merger with Wellfleet Communications Incorporated in 1994
that created Bay Networks, Inc., a networking communications company. Following
the merger, Mr. Ruehle was promoted to Executive Vice President and served as
Chief Financial Officer of Bay Networks until January 1997. Mr. Ruehle received
a B.A. in Economics from Allegheny College and an M.B.A. from Harvard Business
School.
JEFFREY L. THERMOND has served as Vice President and General Manager of the
Home Networking Business Unit since joining the Company in May 1999 upon the
Company's acquisition of Epigram, Inc. Mr. Thermond was President and Chief
Executive Officer of Epigram, Inc. from August 1997 to May 1999. From 1994 to
August 1997, he was Vice President and General Manager of the Network Systems
Division at 3Com Corporation. Mr. Thermond received a B.A. from Yale University
and an M.B.A. from Indiana University.
NANCY M. TULLOS joined the Company in September 1998 as its Vice President
of Human Resources. From January 1998 to August 1998, Ms. Tullos was Vice
President, Worldwide Human Resources for Cybermedia, Inc. From 1987 to January
1998 she was Vice President, Human Resources and Administrative Services for
Micropolis Corporation. Ms. Tullos received a B.S. from Ohio University and an
M.B.A. from Pepperdine University.
21
<PAGE> 25
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
three other most highly compensated executive officers of the Company whose
aggregate salary and bonus for the 1998 Fiscal Year were in excess of $100,000
for services rendered in all capacities to the Company and its subsidiaries for
the fiscal years ended December 31, 1997 and 1998. The listed individuals are
hereinafter referred to as the "Named Executive Officers." No other executive
officer's aggregate salary and bonus exceeded $100,000 for the 1998 Fiscal Year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($)(1) COMPENSATION($) OPTIONS(#)
---------------------------- ---- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Henry T. Nicholas III, Ph.D................ 1998 $112,115 -- --
President, Chief Executive 1997 165,000 -- 750,000
Officer and Co-Chairman
Henry Samueli, Ph.D........................ 1998 112,115 -- --
Vice President of Research & 1997 165,000 -- 750,000
Development, Chief Technical Officer and
Co-Chairman
William J. Ruehle.......................... 1998 110,000 $ 46,211(3) 500,000
Vice President and Chief 1997(2) 60,077 24,506(3) 825,000
Financial Officer
Aurelio E. Fernandez....................... 1998 109,577 108,360(5) 100,000
Vice President of Worldwide Sales 1997(4) -- -- 510,000
</TABLE>
- ---------------
(1) Includes amounts deferred under the Company's employee profit sharing plan,
a tax-qualified plan under Section 401(k) of the Internal Revenue Code.
(2) Mr. Ruehle joined the Company and became an executive officer in June 1997.
(3) Represents reimbursement of $29,829 and $12,738 in the 1998 Fiscal Year and
the fiscal year ended December 31, 1997, respectively, for the interest
expense on a $467,500 full-recourse promissory note delivered by Mr. Ruehle
to the Company in July 1997 in connection with the exercise of a stock
option, plus a tax gross-up for the portion thereof includable as taxable
income.
(4) Mr. Fernandez joined the Company and became an executive officer in December
1997.
(5) Represents reimbursement of the interest expense on a $1,800,000
full-recourse promissory note delivered by Mr. Fernandez to the Company in
December 1997 in connection with the exercise of a stock option.
22
<PAGE> 26
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock options
granted to the Named Executive Officers during the 1998 Fiscal Year. Except as
otherwise indicated, all the grants were made under the Company's 1998 Plan. No
stock appreciation rights were granted to the Named Executive Officers during
such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZATION VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(1)
OPTIONS EMPLOYEES PER SHARE EXPIRATION ----------------------------
NAME GRANTED (#) IN 1998 ($/SH) DATE 5%($) 10%($)
---- ----------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Nicholas III,
Ph.D. ....................... -- -- -- -- -- --
Henry Samueli, Ph.D. .......... -- -- -- -- -- --
William J. Ruehle(3)........... 200,000 1.5% $ 5.0000 03/02/08 $ 628,895 $ 1,593,742
300,000 2.2 40.9063 11/03/08 7,717,625 19,558,232
------- --- ---------- -----------
500,000 3.7 8,346,520 21,151,974
Aurelio E. Fernandez(4)........ 100,000 0.7 40.9063 11/03/08 2,572,575 6,519,411
</TABLE>
- ---------------
(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the SEC and do not represent the Company's estimate or
projection of the future trading prices of its Common Stock. Unless the
market price of the Common Stock appreciates over the option term, no value
will be realized from those option grants, which were made to the Named
Executive Officers with an exercise price equal to the fair market value of
the option shares on the grant date. Actual gains, if any, on stock option
exercises are dependent on numerous factors, including, without limitation,
the future performance of the Company, overall business and market
conditions and the option holder's continued employment with the Company
throughout the entire vesting period and option term, which factors are not
reflected in this table.
(2) The exercise price may be paid in cash or in shares of Class A Common Stock
valued at fair market value on the exercise date. Alternatively, the option
may be exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
The Compensation Committee may also assist an optionee in the exercise of an
option by (i) authorizing a loan from the Company in a principal amount not
to exceed the aggregate exercise price plus any tax liability incurred in
connection with the exercise or (ii) permitting the optionee to pay the
option price in installments over a period of years upon terms established
by the Compensation Committee.
(3) Options were granted on March 2, 1998 under the Company's Special Stock
Option Plan and on November 3, 1998 under the 1998 Plan. The options vest in
48 successive equal monthly installments upon optionee's completion of each
month of service from July 1, 2001 and June 1, 2001, respectively. In the
event of a liquidation or dissolution of the Company or a merger or
consolidation in which there is a change in ownership of securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities in which the options are not assumed by the surviving
entity, these options will become immediately exercisable.
(4) Options were granted on November 3, 1998 under the 1998 Plan. The options
vest in 48 successive equal monthly installments upon optionee's completion
of each month of service from January 1, 2002. In the event of a liquidation
or dissolution of the Company or a merger or consolidation in which there is
a change in ownership of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities in which the
options are not assumed by the surviving entity, these options will become
immediately exercisable.
23
<PAGE> 27
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the 1998 Fiscal
Year and unexercised options held by them at the end of that fiscal year. None
of the Named Executive Officers exercised any stock appreciation rights during
the 1998 Fiscal Year and no stock appreciation rights were held by the Named
Executive Officers at the end of such year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Nicholas,
III................... -- -- 750,000 -- $44,813,774 --
Henry Samueli........... -- -- 750,000 -- 44,813,774 --
William J. Ruehle....... -- -- -- 500,000 -- $16,915,610
Aurelio E. Fernandez.... 60,000 $1,830,000 -- 100,000 -- 1,946,870
</TABLE>
- ---------------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.
(2) Determined on the basis of the closing sales price per share of the
Company's Class A Common Stock on the Nasdaq National Market on the last day
of the 1998 Fiscal Year ($60.375 per share), less the option exercise price
payable per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
None of the Named Executive Officers named in the Summary Compensation
Table has an employment agreement with the Company that governs the length of
his service. Accordingly, the employment of any such executive officer may be
terminated at any time at the discretion of the Board of Directors. The Company
has entered into a letter agreement with Mr. William J. Ruehle, the Vice
President and Chief Financial Officer of the Company, which provides that Mr.
Ruehle shall be entitled to payment of his base salary for one year and
continuation of any benefit programs in the event of an acquisition of the
Company. In addition, the letter agreement provides for accelerated vesting of
Mr. Ruehle's initial option grant to purchase 825,000 shares of the Company's
Class B Common Stock in the event of an acquisition or merger of the Company
that results in a change in control of the Company or in which the Company is
not the surviving entity.
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1998 Plan, has the authority to provide for accelerated vesting of the
shares of Common Stock subject to any outstanding options held by the Chief
Executive Officer or any other executive officer or any unvested share issuances
actually held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.
24
<PAGE> 28
FORM 10-K AND FORMS 10-Q AND 8-K
The Company has filed with the SEC an Annual Report on Form 10-K for the
year ended December 31, 1998, Quarterly Reports on Form 10-Q for the three
months ended March 31, 1999 and June 30, 1999, respectively, and Current Reports
on Form 8-K dated September 17, 1999 and September 28, 1999, among others.
Shareholders may obtain a copy of any of the Company's reports, free of charge,
by writing to Investor Relations, Broadcom Corporation, P.O. Box 57013, Irvine,
California 92619-7013.
BY ORDER OF THE BOARD OF DIRECTORS
OF BROADCOM CORPORATION
David A. Dull
Vice President of Business Affairs,
General Counsel and Secretary
Dated: October 22, 1999
25
<PAGE> 29
PROXY BROADCOM CORPORATION
CLASS A COMMON STOCK
1999 SPECIAL MEETING OF SHAREHOLDERS, NOVEMBER 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BROADCOM
CORPORATION
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of 1999 Special Meeting of Shareholders to be held November 22, 1999 and
the Proxy Statement and appoints William J. Ruehle and Timothy M. Lindenfelser,
and each of them, the Proxy of the undersigned, with full power of substitution,
to vote all shares of Class A Common Stock of Broadcom Corporation (the
"Company") which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the Special Meeting of
Shareholders of the Company to be held at the offices of Brobeck, Phleger &
Harrison LLP, 38 Technology Drive, Irvine, California 92618, on November 22,
1999 at 10:00 a.m., and at any adjournment(s) or postponement(s) thereof, with
the same force and effect as the undersigned might or could do if personally
present thereat. The shares represented by this Proxy shall be voted in the
manner set forth below.
1. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve an amendment to the
Company's Amended and Restated Articles
of Incorporation to increase the
aggregate number of authorized shares
of Class A Common Stock from
200,000,000 shares to 400,000,000
shares and to increase the aggregate
number of authorized shares of Class B
Common Stock from 100,000,000 shares to
200,000,000 shares.
2. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve the amendment of the
Company's Amended and Restated Articles
of Incorporation to permit the issuance
of additional shares of Class B Common
Stock upon the approval of at least
two-thirds of the members of the Board
of Directors then in office.
3. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve an amendment of the
Company's 1998 Stock Incentive Plan to:
(a) to increase the number of shares of
Class A Common Stock reserved for
issuance under this plan by an
additional 10,000,000 shares; and (b)
to revise the automatic share increase
provisions of this plan so that the
number of shares of Class A Common
Stock by which the share reserve is to
increase automatically on the first
trading day in January each year to
4.5% of the total number of shares of
Class A Common Stock and Class B Common
Stock outstanding on the last trading
day of December in the immediately
preceding calendar year, beginning with
the January 3, 2000 annual increase,
subject to an annual share limit.
<PAGE> 30
4. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as may
properly come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF each of the listed
proposals. This Proxy, when properly executed, will be voted as specified above.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF EACH OF THE
FOREGOING PROPOSALS.
Date:
-------------------
Please print the name(s)
appearing on each share
certificate(s) over which
you have voting
authority:
-------------------------
(Print name(s) on
certificate)
Please sign your name:
-------------------------
(Authorized Signature(s))
<PAGE> 31
PROXY BROADCOM CORPORATION
CLASS B COMMON STOCK
1999 SPECIAL MEETING OF SHAREHOLDERS, NOVEMBER 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BROADCOM
CORPORATION
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of a 1999 Special Meeting of Shareholders to be held November 22, 1999
and the Proxy Statement and appoints William J. Ruehle and Timothy M.
Lindenfelser, and each of them, the Proxy of the undersigned, with full power of
substitution, to vote all shares of Class B Common Stock of Broadcom Corporation
(the "Company") which the undersigned is entitled to vote, either on his or her
own behalf or on behalf of any entity or entities, at the Special Meeting of
Shareholders of the Company to be held at the offices of Brobeck, Phleger &
Harrison LLP, 38 Technology Drive, Irvine, California 92618, on November 22,
1999 at 10:00 a.m., and at any adjournment or postponement thereof, with the
same force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this Proxy shall be voted in the manner set
forth below.
1. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve an amendment to the
Company's Amended and Restated Articles
of Incorporation to increase the
aggregate number of authorized shares
of Class A Common Stock from
200,000,000 shares to 400,000,000
shares and to increase the aggregate
number of authorized shares of Class B
Common Stock from 100,000,000 shares to
200,000,000 shares.
2. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve the amendment of the
Company's Amended and Restated Articles
of Incorporation to permit the issuance
of additional shares of Class B Common
Stock upon the approval of at least
two-thirds of the members of the Board
of Directors then in office.
3. FOR [ ] AGAINST [ ] ABSTAIN [ ] To approve an amendment of the
Company's 1998 Stock Incentive Plan to:
(a) to increase the number of shares of
Class A Common Stock reserved for
issuance under this plan by an
additional 10,000,000 shares; and (b)
to revise the automatic share increase
provisions of this plan so that the
number of shares of Class A Common
Stock by which the share reserve is to
increase automatically on the first
trading day in January each year to
4.5% of the total number of shares of
Class A Common Stock and Class B Common
Stock outstanding on the last trading
day of December in the immediately
preceding calendar year, beginning with
the January 3, 2000 annual increase,
subject to an annual share limit.
<PAGE> 32
4. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as may
properly come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF each of the listed
proposals. This Proxy, when properly executed, will be voted as specified above.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF EACH OF THE
FOREGOING PROPOSALS.
Date:
-------------------------------------------------------------------------------
Please print the name(s)
appearing on each share
certificate(s) over which
you have voting
authority:
-------------------------
(Print name(s) on
certificate)
Please sign your name:
-------------------------
(Authorized Signature(s))
<PAGE> 33
BROADCOM CORPORATION
1998 STOCK INCENTIVE PLAN
AMENDED AND RESTATED EFFECTIVE SEPTEMBER 24, 1999
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the
interests of Broadcom Corporation, a California corporation, by providing
eligible persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
All share numbers in this September 1999 restatement reflect the
two-for-one split of the Common Stock which was effected on February 17, 1999
through the payment of a dividend of one additional share of Common Stock for
every share of Common Stock outstanding on February 5, 1999.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentive
programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
<PAGE> 34
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized and approved by a disinterested majority of the
Board.
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
2.
<PAGE> 35
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
3
<PAGE> 36
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's shareholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Shareholders Meetings held after the Underwriting Date,
including any individuals who first became non-employee Board members prior to
such Underwriting Date. A non-employee Board member who has previously been in
the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
42,770,710 shares.(1) Such reserve shall consist of (i) the 31,961,126 shares
initially reserved for issuance under this Plan, including the 25,961,126 shares
which were transferred as of the Plan Effective Date from the Predecessor Plans
to this Plan, which included the shares subject to outstanding options under
that Predecessor Plans, (ii) plus an additional increase of 809,584 shares on
January 4, 1999 pursuant to the automatic share increase provisions of Section
V.B of this Article One, plus (iii) an additional increase of 10,000,000 shares
authorized by the Board on September 24, 1999, subject to shareholder approval
at the Special Shareholders Meeting to be held on November 22, 1999. To the
extent any unvested shares of Common Stock outstanding under the Predecessor
Plans as of the Plan Effective Date are subsequently repurchased by the
Corporation, at the option exercise price paid per share, in connection with the
holder's termination of Service prior to vesting in those shares, the
repurchased shares shall be added to the reserve of Common Stock available for
issuance under the Plan, but in no event shall such addition exceed 9,000,000
shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to four and one-half percent (4.5%) of the total number
of shares of Class A and Class B Common Stock outstanding on the last trading
day in December of the immediately preceding calendar year, but in no event
shall any such annual increase exceed 9,000,000 shares.
- ------------------------
(1) The Common Stock issuable under the Plan shall be Class A Common
Stock, except to the extent such stock is to be issued upon the exercise of
outstanding options incorporated from the Predecessor Plans. For those options,
the issuable stock shall be Class B Common Stock.
4.
<PAGE> 37
C. No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances or share right awards for more than 3,000,000 shares of Common Stock
in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plans) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original exercise or issue price paid per
share, pursuant to the Corporation's repurchase rights under the Plan shall be
added back to the number of shares of Common Stock reserved for issuance under
the Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. All shares
which become available for reissuance under the Plan, including the shares of
Class B Common Stock subject to the outstanding options incorporated into this
Plan from the Predecessor Plans which expire or terminate unexercised and any
unvested shares of Class B Common Stock repurchased by the Corporation pursuant
to its repurchase rights, shall be issuable solely as Class A Common Stock. In
addition, should the exercise price of an option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced only by the net number of shares of
Common Stock issued to the holder of such option or stock issuance, and not by
the gross number of shares for which the option is exercised or which vest under
the stock issuance. However, shares of Common Stock underlying one or more stock
appreciation rights exercised under Section IV of Article Two, Section III of
Article Three, Section II of Article Five or Section III of Article Six of the
Plan shall NOT be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances or share right
awards under the Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan, (v) the number and/or class of
securities and exercise price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plans, (vi) the maximum number
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions
5.
<PAGE> 38
of Section V.B of this Article One and (vii) the maximum number
and/or class of securities which may be added to the Plan through the repurchase
of unvested shares issued under the Predecessor Plans. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
6.
<PAGE> 39
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to
be withheld by the Corporation by reason of such exercise and (b)
the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
7.
<PAGE> 40
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for
such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the
option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option
is transferred pursuant to the Optionee's will or the laws of
inheritance or by the Optionee's designated beneficiary or
beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct
while holding one or more outstanding options under this Article
Two, then all those options shall terminate immediately and cease
to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on
the date of the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of
the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more additional installments in
which the Optionee would have vested had the Optionee continued
in Service.
8.
<PAGE> 41
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same limitation, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
9.
<PAGE> 42
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. No option outstanding at the time of a Change in Control shall
become exercisable on an accelerated basis if and to the extent: (i) that option
is, in connection with the Change in Control, assumed by the successor
corporation (or parent thereof) or otherwise continued in full force and effect
pursuant to the terms of the Change in Control transaction, (ii) such option is
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on the shares
of Common Stock for which the option is not otherwise at that time exercisable
and provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant. However, if none of the foregoing conditions are
satisfied, then each option outstanding at the time of the Change in Control but
not otherwise exercisable for all the option shares shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control, become exercisable for all the shares of Common
Stock at the time subject to that option and may be exercised for any or all of
those shares as fully vested shares of Common Stock.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise expressly continued in full force and effect pursuant to the terms of
the Change in Control transaction.
10.
<PAGE> 43
D. Each option which is assumed in connection with a Change in
Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments to reflect such Change in Control
shall also be made to (i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan, (iii) the
maximum number and/or class of securities by which the share reserve is to
increase each calendar year pursuant to the automatic share increase provisions
of the Plan, (iv) the maximum number and/or class of securities for which any
one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances or share right awards under the Plan per
calendar year and (v) the maximum number and class of securities which may be
added to the Plan through the repurchase of unvested shares issued under the
Predecessor Plans. To the extent the actual holders of the Corporation's
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Change in Control transaction, the successor corporation
may, in connection with the assumption of the outstanding options under the
Discretionary Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Change in Control transaction.
E. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effective
date of a Change in Control, vest and become exercisable for all the option
shares on an accelerated basis and may be exercised for any or all of the option
shares as fully vested shares of Common Stock, whether or not those options are
to be assumed or otherwise continued in full force and effect pursuant to the
express terms of the Change in Control transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall immediately terminate at the time of such Change in
Control and shall not be assignable to successor corporation (or parent
thereof), and the shares subject to those terminated rights shall accordingly
vest in full at the time of such Change in Control.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall vest and become exercisable for all the
option shares on an accelerated basis in the event the Optionee's Service is
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those options do not otherwise
accelerate. Any options so accelerated shall remain exercisable for fully vested
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may structure one or more of the Corporation's
repurchase rights under the Discretionary Option Grant Program so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
11.
<PAGE> 44
G. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effective
date of a Hostile Take-Over, vest and become exercisable for all the option
shares on an accelerated basis and may be exercised for any or all of the option
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Hostile Take-Over, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
Involuntary Termination of the Optionee's Service within a designated period
(not to exceed eighteen (18) months) following the effective date of such
Hostile Take-Over. Each option so accelerated shall remain exercisable for fully
vested shares until the expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plans) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
12.
<PAGE> 45
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Fair
Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option
(or surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender
each such option to the Corporation. In return for the surrendered
option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock at the time subject to such option
(whether or not the option is otherwise vested and exercisable for those
shares) over (B) the aggregate exercise price payable for those shares.
Such cash distribution shall be paid within five (5) days following the
option surrender date.
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(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
14.
<PAGE> 47
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority
to determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or
more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
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<PAGE> 48
A is the dollar amount of the reduction in the Optionee's
base salary for the calendar year to be in effect pursuant to
this program, and
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of such Change in Control,
vest and become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction. Any option so assumed or continued in effect shall remain
exercisable for the fully-vested shares until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a subsequent Change in
Control or (iv) the surrender of the option in connection with a Hostile
Take-Over.
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<PAGE> 49
B. In the event of a Hostile Take-Over while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of such Hostile Take-Over,
vest and become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earliest to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service, (iii) the termination of the option in
connection with a Change in Control or (iv) the surrender of the option in
connection with that Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Change in
Control or otherwise continued in full force and effect shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same. To
the extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the Change
in Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Salary Investment Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Change in Control transaction.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
17.
<PAGE> 50
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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<PAGE> 51
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals. Upon the
attainment of such performance goals, fully vested shares of Common Stock shall
be issued in satisfaction of those share right awards.
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2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Change in Control,
20.
<PAGE> 53
except to the extent (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the express terms of the Change in Control transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Change on Control and shall not be assignable
to the successor corporation (or parent thereof), and the shares of Common Stock
subject to those terminated rights shall immediately vest at the time of such
Change in Control.
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, upon the Involuntary Termination of the
Participant's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
repurchase rights do not otherwise terminate.
D. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part upon the occurrence of a Hostile Take-Over, and the shares of
Common Stock subject to those terminated rights shall accordingly vest at the
time of such Hostile Take-Over.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
21.
<PAGE> 54
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 80,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Shareholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 6,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 6,000-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who joined the Board prior to the
Underwriting Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
80,000-share grant shall vest, and the Corporation's repurchase right shall
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<PAGE> 55
lapse, in a series of four (4) successive equal annual installments upon the
Optionee's completion of each year of service as a Board member over the four
(4)-year period measured from the option grant date. The shares subject to each
annual 6,000-share option grant shall vest, and the Corporation's repurchase
right shall lapse, upon the Optionee's completion of one (1) year of Board
service measured from the option grant date.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Five may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such assignment is in connection with the Optionee's estate plan or
pursuant to domestic relations order. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or the designated
beneficiary or beneficiaries of such option) shall have a twelve
(12)-month period following the date of such cessation of Board
service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all
or any portion of those shares as fully-vested shares of Common
Stock.
23.
<PAGE> 56
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service for
any reason other than death or Permanent Disability, terminate
and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
II. CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Change in Control, the shares of Common
Stock at the time subject to each option outstanding under the Automatic Option
Grant Program but not otherwise vested shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all the option shares as fully-vested shares of
Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Change in Control, each automatic
option grant shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction.
B. In the event of a Hostile Take-Over, the shares of Common
Stock at the time subject to each option outstanding under the Automatic Option
Grant Program but not otherwise vested shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Hostile
Take-Over, become exercisable for all the option shares as fully-vested shares
of Common Stock and may be exercised for any or all of those vested shares. Each
such option shall remain exercisable for such fully-vested option shares until
the expiration or sooner termination of the option term or the surrender of the
option in connection with that Hostile Take-Over.
C. All outstanding repurchase rights under the Automatic Option
Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Change in Control or Hostile Take-Over.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required at the time of the
actual option surrender and cash distribution.
24.
<PAGE> 57
Each option which is assumed in connection with a Change in
Control or otherwise continued in full force and effect shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same. To
the extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the Change
in Control transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Automatic Option Grant Program,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control transaction.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority
to determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
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<PAGE> 59
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service during the
calendar year for which the retainer fee election is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. In the event of the
Optionee's death while holding such option, the option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
27.
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Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control, vest and become exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the express terms of the Change in Control
transaction. Any option so assumed or continued in effect shall remain
exercisable for the fully-vested shares until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Board
service, (iii) the termination of the option in connection with a subsequent
Change in Control transaction or (iv) the surrender of the option in connection
with a Hostile Take-Over.
B. In the event of a Hostile Take-Over while the Optionee remains
in Service, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, vest
and become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Change in Control transaction or (iv) the surrender of the
option in connection with that Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the
28.
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aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control transaction.
E. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection with the exercise
of their options or the vesting of their shares. Such right may be provided to
any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plans, and no further option grants or direct stock issuances shall be made
under the Predecessor Plans after the Section 12 Registration Date. All options
outstanding under the Predecessor Plans on the Section 12 Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control and Hostile Take-Overs, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plans which do not otherwise contain such provisions.
D. The Plan was amended in September 1999 (the "September 1999
Restatement") to effect the following changes, subject to shareholder approval
at the Special Shareholders Meeting to be held on November 22, 1999:
(i) increase the number of shares of Common Stock reserved
for issuance under the Plan by an additional 10,000,000 shares; and
(ii) revise the automatic share increase provisions of the
Plan so that the number of shares of Common Stock by which the share
reserve is to increase automatically on the first trading day of January
each year shall be increased from 3% of the total number of shares of
Class A Common Stock outstanding on the last trading day in December of
the immediately preceding calendar year to 4.5% of the total number of
shares of Class A and Class B Common Stock outstanding on the last
trading day of December each year, beginning with the January 3, 2000
annual increase, but in no event shall any such annual increase exceed
9,000,000 shares of Class A Common Stock.
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No option grants made on the basis of the share increases
authorized by the September 1999 Restatement shall become exercisable in whole
or in part unless and until the September 1999 Restatement is approved by the
shareholders at the Special Shareholders Meeting. Should such shareholder
approval not be obtained, then each option grant made pursuant to the share
increases authorized by the September 1999 Restatement shall terminate and cease
to be outstanding, and no further option grants shall be made on the basis of
those share increases. However, the provisions of the Plan as in effect
immediately prior to the September 1999 Restatement shall remain in effect, and
option grants and direct stock issuances may continue to be made pursuant to
those provisions of the Plan.
E. The Plan shall terminate upon the earliest to occur of (i)
January 31, 2008, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Change in Control. Should the
Plan terminate on January 31, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require shareholder
approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained shareholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
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VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
(i) a shareholder-approved merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction,
or
(ii) a shareholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's
assets in complete liquidation or dissolution of the Corporation,
or
(iii) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or
is under common control with, the Corporation), of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's shareholders.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's Class A Common
Stock.
F. CORPORATION shall mean Broadcom Corporation, a California
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Broadcom Corporation, which shall by appropriate
action adopt the Plan.
G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under Article Two of the Plan.
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I. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program or the Director
Fee Option Grant Program in accordance with the eligibility provisions of
Articles One, Five and Six.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question,
as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be
equal to the price per share at which the Common Stock is to be
sold in the initial public offering pursuant to the Underwriting
Agreement.
M. HOSTILE TAKE-OVER shall mean either of the following events
effecting a change in control or ownership of the Corporation:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or
is under common control with, the Corporation) of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's shareholders which the Board does not recommend
such shareholders to accept, or
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(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election
or nomination. .
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction
in his or her level of compensation (including base salary,
fringe benefits and target bonus under any corporate-performance
based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the
Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
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T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1998 Stock Incentive Plan,
as set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean February 3, 1998.
Z. PREDECESSOR PLANS shall collectively mean the Corporation's
1994 Amended and Restated Stock Option Plan and the Special Stock Option Plan,
as in effect immediately prior to the Plan Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.
CC. SECONDARY COMMITTEE shall mean a committee of one or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
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DD. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under Article Four of the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or, if applicable, (ii) the
highest reported price per share of Common Stock paid by the tender offeror in
effecting the Hostile Take-Over through the acquisition of such Common Stock.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.
LL. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
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OO. WITHHOLDING TAXES shall mean the Federal, state and local
income and employment withholding taxes to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.
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